Debt Free Blog

You should know my stance on using credit cards for purchases (don’t!) but debit cards and checks can also be bad. They just don’t feel the same as using cold, hard cash. When you use real money, you tend to spend less of it. It hurts more, and you’re very conscious of how much you have (it’s in your hand).

One thing we’ve done as a family is set monthly personal spending budgets, and we get our money in cash at the first of the month. $100 for my wife and I, and $25 each for the kids. The money can be used for anything… eating out, buying something, going to the movies, anything.

We started with a very small amount so that we could see how fast we spent. We’ll increase the amount gradually, as we learn how to control our spending and pay off our credit cards.

The first month of the experiment, I remember asking my wife on the 5th how much money she had left for the month. None! As the months have gone by (we’re on month 3 now) we’ve gotten much better at managing our “extra” cash and as a result, we’re more conscious of other purchases and their financial impact as well.

Give it a try, and I guarantee it will make you think about your spending habits more (and hopefully cause you to spend less).

Mint is a free online financial management application that lets you track your different financial accounts such as checking, savings, credit card, mortgage and investment accounts.

Mint allows you to see your current financial snapshot, your “net worth” at a glance. Mint automatically categorizes purchases, and remembers your changes. If you re-categorize a particular store, it will give you the option to also change past transactions and set a new default.

Mint is totally free – they make money by selling advertising. They have all your financial data, so they sell advertising to credit card companies, banks, and other complimentary services. They don’t reveal any of your personal financial information, but do match up certain offers with your finances. For instance, if you’re currently paying 10% interest on a credit card, Mint might suggest a 4.9% offer from another credit card company. Or if you’ve got a standard saving’s account at your bank, Mint may suggest a high-interest savings account such as ING.

I have been using Mint as more or less a reporting tool for several months. It keeps getting better and better at categorizing our expenses, and it’s really amazing to look at where we’re spending our money each month.

Mint is free, so give it a try and see what you think.

It was a sunny Fourth of July, and we loaded up to head to the lake. Me, my wife, and our two kids got in my wife’s car and she started to back out of the garage. I noticed my truck in the rear view mirror, and as it got closer and closer I called my wife’s name in a tone as to say, “Hey, see that?” She apparently didn’t.

My truck got closer and I screamed “Stop!” but it was too late. My wife backed her Honda Pilot right into my Chevrolet Avalanche. And put big dents in both of them.

After a few minutes of cooling off we proceeded to the lake and had a great Fourth. On Saturday, we called the insurance company and realized that we had to pay two $500 deductibles, one for each vehicle.

It cost us $1000 for a simple accident.

It sucks. It makes me furious, because I work so hard for my money and my wife does too. $1000 is a lot of money for us, but fortunately we have it.

I would say I can’t imagine what it would be like without an emergency fund that would cover an accident or emergency like this, but I do know exactly what it’s like. For so long, we lived paycheck to paycheck. Every little emergency seemed like a red-alert crisis. The only options we had were borrow from family/friends or put it on a credit card.

Neither of those options sound good. They both lead to MORE stress, in an already stressful situation.

Build up an emergency fund of $500 – $1,000 for those inevitable small emergencies that are bound to occur. Having the money to cover it won’t make it hurt any less, but it will lessen the emotional impact and give you peace of mind to know that at least financially it’s taken care of.

Emergencies happen. Below are just some of the small emergencies that can really create a problem for many of us:

• Wreck or Mechanical Problem with your Car or Truck
• Emergency room visit
• Unexpected home repairs
• Unexpected tax bill

Have you ever noticed that when you don’t have any money, everything is an emergency? If your family household income is around $30,000 or less, put away at least $500. If your household income is more than $30,000, put away at least $1,000. Before you get out of debt, and before you buy anything else that’s not a necessity (not including bills of course).

Prepare yourself so when something happens (and it will) you’ll at least have the peace of mind that it’s paid for.

An article published by CNN says that stress is bad for your health. According to the article, people with high levels of debt experience more severe health problems such as anxiety, ulcers and heart attacks than those without debt.

The higher stress of having debt also made it harder to concentrate and accomplish goals, the study said. These findings are not really hard to believe, but should be a wake-up call to us Americans. Our fast-paced lifestyle of living above our means is affecting more than our bank accounts.

Do you know how much that new TV or bedroom suit is going to cost you by the time you pay it off? 

Millions of Americans borrow money every year, and I’d estimate the vast majority of them don’t understand how compounded interest works. Interest can be a powerful tool to earn money (as with investments) or a dangerous financial handicap.

So how much is that $1,000 purchase going to cost you? Continue reading »

If you’re swamped in debt and don’t know where to start, check out these first 10 steps. No matter how much debt you have, these will help you get on the path to being debt free:

1. Make a Budget
   Without assessing your current level of debt and bills, you won’t have a clear picture of where you are right now. You need to know where you are so you can take steps to get out of your current situation.
   Write down all your monthly bills and expenses, including food and gas. Write down everything.
2. Assess your Damage
   If your minimum monthly payments are more than your income, you will need to make some tough decisions.
3. Sell Big Stuff
   Sell your car to eliminate a car payment & insurance, sell your home and rent an apartment. You have to spend less than you make! Getting rid of high monthly payments can give you cash flow to eliminate your debt fast.
   Continue reading »

If you have a credit card, you have almost suredly received some balance transfer or “convenience” checks from your credit card company. These checks are often marketed with credit limit increases to get the borrower to put more debt on their card.

You have to be careful with these offers as there are usually strings attached. Balance transfers usually carry a one time fee of 3-5% of the amount transferred, or a flat fee (whichever is greater). This fee ensures that your credit card company is going to make money no matter what.

Continue reading »

There are three credit reporting agencies: Equifax, TransUnion and Experian. When you borrow money, your lenders report to one or more of these agencies and those reports help determine your FICO Score.

Your FICO score is a representation of your credit based on past debt. Lenders use your FICO score to help them determine whether to lend you money and what interest rate to charge. The lower your FICO score, typically the higher interest rate you will be charged on a loan or credit card.

You cannot have a FICO score if you do not borrow money. Your FICO score is only a representation of your ability to keep and pay on debt. It does not report on your net worth, income, or ability to pay bills such as rent or utilities.

Continue reading »

I work about 7 miles from my home, so going home for lunch is not really an option. I used to use that as an excuse to eat out every day. When we started working on a budget, I had to seriously think about how much money I was spending eating out every day (or even almost every day).

Most of the restaurants in the area (not fast food) cost between $10 and $12 after tip and tax for lunch. You can safely assume you can make and “brown bag” a lunch for around $2. So that’s a potential $10 per day savings by taking your lunch. 

At 50 weeks at just taking lunch 4 days a week, you could save $2,000 in a year!

That could go a long way toward paying off debt, or towards your retirement. Think about it next time the guys in the office say, “What’s for lunch?”

I’m getting out of debt! No, I don’t have bill collectors hounding me. We haven’t had a car repossessed. We can afford our monthly payments and then some.

So why, you ask, am I hell bent on getting out of debt? Think about it for a minute. We have a mortgage at a great interest rate (6%), two vehicles that are financed (used to be three), credit cards, student loans and business debt.

Even though we have more than enough money to make minimum payments and even pay extra on each every month, when you add it all up and look at the interest you pay on debt, it’s ridiculous.

Let’s look at a hypothetical. Let’s say you have a total of $150,000 in debt (including your mortgage) and your average interest rate is 8% (including all credit cards, loans, mortgage, etc.). I know this is overly simplified, but bear with me… it’s just for illustrative purposes.

Now, that 8% APR equates to 0.0067% per month interest charged on all your debt. That’s not even 1%, but figured on $150,000 that’s still $1,000 a month in interest.

That’s right, $12,000 a year goes straight to some banking institutions. You might owe twice that much just on your home. I’ve even heard of some people who had that much just in credit card debt!

My point is simple… if you have debt a huge chunk of your money goes to keeping the banks in business.

That $1,000 a month in the example above, if invested in modest mutual funds over 40 years, would net you over $11,000,000. That’s right, $11 MILLION.

The purpose of this blog is to educate people on how to get out of debt, to log my familiy’s journey getting out of debt completely (even our house), and to provide people with the resources necessary to take control of their financial future.