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.

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?

I'm sick of debt

I'm writing today from a place of frustration. I have been pursuing what I think of as a fairly simple and frugal lifestyle for quite a number of years now. I can remember discovering the Tightwad Gazette while I still lived in New York, which is over 15 years ago. I don't buy expensive clothes or a lot of video games or fancy electronic equipment. We have two cars: a 12 year old beater and a 6 year old slightly-less-beater. We very rarely eat out. We don't go to movies very much or other entertainment unless someone gives us tickets. I don't really even give that much to charity, in the great scheme of things. I have thought and written about frugality and sustainability extensively and have tried to apply most of the low-hanging fruit principles of the frugal lifestyle to my own life.

Yet we continue to have a hard time staying within our monthly budget, and we continue to struggle to pay down a substantial amount of credit card debt. I don't understand it, and I'm feeling really frustrated about it.

The thing is, while DW's paychecks have been a little inconsistent lately, she's earning a good deal more now than she was last year at this time, meaning things should be getting easier. I put a few numbers into a simple budget spreadsheet last night, and it looks to me like, counting just our fixed expenses and including debt service, we should be running a surplus of a couple hundred dollars every month. But we're not - we consistently have to take money from our emergency fund to make the monthly nut. The conclusion I reach is there are substantial random (unbudgeted) expenses that are hurting us. And I'm not even really sure what they are.

The reason I stopped working on this blog was because I felt that I didn't have anything to teach anyone because I wasn't getting anywhere. I picked it up again because just letting things go on this way is not going to solve my problem. DW and I have to raise the level of seriousness with which we think about and address this problem.

The first step has to be figuring out where the money's going, and getting to the point where we're living within our monthly means. This means squeezing our monthly expenses, such as canceling cable and changing auto insurers, but is also means figuring out where we're spending this mysterious money that isn't in the monthly plan.

The second thing (well, a related thing) would be to build our emergency fund back up to about $2,000, so that extraordinary expenses - such as auto repairs - don't have to go on the plastic.

And the third thing is paying down this damned credit card debt. I went back and looked a previous posting I made about the debt snowflake, which is where you pay the minimums on all your debts except one, and you put all extra available funds into the highest priority debt. At that time (October 2008) our two cards had about $7,000 each on them, and I predicted that if I followed the snowflake program the debt on the highest interest rate card (mine) would be retired by ... June 2010. Well, I'm here to tell ya, it ain't gonna be. As of March 1, my card at about $5,700, and DW's is up to almost 9. So we've essentially gotten nowhere in a year and a half. And it's because we keep putting non-fixed but reasonably expectable expenses - kids' clothing and shoes, car repairs - on the card. And I of course debted the equipment for the TV transition.

I redid the snowflake the other day, and it's basically the same story as it was the last time: if we do it as prescribed, and maybe throw in another month's payment with our tax refund, my card will be retired in a year, and DW's a year after that. That of course depends on not using them anymore.

To recap, here are the steps:
1 - get our monthly expenses under DW's and my combined income, including debt service and the snowflake payments, and including reasonably expectable ongoing expenses that we've been putting on the cards. This will have to be a combination of squeezing fixed expenses and figuring out and eliminating all the pissy little expenses that don't present themselves so easily.

2 - build the emergency fund back up to $2,000 so there's a some leeway for larger extraordinary expenses such as car repairs.

3 - Discontinuing use of the credit cards and paying them down with the debt snowflake method.

The thing is, when I look at what's supposed to happen after the two cards and DW's car are paid off, there's actually quite a bit of money there, even with ongoing payments on my student loan debt stretching off to the horizon. We make a decent, middle-class salary, certainly enough that we should be able to save a little money and even buy stuff with cash once in a while. Right now, that has to be the goal - and we need to get serious about meeting it.

Personal Finance Update

Well, obviously I haven't blogged here much for a while, although it's interesting that the site gets a small but fairly consistent number of hits even in the absence of new content, more so than my other blog so what do you know about that? Anyway, I've been thinking of trying to get some more content up here, but don't want to make any promises I might not be willing to keep!

I thought I'd give a little update on our family financial situation. The big important news is that DW is working more consistently now. She has a job as a para at an organization that works with kids with severe communications difficulties, and although the pay isn't great she's working a good number of hours, 25-28 most weeks. Then she's still working at Sylvan learning center 4 hours a week, as well as teaching Hebrew school. So there's some more income there.

What this means is that we're more or less breaking even every month, so we are no longer consistently digging into reserves to make the nut every month. That is good news. The ability to pay down debt hasn't really magically appeared, though.

I consolidated my student loan with the Department of Education because there's supposedly a new provision that if you work in the non-profit sector your loan will be forgiven after 10 years. I had to give an income statement to qualify for it and because of DW's increased income our payments actually went up, which threw our budgetary balance off a bit. Unfortunately it's 10 years from the refinance and not from graduation so it's almost like starting from scratch, and who knows if this provision will even exist in 10 years?

We still owe a touch under $6K on my card, which is 19% interest, and almost $9K on DW's, which is at about 10%. Getting them down has been tough; mine was a little under 5 at one point but then my car needed almost $800 in repairs so there went that. We also owe about $10K on DW's car (dumbest purchase ever made, next to the house) and of course there's my ridiculous $60K student loan, which I prefer not to think about. We pay $400 on my card, $200 on DW's card, $340 on the car and $500 on the student loan every month, meaning that, as ever, debt service adds up to about 1/4 of our monthly income.

Given that we're at the break even point and can't expect any more income we really need to find some place to cut expenses if we want to dig out any faster. (Plus, DK1 still needs braces.) The likely candidates for excision seem to be cable TV and my old frenemy, the Sunday New York Times.

I was intrigued by this story in the Times about watching TV without cable - not rooftop antennae, but rather streaming either from your internet connection or through a device such as a Boxee. There's a small initial investment involved but after that it's essentially free unless you up for some premium content (like baseball), but even then it's a lot less than cable.

My man Phil P. is a tech guru and he tried to dissuade me, saying that cable was more predictable in terms of both content and technology, but that $50 we're spending every month is looking mighty enticing. We never had cable before we moved to Wichita and DW would be just as happy to be rid of it, believe you me. She thinks I'm watching too much TV, and most of what I want to watch (Colbert, for instance) I can watch on-line anyway. So it might take me a couple of months to work out the technical arrangements to a level of comfort, but I think that's the way we're going to go.

As for the Times, the land subscription gives me full access to their website, which is good, and if I call them to cancel they'll just offer me a discount for a couple of months, which is what they always do when I get to this point. And I do love it, it's like the only thing in my life that reminds me of my connection to New York. Still, it's $32 per month, which is a lot.

I did raise my payment on the car by $40 a month in the hopes of saving myself a little interest on the back end.

On the plus side, our housing situation is stable, the people who own it aren't going to be back for an extra year, which means we could be here for 4 or 5 years, or longer than we lived in the house in Illinois. (This is probably a topic for another day but I am not eager to get back into the homeowning thing after our experience there, not that I have the credit to now but if I can live in a nice house for rent and have someone else make the repairs why would I do otherwise?) I'm enjoying my work and of course the longer we stay here the more I meet people in town and the more interesting things I get involved in. I'm blogging for a political site now and that's gratifying. But I sure do wish we could work off this debt and get on the upside for a change. That's got to be more important than the Sunday Times, right?

Debt snowflake

There's a concept in the on-line frugality community of the "debt snowflake." I think it was developed by Dave Ramsey, but I found out about it through Get Rich Slowly, which is about my favorite of the many frugality sites on the net these days. As explained here, the idea is that you set a certain amount to apply to your debts every month above the minimum payments , and all of that extra money gets put into one priority debt: it could be highest interest debt, or the one with the lowest balance, which seems counterintuitive but the idea is that success at eliminating "low-hanging fruit" will be a positive reinforcement toward continuing to pursue future goals.

Then, whenever you come into some money - whether it be a repaid $5 loan from a person at work or a tax rebate check, a high holiday pulpit, whatever - you apply it to the priority debt. That's the snowflake, which builds, presumably, into a snowball. This gets the priority debt down faster, and then once you have paid off that debt you take all the money you've been paying toward that debt and apply it to the next priority debt, and so on.

It sounds pretty smart to me, so I've been trying to adopt it for the past several months. I also found, probably through GRS though I don't really remember now, software for an Excel spread sheet that helps make this a visible, workable plan. You load in all your debt numbers, interest rates, and the amount you pay each month, and prioritize which debt to attack first, and it figures out how long it will take you, and how much money you will be able to apply to other debts once the priority debts are resolved. There's a place for you to enter in any additional money that you can snowflake, and it automatically readusts the calculations to take that additional money into account.

So I have 4 major, priority debts: two credit cards of about $7,000 balance each, one at 19.9% interest and one at 13%; a car payment of $340 over 72 months, which we're a little more than 24 months into; and about $7K to one of my brothers-in-law, which was mostly to buy our way out of the house in IL. (I also have my student loan debt, which is $400 / month but which I'm leaving off here for right now because the interest rates are low and the other debts are higher priority.) Given that there isn't any one particular debt that has a significantly lower balance than the others, I'm prioritizing the 19.9% credit card. So I pay $400 monthly to that, $200 to the other card, the $340 for the car, and $100 to the brother in law.

According to the calculations, if I don't incur any additional debt, the first card will be paid off in June of 2010, and the second one, taking into account the additional $400 per month that I will then be able to add to the payments, will be paid off in January of 2011. Then we apply the two additional amounts to the car payment, etc. etc. If nothing else changes, these 4 debts (again, leaving aside the student loan) will be resolved in November of 2011.

Which doesn't really seem that far away, when you think about it. The problem, of course, is that many things will happen between now and then to complicate these calculations. We have the looming orthodonture issue that I wrote about earlier; we want to send DK1 to Jewish summer camp next year; and we have a bat mitzvah on the horizon for August of 2011, right in the middle of all of this. (Stay tuned for a large expansion of the "frugal bar mitzvah" tag starting in about a year or so!) We also haven't been saving for retirement or for college for over a year now, since we got to Wichita.

I suppose the unexpected could happen in a positive way as well, such as DW getting gainful employment which would allow us to raise the numbers, or at least not add to them because of tight circumstances. Right now we have about $2500 in our savings account, which means we wouldn't have to go to the credit cards if we had an unbudgeted expense, such as needing to do a repair on the car, for instance.

So it is what it is, it seems like a good tool, and I think in this case it's useful to have things written down. It makes the thing less liable to vagaries of my mood or the balance in the checkbook. I'll let you know down the road how it's working out.

Oh, and one other thing: every once in a while I find myself moaning because things are tight at the end of the month and it seems that we're not being frugal enough. But one thing I've realized through paying closer attention is that I am paying about 25% of my monthly net income in debt service, so it's no surprise that things can get tight. That's no reason to let up, and I still think there are more economies to be found, but I also think relief will have to come on the income side, if you get my meaning.

A bit of a windfall

I led high holy day services for a small congregation in KC. It was fine: they were nice, and I gave them two of my best (and in IL, most controversial) sermons and no-one ran out of the room screaming. Those of you who are hoping that a reasonably good experience will whet my appetite for pulpit work again (DW), don't hold your breath.

Be that as it may, I was paid $3,000 for the work. That's a nice little windfall in a difficult financial time. Here's where I expect the money to go:

$400 to my Visa, in addition to the regular monthly $400 payment I make out of my salary.
$200 to DW's Visa, also in addition to the regular payment.
$300 to pay off my Federation pledge for the year.
$200 for my tax accountant, which is overdue.
$500 (a guesstimate) for routine service on my car, which is also overdue.
I'm probably going to spend $200 or so on some clothes from Land's End, a couple of pairs of winter khakis and a couple of sweaters. Land's End is good value for money, I find.
$100-ish for a rack for my bike, so I can carry my laptop to work without killing myself.
And $800 to savings to make up for the steady attrition in that account over the past several months.
If there's any left over, I may buy a new watch - I'm wearing a $15 job from Target since my nicer one crapped out, but it's not nice enough for someone in a job like mine. We also have a bat mitzvah out of town in November, any additional leftover will go to keeping the expenses of that off the Visa bill.

And thus it goes, like unto a wisp.

Budget woes

A continuing sore subject is DW's and my inability to stick to the budget. I've written before about our challenges in feeding our family of 5 for anything resembling (at least to my mind) a reasonable amount. (I set $450 as a goal but we have a hard time getting through a month spending less than $900, which to me seems crazy.) DW also has a tendency to say, well, we need this and this and that, and run to the store and get it, despite where we are in the month or the budget or whatever. (Although she won't do it if I jump up and down and say we really don't have any money.) The latest one was we got her Visa bill today, we're supposedly trying not to use them but every month on her card there's a $100 or $150 charge from Target for school supplies or clothes for the kids or whatever. We've really been making an effort to pay the cards down but of course we can't do it if I make a $200 payment and she spends $150 on school clothes! Her answer is, well, the kids needed clothes, what was I supposed to do? Well, that's fine, but the money you're using is not real money, and it's interfering with our ability to dig ourselves out of our hole.

Much as I would love to rake her over the coals on this, I really can't because a) she reads the blog and b) I have my own things I spend money on, like the farmer's market and the free range meat guy and building up the liquor cabinet. I have virtually given up spending money in bookstores, not completely but mostly, and I pay cash when I do go. But I am far from a saint on this. Jako got $120 out of me yesterday, it'll last 2 months but still.

I think what we may have to try is to stop using, not only the credit cards, but even the debit cards. I read somewhere on one of the frugal sites that if you carry around the cash with you you're more likely to stick to the budget. So maybe we'll have to try that.

The end of the month

This is the time of month when all spending basically stops - 2 days before payday, at the end of the month. Even since the tax refund came through, we have been bouncing at $1000 rather than at 0, but the principle is the same - no extra money!

Summers are tough because income is lower - we don't teach Hebrew School over the summer, so no extra income there, and DW is the low man on the totem pole at her tutoring job, which means if things are slow there over the summer she doesn't get called in to work. And expenses that we don't usually see come in over the summer as well, camps and lessons for the kids particularly. And the electricity bill is high because of AC. So we were out-of-balance for June.

As far as the food budget goes - I've managed to get the main shopping down to about $150/week, give or take (I have seen some increase in some of the things I buy), but if I go to farmer's market and buy meat or dairy from the farm that can put it over. But I'm pretty clear that I'm trying to balance food activism with frugality, so I'm pretty comfortable with where we are with that right now. I had to skip both of them this week because I was determined to spend no more money until payday, and that's okay too. If I could get the supermarket back down in the $100-110 range it would be better, so that's my goal right now. I sort of have to do that so that we can make it to the end of the summer when the extra income things kick in again. And when J.D. at Get Rich Slowly said that he had gone out to eat 40 times already this year I felt much better, because my number is, oh, 3 maybe.

The major thing that makes our financial situation challenging is debt service. I spend $600/month on credit card payments, $450/month on student loan payments, and $340/month on the car payment. That's more than one-quarter of our monthly net income! If I didn't have all that, opening Quicken would be a lot less nerve-wracking! It seems to me that my life has always been like this. But at least now, I'm not adding more to the credit cards debt, and though it might make today more comfortable to pay less on the cards, I'm determined to keep it where it is so that we can get closer to a tomorrow that's free from all this debt. (This is leaving aside the 400-pound gorilla which is the house in IL - I also have utilities on it that I'm basically ignoring right now but which will have to be paid eventually. )

I had sort-of-ambitious vacation plans that I think I'm going to have to let go, so that it doesn't cost us our entire buffer. So I think we're going to stay close to home this summer - a couple of nights in KC, a couple of nights in Lawrence, maybe we'll go see the farm.

So I didn't go to the farmer's market this week. I made mushroom lasagna last night and it was good! We're not overdrawn this month. I'm broke today but for once in my life I have money put away if something goes wrong. I guess I'm on the good side of the knife's edge right now. And I get paid Monday.

Yippee!

The tax refund came in today. Since I no longer have a pulpit, I expect this will be the last of the major-league tax refunds (upwards of 3K) that I'll be getting. (There are a couple of major tax breaks that pulpit clergy get that ordinary mortals don't, and also since I won't own a house anymore - one way or the other - there won't be much in the way of itemization).

I've mentioned that we've been having trouble making ends meet. In part this is because I've been attempting to put the pedal to the metal in dealing with some of our debt. So here's what happened to the new money:

$1,000 into savings, to provide an overdraft cushion. (We had to use what we had there this month to cover Pesah expenses.)

I doubled what we've been paying monthly toward credit card debt - I paid off the Banana Republic card, which was small beans but a high interest rate and according to the debt snowflake model you should deal with the lowest balances first.

$400 to DW's card, $800 to my card. (Her's has a lower balance and a lower interest rate.)

$200 toward my Federation pledge (mustn't forget our tzedakah!)

That about does it. The rest of it will go to the rent, and a little cushion until DW's part time jobs start paying. When I get the so-called stimulus check, I may make an extra payment on our car loan. I'd also like to bolster our savings a little bit more. But our highest priority are the credit cards.

A little of the story...

I had a pulpit job in the Chicago area, starting in 2004. We bought a house, with no money down so the payments were high but the interest rate was pretty good and it was fixed. In 2007 my contract was not renewed, and I tried to find work in Chicago but couldn't. We put the house up for sale in February of '07, and as the whole world knows by now the real estate market completely crapped out and we were not, and still have not been, able to sell it. The family moved to Wichita for my new job. We've attempted to sell by cutting the price, finally so severely that we were not going to get as much out of the deal as we owe the bank. (We didn't even get an offer until we did this.) So far the bank has not accepted the best offer we've been able to get, so foreclosure is the next thing. So part 1 is the story of my financial ruin-by-real estate.

Part 2 is that I'm making less money now than I did in Illinois, and Dear Wife has only just started working a part time job. We're renting, and it's less than it was in IL but not all that much less. I have a large amount of fixed debts - a car payment, a student loan payment that I will be paying till retirement, insurance of various types. We also have acquired a substantial amount of credit card debt. I realized recently through the use of budget software that we're _barely_ making ends meet. So that's part 2.

We really don't buy very much. We almost never eat out. We did get cable when we moved here, because we could only get 1 channel (count 'em!) on broadcast with the electric rabbit ears. I also have netflix. I may spend, I don't know, $10 or $15 a month on magazines.

Many of the things that would be suggested I already do. DW is working a PT job and will probably get another one before too long. We've stopped using the cards and are trying to pay cash for everything. It seems weird to be 45 years old and wonder if one can really afford cable television. I mean, it's not a boat! The only thing I have to show for all this debt is an expensive education and a van. It's not really happy days financially around here right now.