What to do with a 0 balance card

Well, the two new credit cards that I wrote about earlier are up and running. I put 100% of the available credit from the first one (Citi, $1,600, 0% on balance transfer for 7 months) and 65% of the second one (Discover, $3,600, 0% on balance transfer for 12 months) toward the balance on the previous card (Bank of America, 19.9% interest). I put $300 from my tax refund immediately to the Citi card, and $178 to the BA card, bringing the balance to zero. (Don't congratulate me, it's not an accomplishment, it's a machination at this point.)

The question now is, what to do with the BA card. There's part of me that just wants to cancel the account and be done with it, especially since I'm kind of mad at BA that they kept lowering my limit in the aftermath of my house disaster and because I couldn't get them to lower the interest rate on the card. (In case you're wondering, we were never late or delinquent on the card. The only mark against my credit is the short sale of the house.)

However, a quick perusal of some of the PF sites suggests that canceling this card might be counterproductive, since it's my longest-standing credit line and it's in reasonably good shape - and, now that it's at 0, it helps my credit utilization percentage, which is one of the elements of the FICO score (and which is pretty high on the balance transfer cards). Here's a couple of representative examples: Frugal Dad, "Closing Credit Card Account Affects Credit Score," and Rich Credit Debt Loan, "Why is it Bad to Cancel a Credit Card?" Money quote:

When you end up closing out open accounts, then those credit lines will no longer be factored into your good credit ratio, and so you are going to be upping your debt ratio in a bad way. This is a silly thing to do and is going to end up costing you in the end.

Well, I don't want to be silly. On the other hand, there's this, "10 Reasons for Canceling Credit Cards," from Dollar Stretcher. I am not in the market for a house, and it will probably be some years before I am (due to both the black credit mark and our inability to save a down payment while we're paying down debt). I hate feeling like I'm jumping through hoops for the FICO score, but on the other hand, I don't feel the need to damage my standing unnecessarily either.

The other major consideration in this is if I feel that I won't be able to resist credit temptation. Right now I'm feeling pretty good on that front, the cards are all in the underwear drawer and I'm pretty motivated to get out of debt, I'm happy to have this card at zero, and anyway I have other credit cards available to me now, so getting rid of this one isn't going to save me if I am not to be saved.

So the conclusion is: this card will get cut up, but I'll leave the account open. As (b'ezrat Hashem, ptui ptui ptui) the newer two cards get paid off, I'll cancel those accounts - those are shorter term and so canceling them won't have the impact on our credit that canceling this one would. When, somewhere down the road, we get to the point that we want to have the use of a credit card, we can decide then which one to use.

But whether the account is open or closed, it's important at this stage for us to treat the credit as though it's not available.

Prioritizing student loan debt

Via Frugal Dad, I found this post on the question of whether one should save money for a house while one is still paying off student debt. I think the post is directed at people who are younger than me, but in any case he said sure, why not, on the idea that the increase in the house's value over time would more than offset the additional interest on a student loan. Dad's comment was "Personally, I would pay off the loans first."

This, or rather a variation of this, is an important question for us. Not the house part, really, because I have neither the savings nor the credit to buy a house at this point. Nor the inclination, really. The assumption that a house is going to increase in value at some predetermined or predictable rate is a false one, as I and hundreds of thousands of others have learned.

But the question of how quickly to pay off student loans is an interesting one to me. Dave Ramsey treats student debt the same as any other debt, to be avoided and, when incurred, to be paid off "with gazelle-like intensity" as soon as possible.

As you know, our gazelle-ness is right now focused on our CC debt. The Good Lord willing and the creek don't rise, that will be done in early '12. If I were to take the entire snowball at that point and put it toward my student debt, it would be paid off in '15, according to my spreadsheet.

But I'm unlikely to do that. We have virtually no savings at this point, and our gazelle-itude in dealing with consumer debt is precluding saving for the inevitable car replacement, or for retirement or college or anything else, really. We're still not in a position where we can get our kids braces, for goodness sakes.

I'm on the income based repayment plan, which means they take 15% of my gross income for my student loan repayment. According the recently passed student loan reforms, that percentage should go down to 10% in 2014. When and if we get to the point that that's our only remaining debt, maybe I'll ignore the change and keep it at 15%. But there ain't no way I'm putting 30% of my income into student loan repayment - the rest is going into savings. It's not even a matter of balancing the interest payments. I just need to start putting something in the bank.

But like I said, there's a long way to go between here and there.

What we're doing with our tax refund

We got about $1900 back from Uncle Sam this year. (Actually it was about $2200, but we had to pay about $300 to Kansas, the bastards.) Here's what we're doing with it:

$1300 went directly into savings. $300 of that will be put aside for kids' summer camps, and the rest will go into the emergency fund. I've decided that we need to have $2000 in the emergency fund on an ongoing basis rather than the Dave Ramsey-suggested $1,000, because DW's salaries vary widely on a monthly basis and we need to have some cushion there.

We'll put an extra $150 or so into the snowball for credit card 1.

$65 for the Body Shop face wash etc. that I like (although I couldn't bring myself to spend $30 on the eau d'toilette that I've been been using for years, so I'll have to come up with a new alternative there). About $100 for a new pair of glasses for DW, and about $60 for a new pair of shoes for me. It's getting embarrassing, frankly; the uppers are starting to pull away from the sole.

About $80 to replenish the liquor cabinet after Pesah. (Two bottles, a box of wine and a 12 pack of beer.)

$25 donation to the Sierra Club, and $50 to the Sisterhood camp scholarship fund.

Whatever's left over will probably go toward some overdue maintenance on my car.

See? Riotous living.

Pesah post-mortem

My friend Sallie W. points out that now is the time to go to the grocery store and stock up on all those Passover items that are now marked down - cake mixes, cans and jars, etc. The corrollary to the mark-ups in the prices of such items that take place leading up to the holiday is the markdowns that take place after it. Actually, here in Wichita I'll wait another week or two - I looked in on the section yesterday and most everything was only slightly marked down; in a little while longer, when Dillons really needs to free up the shelf space, discounts will be much more significant. Last year Passover gefilte fish was marked down about 75% about a month after the holiday, and you've never seen a happier man than I was that day, let me tell you.

I can also say that we did pretty well with keeping our Passover-related spending under control, and the basic reason for that was that we didn't worry too much about hekshers (kosher certification). I know this won't be very helpful to people who are more observant than I, but I've more or less decided that kosher certification is a rip-off, and I'll eyeball ingredients lists to make sure something doesn't have wheat etc in it, but after that I don't worry about it too much. And those little "made on the same equipment as wheat and nuts" legends that have appeared in the past couple of years are very helpful in this regard.

During the week of the holiday we ate a lot of leftovers from the seder, of course, but one night I made a matzo-meal polenta from the NY Times Passover cookbook, another night I made a matzo lasagna, and aside from a quick run for apples we didn't go back to the grocery store all week.

Yesterday was replenishment day, and for the first time I went to Aldi's, which is probably worth a post of its own but was a revelation, let me tell you. Last week on NPR's Talk of the Nation there was a discussion about Walmart moving toward local produce, and it was so convincing I brought it up to DW, who said that she would much rather me start by going to Aldi's than to Walmart, which we pretty much consider a source of pure evil.

Anyway, a shopping trip that would have cost nearly $200 at Dillons cost about $60 at Aldis. Comparing the brands that I got there with some of the stuff we still have in the cupboard, the things look very similar both nutritionally and in terms of ingredients, but it's cheaper, what can I say. They don't carry any organics or the fake meat products that we like, but for cereals, canned goods, pasta and some other staples, it looks like it will be a regular stop on my shopping circuit.

I'm dreaming of a 0% balance transfer

After opening the Citi card that allowed me to transfer $1600 of my $5300 cc debt at 0% (from 19.9), I figured that if I could transfer part of it, maybe I could transfer all of it.

First I went to Prosper.com, which is a peer-to-peer lending site similar to Lending Club, which you may remember I couldn't use b/c they don't lend in Kansas. Well, after filling out the whole Prosper process (you fill out your info as if you're applying for loan, which you are - ss #, employer's phone number, the whole 9 yards - and they run a credit check on you and then bid out your loan) I was told that the best they could offer me was $7500 at upwards of 28% interest. Usury! I don't want to tell you what my response was to that, except that it rhymes with "truck poo."

So I went back to the suggestions on the various frugality sites and what I came up with is a Discover card that will let me transfer the remaining $3600 from card #1 at 0% for a full year. These two transactions will save me upwards of $700 in interest payments over the next year+, and even if I make no additional snowball payments this particular debt will be paid off one year from now.

I'm not sure what warrants giving a guy with a house default on his credit record $5200 in new credit in a little under a week, but it works for my purposes so I'll take it! I have to assume that they think I won't be able to get out from under during the grace period and they'll have me on the hook for a rotating 20% a year from now. Needless to say, this whole thing depends on a) getting out from under during the grace period, and b) no additional debting. DW and I have been talking a lot about this, and I think we're finally there.

Rock and a hard place

So get this - DW needs to tell her jobs now what hours she wants over the summer. Summers are usually hard because teaching hours are limited, but like I said before, we depend on her income to help make ends meet, so we want her to work as many hours as she can get.

Thing is, the kids get out of school in late May and go back in mid-August. So what are we supposed to do with them during the summer while DW's out working? DK1 is going to sleepaway camp in for three weeks in July, and the other two have two weeks of Jewish Federation day camp and DK2 has an additional 2 weeks of specialty camps, and let's say I'll take a week off sometime during that time, so... that leaves about, oh, 9 weeks to fill for each of them.

Of course, the Y has a camp, which is about $100 per kid per week. If DW works as much as she could realistically work - just for kicks, let's say 40 hours - she'd be pulling in enough to pay for the camps and have a little left over for regular budget items. If she doesn't work full time - a more realistic possibility, given past experience - then she would barely, or possibly not even, be paying for the camps, with none left over for that all important ends-meeting. Of course, if she doesn't work, we don't have the camp expense, but ends don't meet either. Quandary, no?

So... what would you do?

In Cheap We Trust

As part of my ongoing effort to read every book about frugality and simplicity in the English language, I recently finished Lauren Weber’s In Cheap We Trust: The Story of a Misunderstood American Virtue. This is definitely on the intellectual side of the spectrum, and well worth it for anyone who wants a comprehensive of American frugality (history of, attitudes toward) as well as an overview of the ongoing arguments on the subject.

The book starts out as a history of American attitudes toward thrift, which has the strongest of pedigrees, starting as it does with Ben Franklin, founding tightwad. Franklin's attitude, of course, was that frugality is the way to wealth, and strains of this come through American history, through to Dave Ramsey today who basically says the same thing. Other historical highlights include the 19^th century “world’s greatest miser,” Hattie Green, who supposedly allowed her son’s leg to be amputated rather than take anywhere but the free medical clinic, and the “School Savings Bank” movement of the early 20^th century.

Weber also traces the transition a consumption-based economy and the resultant overturning of thrift as an American value, as in this quote from the self-help book Mrs. Consumer (1929):

There isn't the slightest reason in the world...why, for instance, bread crusts and left-over portions of breadloaves should be on the conscience of Mrs. Consider because she doesn't make a bread pudding or French toast out of them as foreign housewives do. Or hash out of yesterdays roast beef. Or dust cloths out of old undergarments,; or pantaloons for son out of father's cast off suits – and so on ad infinitum.”

Which, Weber points out, was “a 180-degree reversal from the official dogmas that had dominated advice to women a hundred years earlier.” And that is basically the tension that has been evidenced in American life since then – the tension between the Franklin “savings leads to wealth” and the “don’t worry be happy” invitations of businesses and the consumer press.

The final few chapters are more think pieces about various issues that are raised by a frugal attitude, such as John Maynard Keynes’ famous “paradox of thrift.” Short version: Keynes famously said that personal savings, while admirable on an individual level, were actually counter to recovery from the Depression, because economic growth depended on consumer spending. Weber points out that money for investing has to come from somewhere, and usually historically it came from personal savings; recently it’s come more from borrowing – on the individual level from loose credit, and on the governmental level from foreign countries, in either case an unsustainable model in the long run.

She also devotes a chapter to the question of whether frugality is some kind of mental illness, an anal retentiveness or guilt that evidences an inability to enjoy life. She points out that some research shows that frugal people may actually be more mentally healthy than their spendthrift peers, showing better self-control in other areas as well.

A topic of particular interest to this blog is chapter 4, “Cheap Jews and Thrifty Chinese,” which traces the stereotype of hyper-frugality that has followed these two populations in America. Jews, of course, also had the stereotype of the avaricious banker to contend with, which was supported by Henry Ford in his newspaper The Dearborn Independent in the 1920s, as well as the clueless-social climber stereotype which was evidenced (although Weber doesn’t mention it) in the Great Gatsby. Weber:

The character of the obsequious and avaricious Jew, like all stereotypes, was woefully exaggerated and largely untrue. It required the gross flattening out of reality – a reality in which many Jews struggled, worded hard to gain a modest hold on success, and generally lived unassuming, respectable lives.

Every synagogue in the Midwest has a dozen people in it whose grandparents were in retail in some small town and were likely the only Jews in that town. So that was how the townspeople experienced Jews, but by and large these were honest, hardworking people trying to make their way in America, which they did fabulously successfully, as evidenced by the doctors and lawyers their children have become.

All in all I recommend this book, for its historical overview, for its intellectual depth, and for taking seriously the urge not to splurge. One final quote:

Just as Americans imagined until recently that we inhabited a world of unlimited credit, so we have also been enjoying a sense of entitlement and false confidence about the natural resources that support and sustain us. The United Nations recognized this a while back; its 1992 report “Agenda 21” cautioned that “the major cause of the continued deterioration of the global environment is the unsustainable pattern of consumption and production, particularly in industrialized countries.” That’s why cheapness – buying less, blocking out the message that spending equals happiness or patriotism – can help us solve not just the economic insecurity of our time, but the environmental insecurity as well.

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