The Weight of Money

I often get turned around with simple math problems and I used to think this meant I’d never be able to manage my finances. However, lots of patience, double-checking, and perseverance pays off and I’m proud of how far I’ve come in the past 5 years in terms of managing cash flow.

When I added the Credit Card Debt Reduction meter to my sidebar, I made a mistake in my calculations. Our debt goal is to move from $30,500 in credit card debt to $0 and when I went to update it today, my calculations were telling me that we were doing worse even though our debt had reduced by $5,000 – obviously there was a problem. I realized that I had failed to factor in the fact that I was counting down to zero (not up from) and that inverted the percentages.

The problem is fixed and I’m proud to announce that we’ve accomplished 53% of our goal and now have a credit card debt of only $14,336. I’ll update the numbers every other month or so, because the monthly reductions usually are not great enough to recalculate the numbers for each time. November was a special reduction month because of the special found money that was put 100% to debt reduction.

Also, I’ve updated our home savings and the percentage has gone down. We’ve not touched the money; it was never $2,500 to begin with. The partner and I each have individual savings accounts that equal about $10,000 and we will certainly make use of those funds, as needed, for a house purchase. However, since our joint savings account is starting from the ground up and I want to start tracking its actual progress and not factor in any dedicated contributions from our individual accounts. I’ll also be updating this meter every other month since, unfortunately, it too moves at a snails pace.

These are all just small steps to help shape our personal and financial plan for 2007. This is a great week to get all of those ducks lined up and accounted for.

These are real numbers that served up a does of reality-shock. Maybe others will think of these numbers when they are planning to carry a putchase on credit.

Relevant Factors: the numbers start with a ‘beginning’ balance of $34,340.20 and an average interest rate of 16.65% in January 2000. Purchases were continually made throughout this time. 9 months of data, including payments and balances, are missing from these records.

* six months of data missing
** three months of data missing

Important: These numbers are not representative of a debt reduction plan. New purchases were continually made – about $48,000 in new purchases if my math is right – and this is simply a record of overall activity.

In 6 years, the credit card companies have made $28,063 in interest – ouch. Imagine if the partner had only paid the minimum payment required.

Kudos: In light of these numbers (or to break out of the shadow of them), I want to point out the recent strides the partner has been making toward debt reduction. When we first started getting serious about the long term potential of the relationships, his credit card debt was $30,503.71 – a number I almost decided was too high for long term partner potential. However, he was taking action to reduce that number and continually increased those efforts. As of the month of the wedding, the debt was down to $20,835.39. As of October, the credit card debt is at $18.861.

The chart above is just for reflection and consideration. It is also evidence that you can’t hide from the numbers and long term debt relationships are financially draining.

I’ve written about saving money with a telephone call and it is time to do it again; this time I’m calling credit card companies for a reduced interest rate. Tackle your credit card interest rates routinely! It will make a difference.

I’ve called the partner’s credit card companies at least 3 times in the past year. I usually wait a couple months and try again to get a lower rate. With found money on the horizon, we’re planning to pay down debt and want to pay off the higher interest rates first.*

In March I called and got the following results:
Card #1 - 17.24% reduced to 12.49% (variable)
Card #2 - 18.45% reduced to 9.97% (variable)
Card #3 - 17.99% reduced to 13.99% (fixed)
Card #4 - 18.47% was increasing to 23.24% and they refused to budge.

Yesterday the rates were:
Card #1 - 13.24% (variable)
Card #2 - 10.82% (variable)
Card #3 - 13.99% (fixed)
Card #4 - 24.24% (fixed)

Clearly, variable rates tend to vary upwards. I choose to take the variable rates because I have the discipline to call and get it reduced when it starts inching upwards. If you don’t want to take the time to make the call, the slightly higher fixed rate may be your better option.

Today I repeated my calls to two of the cards. I’ve been very frustrated with #4 because they have refused to reduce their rate the last two times I’ve called. I gave them a final chance today and they finally responded.

Today’s results:
Card #3 – 13.99% reduced to 12.99%
Card #4 – 24.24% reduced to 8.74%

As you can see, Card #4 did not want to lose our business. The partner has had most of these cards to 10+ years and has always paid on time and has excellent credit. So, the ultimatum strategy finally worked. However, I feel that the strategy worked because we’ve paid $7000+ toward this card since the beginning of the year. It is actually our lowest balance card and the one with the most aggressive payments.

I haven’t decided if I’m going to call card #1 again or not. I got a good reduction in March and turned down in June or July when I tried again. I will call card #2 if I have the time but I am not going to stress over it right now.

So, next plan of action is to decide what to do about the upcoming found money. I’m thinking that throwing it at the highest rate and then possible transferring the balance to another card with a 0% rate for 6 months and a 3.96% fixed after 6 months. I’ve never done a balance transfer and that’s content for another post.

Important: Make the call! It is not complicated and the worst they can say is No, the best they can do is reduce your interest rate by 64% (see above) or more!

* In response to the higher interest rates/smallest balance debate - we hate to throw away money and that is what we are doing when we carry high interest rates. Many people argue that paying off the smaller balances first adds encouragement and makes peole stay motivated to reduce debt. We don’t need the motivation, we’ve got it, and we’re gonna make every penny count.

I needed to call about consolidating my last two student loans before school let out. I didn’t.
I needed to call about consolidating my last two student loans before July 1. I didn’t.
I needed to do this, I didn’t, and now it will cost me more to pay off my student loans.

I finally called, and despite my mistaken notion, it is not possible to add my two unconsolidated loans to my consolidated loan for without changing (raising) the interest rate.

I must now figure out if it is worth it to consolidate them anyways or not. In all my calculations, I either save or lose about $300 in the life of the loan if I consolidate. My monthly payments would be only a few cents lower, but I would have the advantage of sending one check to one place every month.

My current consolidated loan is at 2.875% fixed — it amazes me to have such low interest.
My unconsolidated loans are at 6.54% variable each year — a little more consistent with current interest rates.

My options, at the moment are:

1) Consolidate all loans and end up at 4.125% fixed and send one check to one place.

2) Consolidate the unconsolidated loans together and then have one consolidated loan at 2.875% and one at 6.54% and send one check to one place.

3) Do nothing right now and wait to see what interest rates are going to do next year and send two checks to two places in the meantime. A lot can change in a year for interest rates.

I’m not sure what I am going to do. I find a lot of value in sending one check to one place and so the consolidation offers a lot of benefit. One benefit to having two separate loans is that it would be easier to make additional payments to pay one off sooner. If I consolidate them, either into one loan or two separate consolidated loans, it will be more work to make additional payments (to pay one off faster) and would allow more room for error on the processor’s part.

Current plan of action: nothing, I’m going to mark my calendar to think about this again in October 2006, a month before my grace period ends.

Oh, good news is that I found out that I have about 5K less in school loan debt than I thought. Looks like my networth will get an instant boost mentally though not actually since I never owed as much as I thought to begin with.

I wanted to take a moment to commend the partner on his recent accomplishment of having all credit cards at less than 50% utilization. This has been a goal of his these past few months and it has finally happened. Seeing as how most cards were above 50% and at least one was above 70%, this has been a big improvement in the past few months.

The house saga is continuing, but I don’t have enough time to get into it right now. I’ll just say that I’m feeling a little shaky about everything right now.

I’ve been reading a book by The Motley Fool and one point is made time and again, we should not be investing if we’re carrying debt (mainly credit card debt). Now, I can understand this logic but it is so hard for me to accept that we’ll have to wait another 6 months to start investing if we follow this logic. I’m not suggesting that we put all our cash into stock investments while paying minimums on the credit cards, but I would like to be tackling both objectives because of the long term benefits I see for investing.

Now, maybe we should just spend the next few month kicking some serious debt behind — more than what is already being accomplished. Maybe I’ll just pick a few stocks and play the hypothetical stock market game of tracking how they do — however, their success or failure in the short-term is of little interest because it is the long term value that I am interested in. The partner currently pays about $1,000 above the min. payment required on credit cards and we’re making some honest progress. I would like to see that number wiped out along with my student loans, but I’m not sure I’m comfortable with starting retirement/investment planning until they (credit cards, student loans are not high on my list right now) are.

Warning: Tangent

In other news, due to housing progress I had to pull almost everything out of my savings account for paying closing costs and down payment. While I knew this was going to happen, I’m all out of sorts realizing that the money I’ve been saving for the last few months is now gone. And, to make it worse, I had to write a gift money check to the partner and actually put it in his account (ack!).

His credit qualifies us for a good mortgage and so he is getting the financing on his own (my credit is shot right now) and so he needs funds to make it happen. It really freaks me out to (1) taken it out of savings, and (2) have given over and beyond my control. So, I think we need to get cracking on the joint finances thing because I’m going to be a wreck at the idea that my money is no long in my control. For the record, we’re not married yet and I still feel like it is my money.

I’ve suggested that we walk over to the courthouse and just file the legal paperwork stating we’re married and I’ll feel much better — which makes me think I’ve got some unexpected issues cropping up about this combination of love and money. I think we’ll talk about it this weekend and go ahead and merge finances since he now has a large chunk of mine — the “we” thing isn’t an issue, I just don’t feel that we’ve got join custody of our finances and, because of that, letting go of some of my cash feels very scary all of a sudden (plus the “oh my god, we’re signing on for a huge debt” freaking out that happens with buying a house).