Evgren Says – Why You Need Savings Even When Paying Off Massive Debt

1. Vehicles need maintenance.  Not just routine maintenance, either.  If you keep them long enough, vehicles need tires, and brakes, and tune-ups, and replacement belts and valves you’ve never even heard of – lest your engine overheat and eventually blow – and it’s really only the oil changes that are affordable.  Not to mention that even the the safest, most cautious drivers can get into accidents which unexpectedly total their vehicles and require that they purchase a new one.
2. People get sick and/or injured.  Health insurance or no health insurance, people pick up viruses, and the right ones can turn into pneumonia, or strep throat, or chronic bronchitis, or staph.  Children, especially, tend to bring stuff home.  People can also turn out to have long-term illnesses or disabilities, which insurance may or may not cover.  People may need surgery – replete with deductibles and getting billed separately for every aspirin and toilet flush.  This tends to add up.
3. Appliances are not immortal.  Refrigerators, water heaters, sump pumps, dish washers, clothes washers and dryers, they all give out eventually, and not uncommonly all at once.  Sure, you can live without an ice maker, and you can line dry your clothes, but if your AC gives out in the south, or if you’re living without heat in New England, can you really forgo these repairs?
4. Clouds don’t care about you.  In Hartford, Hereford and Hampshire, hurricanes hardly ever happen, but otherwise, “acts of God’ (aka, weather), tend to strike without regard to debt, or savings, or even trying really hard to reach some financial goal.  You can’t count on the blizzard to push off to the east and hit Altoona, even if that would be easier for you.
5. As soon as you start to feel comfortable, something unexpected will happen.  Call it Murphy’s law, call it luck, call it the law of averages, or karma, or supercalfragilisticsachebealidocious, the label isn’t really relevant.  Life is made up of the unexpected as much, if not more so than, the expected.  If you have no savings, that unplanned for or unexpected event goes entirely on your credit card, or, at best, leaves you scrambling for a way to deal with it. 

Savings may not be able to absorb the sum total of either any one, or any combination, of adverse events, but it will certainly provide a cushion and help to ameliorate the damage.  If you have more debt than you can pay off in a month, even putting your $25 oil change on credit will hurt you – as I learned the hard way – forget about buying a new/used vehicle after an accident, or replacing a water heater, or “acts of God.”

In fact, I might even argue that you need liquid savings even more when you’re paying off debt, because otherwise all of those “unexpected” expenses, which we all know should be expected on some level, will just pour that much more acid on our all-too fleshly plans for repayment.

So, Evgren says* savings too.  Seriously.

*Evgren is not a guru, nor a financial planner, nor the Dalai Lama.  Evgren is not clairvoyant, nor even super-human.  Evgren Says because Evgren has an opinion and a free blog, and any reader is both free to, and should, perform his/her own due diligence.  Evgren is not responsible if the blizzard does indeed push off to the east and hit Altoona.  Or not.  Evgren does like tall trees.

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Controlling Spending – September 2008

It’s not enough to just not charge, in order for debt avoidance to work, I also have to control spending.  Bearing in mind that I’ve only been at this 2 weeks, here are the things I did in September to avoid incurring additional debt and send more cash to the bottom line for repayment of existing debt:

Item or Action – Savings
Cancelled Netflix – $14.99 / month
Cancelled SurveyMonkey Pro  – $19.99 / month
Cancelled old premium blog – $13.90 / month
Converted Audible subscription from Gold to Light – approximately $14.00 / month
Negotiated lower basic cable rate for same service – $6.00 / month
Negotiated lower daycare rate – $20.00 / week
Converted Friday pizza / chicken finger night from Papa John’s to Dijorno and Frozen nuggets – $25-30 / week
Quit buying wine – $30.00 / week
Took kids to McDonald’s after therapy, instead of Applebee’s, and ate my own food at home – $100 / month
Skipped lunch out, 2x per week – $9.00 / week
Overall savings to be realized in October – roughly $501.

Holy crap!  All this time I’ve been thinking I spend maybe $200 – $300 per month, and while that may have been all that went on the card (my lunch, the wine, daycare and cable were all, and have always been, cash expenditures), itemizing it this way has really made me sit up and take notice.

We have an extensive DVD collection, premium cable, and TiVo, so cancelling Netflix was a no-brainer.  The SurveyMonkey subscription was for me for work, because it made my job easier, but the company never reimbursed me for it, so I’m done.  If they want me to have it again, they can subsidize it.  The old blog was not necessary.  Having a branded domain and email for what is, essentially, a vanity project (never even tried to monetize it), just doesn’t make sense when you’re trying to cut corners, so out that went.

My older son has dyslexia.  I converted the Audible from $14.99 per month to $9.99 yearly primarily so I could keep him acquainted with an interest in books that he didn’t have to struggle to read.  I have multiple credits built up, and have only ever purchased audio files for him, so I feel perfectly justified in keeping this for him at the lowered rate.  He also requires therapy twice a week to remediate his disability.  The therapy is difficult for him on numerous levels.  The promise of going out afterward has sometimes been the only thing getting him through it.  But we’ve cut the going out from twice to once per week, he’s perfectly happy with McDonald’s, and I can eat at home.  Better for my wallet and my waist, and he still gets his reward for working hard.

My basic cable promotional rate expired last month.  I have them on autopay and hadn’t realized it until I opened this month’s bill and found it $10 higher than I expected.  I called to find out why it had jumped, and that’s when they told me about the rate expiration.  So, more as a joke than anything else, I asked if they could give me another promo rate.  The customer service rep asked me to hang on, then came back and said she could lower it by $6 per month for a year.  I didn’t expect her to actually be able to do that.  You bet’cha I took it.

My office is converting from a 5-day to a 4-day week, and I’ll be working at home on Fridays.  I’ll have the boys ride the school bus home rather than drive over to daycare to get them.  When I let the owner know about the new arrangement (Evgren’s kids not there on Fridays), I, again sort of joking (but cable lady had taught me to be hopeful), asked if he could lower my rate for the day they weren’t there.  He took off $10 per child.  It’s not much, but he didn’t have to do it at all, and I was more than happy to accept that as an excellent deal for me.

I never did eat lunch out much, but I’ve decided to give up the occassional Wendy’s burger altogether, so that $4.90 for every combo meal I don’t eat.  Pizza Friday’s is a habit we’ve fallen into, but, again, the boys don’t care if it’s Papa John’s, as long as the food tastes good to them.  It was just more convenient for me to have it delivered, or so I thought.  So I spend $4.00 on a frozen pizza and $6.99 on a bag of chicken nuggets that will last at least three week, and I wait 20-30 minutes to cook it all in my own oven instead of waiting for the delivery guy to show up and roll over my flowerbed.  No biggie.

Buying wine was my one big, personal vice.  I used to buy 2-3 bottles per week, sometimes going as high as $20 for a bottle, but mostly looking for highly palatable, $10-$12 bargains.  I paid cash for this – never could justify this hobby on credit – but I haven’t bought a bottle since Panic Day.  I don’t miss it yet; hopefully I can keep it up.

On to things I won’t give up if I don’t have to – Audible, premium cable, and TiVo.  Audible I’ve already explained.  As  to premium cable and TiVo, we already don’t go out to movies in the theater, and I’ve vowed to quit buying DVDs (except, possibly, at Christmas), so our family entertainment nights in the cooler months are going to consist of board games and whatever suitable we can find on TV.  I have one TiVo with lifetime service already, so my second only costs $6.95 per month, and premium cable ensures I’ll be able to capture at least something kid-friendly during the week.  I’m asking myself and the kids to give up a lot of things in a very short span, and we’ll need to have something to look forward to as a family if we’re going to stick with this over the long haul, so I’m hanging on to these for now.

Debt Status September 2008

So, after completing balance transfers to new cards last week, here’s what I owe:

CC#1 - $11,400 at 5.99% fixed for the life of the loan.
CC#2 - $12,999.40 at 0% through February 2010, then converting to 6.99% fixed
CC#3 - $7004 at 0% through October 2009, then converting to 9.99% fixed
CC#4 - $57.47 at 23%
Grand total CC debt = $31,460.40
Utilization – 44.31%

Checking – $1500
Savings – $350

The balance on the CC#4 posted after the transfer, from some recurring payments I had set up and one DVD I had preordered for the kids.  I’ve already got that payment scheduled for 09/30, and then this card will be done.

As it happens,  the card with the lowest balance is also the card that will have the highest interest rate, and has the oldest lingering debt.  So whether I decided to tackle low balance, high interest or age first, it all points to that $7k. 

CC#1 has a minimum of about $230 right now.  I’m going to continue with that.  This will be the last card I pay off.  CC#2 & CC#3 aren’t due until November, and no minimum payments are showing up right now, so I’ve based my initial payment (to be made at the beginning of October – I’m not skipping that month they’re giving me) on the minimums from the higher interest cards.  I’ll be sending $500 to CC#2 and $350 to CC#3, and will adjust payments after I see what the minimum on CC#3 actually is.  I’ve also got a $500 credit check coming from CC#5 (CC#3 transferred too much and left me with a credit there, and I don’t list it because after the credit clears I will not be using it again – certainly not so long as they hold my interest above 15%); that gets applied to CC#3’s $7k as soon as I can deposit it.

All told, I figure I have about $1,112 per month I can put toward the debt right now.  I’m figuring $542 / month to CC#2 and having that paid off in 11 months, before the interest kicks in, with another $325 / month going to CC#3, reducing that principal to roughly $9100 at the time CC#2 gets paid off.  Then I’ll apply the former CC#2 payment to CC#3, and looking to pay that off in approximately September 2010.  Not too long after the interest kicks in.  This assumes I receive no raises at work.  If I do, I’ll add that to the payment.  This leaves CC#1 being paid off in roughly September 2011.

It is three years out of my life, but it’s three years paying back debt it took 8-10 years to accumulate.

I’m only paid once a month, and cable, cell phone, and daycare for the month also come out of that, so it’s difficult to make multiple payments, but if I can, I will.  This budget also leaves me with about $300 / month (after $50 specifically for savings) discretionary spending and health / medical necessities for myself and the kids.  This is after contributing 8% to my 401k.   I can’t forgo that.  The company matches the first 6, and I need the additional two removed pre-tax to keep us in a lower bracket.

Oh, and of course, no more charging.  Payments only while handling my own debt management plan.  If I can’t pay for it in cash, I either don’t need it, must save for it, or it had better be a real, honest-to-Maude emergency.  Needing shoes and/or clothes for the kids is not an emergency; it has to be a planned expenditure.  My biggest spending hurdles are going to be October (both kids birthdays) and Christmas.  I’ve already made some planned cutbacks, and hope to be able to pay cash for most everything (my first ever debit card is coming in the mail soon.  I’ll use that for any online shopping I need to do, assuming I can.)

So.  There we go – the big plan is done.  Now all it takes is sticking to it.

September 2008 – When I Panicked

So, as I said, the two banks I owed wouldn’t budge on their ridiculous interest rates, even though my few late payment s were less than 30 days each and over two years old. 

Though I had transferred $16k to a 5.9% rate for the life of the loan, and had made all payments on time, bringing that amount down to $11k over a year, I was still paying 20+ percent on the two cards on which I was carrying personal balances, totaling almost $20k in debt and rising, with payments greater (by $50-$200) than the minimum, and about $200/month in spending.

I called the two creditors to lower interest rates.  I was current and had been for some time, though, so they wouldn’t budge.  My credit limits were high enough that, even at these balances, I still wasn’t at 50% utilization.  All in all, the banks would keep bilking me with their interest rates as long as I would let them.

So, in freaking out, I contacted both Credit Counseling (Debt Management) and debt settlement programs.  I also spoke with Bank of America (with whom had a balance of $11.5K at 23%) regarding the possibility of a $20k unsecured, personal loan.  They said they’d get back to me in 30 days.  The DMP and DS folks called back within 24 hours, of course.

Credit counseling offered to reduce my overall rate to about 9.5% APR, with a fee based on my first month’s payment of about $400, and repay my credit cards in about 5 years.  BoA and Discover, however, were not willing to be satisfied with the cards enrolled in the program – they wanted my corporate AmEx and my personal AmEx (of which I am only an authorized user, not the actual account holder) frozen, as well.  This was not an option.  My corporate AmEx is either paid directly by my company or reimbursed.  I have minimal travel, but some travel is required and this card absolutely must remain open and available.  To do otherwise could put in jeopardy work in a job that is otherwise relatively safe (I’m the only person there who does what I do right now).  Couldn’t risk that.

I also couldn’t have my husband’s credit affected by this when I was only an authorized user.  While 9.5% was certainly better than 20-23%, I’d have to keep looking.

Debt settlement offered to close out my cards balances at about .60 on the dollar.  They mentioned no fees for doing this – I didn’t get that far.  The last I’d checked, my credit score was still around 700, as soon as they said this would mean closing the accounts and showing years as non-paying, I said no thanks.  I’m current now.  I want to stay current – I just don’t want to pay more in interest than I charge anymore – particularly when I’m only charging $200 a month. 

Not to mention the fact that I do own my responsibility – I ran up the debt; I am obligated to pay it. 

I didn’t even get into the questions of creditors calling every day or filing lawsuits to recoup – all of which I learned about later, after I’d already said no thanks.  Debt settlement is barely a step above bankruptcy, and also apparently costs more in fees.  And this is assuming you get a company that actually does what it says it will do.  I’ve read too many cases in the last few weeks of DMP and DS programs that made promises upon which they never delivered – like the Nigerian email scams, they just take your money and run, leaving you further in the hole than you were when you started with them.  I already had Discover and BoA for that; I really didn’t need anyone else jumping on the bandwagon.

So, as I’m waiting for that BoA personal loan info to come in, I decide I’ll try a few credit card apps, all within 24 hours, to see what, if anything, my 2 years of on-time payments (and only 2-3 30 days late in the last 10 years), and more than minimums would buy me.  I hadn’t shopped for a new card in at least 6 years.  I wasn’t expecting much, since my current creditors, with years of history, wouldn’t offer any consideration, but hey, the worst anyone can do at this point is tell me to go to debt settlement.

It turns out my credit was still good enough (and I was still at less than 50% utilization) to buy me two 0% interest balance transfer cards (one for 12 and one for 16 months) to cover the almost $20K in high interest debt.  That was all transferred over this week.   Oddly enough, BoA, who would not lower the 23% rate on one card, would give me another card at 0% for twelve months (I know, they’re banking on my not repaying it, pun only peripherally intended).   The Discover ($7.5k) went on that, and the previous BoA balance of about $12K went on a new Chase card at 0% for 16 months.

Rates after the promo rates expire will be 9.99% and 6.99%, respectively.  I hope to have the $7.5K paid off in about 11 months, if all goes according to plan.

BoA’s loan paperwork finally came in, and they’re offering an 8.99% unsecured consolidation loan up to $50k, with anywhere from a 5-7 year payback.  After they send me the new card for 0% for a year?  Note to BoA – your failure to have your systems communicate worked for me, but if I worked for you, I’d have some serious issues.

My personal repayment plan and hard numbers will be covered in the next post.

The History of a Debt not Incurred in Luxury

I imagine, given today’s economy, there are a number of blogs cropping up that focus on paying down credit card debt.  Most of us, I also imagine, publish this information to hold ourselves publicly, if somewhat anonymously, accountable.  How is this one any different?  Not by much – only I owe just over $30,000 in credit card debt, my husband I and keep separate finances, I only make $50,000 a year (gross), and he only knows about $11,000 of that debt.

Yes, I do know that this is bad.  Yes, I do feel awful.  Yes, I have trouble sleeping.  Yes, I should come clean.

But I won’t.  Not as long as I can avoid it.

I’ve been over all of the reasons to tell him.  I know I *really* should.  But, realistically, I’m not going to.  Not if I can help it.  I ran up the debt – granted, most of it for the family (as opposed to *for myself*) – but, regardless, I intend to pay it off on my own.  On my salary, as I hold up my end of the standard to which the family has become accustomed; mostly, anyway.

I just made this decision some 2-3 weeks ago, after I finally added up all of the numbers, and figured the interest rates, and added up the interest, and figured at this rate I would never be out of debt, and decided to stop charging anything at all.  It was $40.00 that put me over.  I don’t know if it was silly, or ironic, or just plain sad that it was $40.00 that finally forced me to this, really, I suppose, as that was the last charge to the credit card – for Papa John’s pizza and chicken fingers, no less. 

Bad, bad decision, I hear a few folks saying, keeping this from your spouse.  Yes and yes, and a little bit no, I say.  So a little background to explain.

My husband’s job forces him to travel most of the time - we’re talking 85-90%.  I am not, nor have I ever asked to be – an authorized user on any of his cards, excepting the AmEx, which I have historically used only for gas.  My father-in-law had cancer, and he and my mother-in-law moved in with us while he was dying.  We collected no rent, no supplements for food or utilities; neither of us would ask – but even had they offered I would have refused.  Family takes care of family; clan comes when clan calls, as my mom would say, and given that clan called, we came.  However, my salary, with two growing children and all of their expenses, couldn’t entirely support the calling, and debt ran up on my cards during that time.

We also moved to our current location (out of our previous state) based on career promises made to me that never materialized.  I ran up some debt there, too.

With hubby travaeling, and not using his cards, but, all of the kid expenses – clothes, food, school stuff, summer activities at daycare, daycare itself - have come out of my salary which is easily 2-3 times less than that of my husband.  I’ve also covered the cell phones for both of us (and hubby uses 1000+ minutes per month, getting reimbursed from work and pocketing the money, while I use less than 100 minutes per month), cable, and home repairs.

A couple of late payments on one card, and they *all* jacked their rates up to the default, even though the others were current.  I was such a credit ignoramus – I had no idea about “universal default.”  I called to get those rates changed years ago when they went up – no dice.  I’ve been paying upwards of 30% interest on two balances for six years.  Even though my spending on the cards has been relatively modest given the circumstances (maybe $200-$300 per month over the last year), and I’ve been making more than the minimum payment on both cards, my balances have continued to go up just due to finance charges, upon which the banks still refuse to budge.

To top it all off, I was in a car accident a couple of months ago which, although it wasn’t my fault, totalled my car and forced me to buy a new one, using the savings cushion I had managed to build to purchase the replacement vehicle.  Now, the replacement is paid for completely, and insurance actually went down by about $200/year, but still, that money was supposed to pay off one of the cards.  Instead I’m left with the same amount of debt, and a new/used vehicle I didn’t intend to purchase and otherwise didn’t want.

My older son has a learning disability, but he’s not performing badly enough in school to qualify for state or county-subsidized services.  This is primarily due to the fact that we won’t let him fail, risking his overall education and his self-esteem, just so he can qualify.  So it’s private services, which aren’t covered by insurance, just to keep him at grade level.  No, I will not give this up or scrimp on the cost.  He needs this for his future as much as he needs food and clothing, and I will not give it up.  I am, however, still arguing with insurance company over whether or not they need to reimburse us for it.  We have a partial payment, which, of course, has gone toward future bills for therapy.

Oh, and up until about two years ago, I also paid for all birthday / anniversary / Christmas gifts for all family members, including my husband’s – and he has five siblings and 20 nieces and nephews – on less than $40k per year.  Even with a budget of $50 per adult and $30 per kid this adds up on such a salary.  I figure I spent less than $2k a year on anything not related to familial necessities (food, minimal dry cleaning (3-4 times per year), gas, clothes for the kids, gifting hubby expected for his family, necessary medical for my kids), and this generally covered necessities, and, admittedly a handful of luxuries (about $300 per year in business clothes / shoes), for myself.

I don’t get my hair cut but twice a year, and that’s at Great Cuts or Fantastic Sam’s or some such.  I don’t get waxes or mani-pedi’s.  For the last two years, when I need new clothes I get them at Wal-Mart (a place I hate to shop, for multiple reasons).  I’ve purchased one handbag and one wallet in the last five years, both together totalling less than $30.00.  I eat lunch out on average once per week, and that’s at Wendy’s – $4.90.  I do purchase Lancome foundation, because it doesn’t aggravate my eczema, but moisterizer is Neutrogena, cleanser is soap, I haven’t seen a toner since my youngest was born, and other makeup is composed of either freebies with purchase or Maybelline / Revlon / Walgreen’s Max Factor.  Well, two months ago I spent a fair amount – about $100.00 stocking up.  I take this on myself.  I could have forgone the cost.  I didn’t because I had been so good for so long, and my hair looks like crap, and I’ve been gaining weight from the stress and can only wear the Wal-Mart clothes with elastic waists, and I just feel so utterly awful about myself that buying some new, nice makeup (like I used to be able to buy 10 years ago) made me feel normal for a day, so I did it.

Not the best strategy, I know.  But you spend nothing not necessary on yourself for a year, you like to think $100 won’t kill you.  You like to think that, but when you’re where I am, it’s all a shell game you’re going to lost anyway.

It’s not that I’m going crazy with the spending on frivolous things for myself, but it’s all added up anyway.  And hubby not only doesn’t get it, his temper is volatile enough that he won’t even listen to how the debt came about, as I discovered when I came clean about $11K of that debt.  So, in the interest of stability for the kids, and harmony, however precarious, at home, I’m keeping the rest to myself.  If anyone wants to advise me to do otherwise, you certainly may, but I’m not likely to change my mind at this point.

Anyhow, I’m using this blog to keep myself honest with myself, because I realized just about three weeks ago that the interest rates on these two cards (the only two I have carried for the last 8 years) is killing me, negating any payments I have made.  Outside of $7.00/month, for example, I hadn’t used my Discover card in six months, and even though I’ve been paying more than the minimum for over a year, the balance was higher than a year ago – due primarily to the ridiculous interest.  The MasterCard was worse.

So I panicked.  I mean, I’d paid more than $3000 toward one debt, charged maybe $700 to it in one year, and came out $1000 in the hole, and this didn’t even include the other card with the even higher interest rate (and balance) – who wouldn’t panic?  Particularly given the fact that my personal income is really 1/3 that of my husband’s, and I cannot really lower our standard of living to pay it off.  I was lucky I’d been able to save enough to make up the difference on that vehicle.  I simply couldn’t support the debt any more.

I have to pay it off.

So, the next post(s) will deal with how I plan to do that.