I know, I know. In my last post, WEEKS ago, I said I’d update soon, specifically regarding some of the troubles detailed in this post.

Just so you know, After I wrote that post, I promptly went and stuck my head in the sand and ignored the budget and putting transactions into quicken/YNAB completely. July was great for toy buying! But not so great for getting out of debt :(

As mentioned in my “trouble” post, we have a big budget buster. The taxes that are being withheld from our paychecks are not enough to pay the taxes taht will be due next april. To the tune of about $1000 a month.

I don’t know about you, but I can’t just take $1000 bucks away from the income I budget and still sock money at debt.

The first thing that went through my mind was of course, my big master plan. Pay off all our debt by 2011. That plan depends on a certain amount going toward debt each month. I worked my spreadsheet over and over and saw this plan totally going down the pooper. It was really depressing. I mean, hello! I registered a domain name and everything! 99k by 2011! THAT IS THE PLAN!! WE CANNOT NOT MAKE THE PLAN! The weekend I was trying to work all this through, I couldn’t sleep, actually got pretty sick with a sore throat and was just really not doing good.

My husband was disappointed of course, but was not distressed. Certainly not as distressed as I was. He expressed it this way, “Honestly, I’m not that worried about the car and home equity debt. I just want our credit cards PAID OFF.”

We will still be able to pay off our credit cards sometime next year, I’m just not sure when exactly. I wasn’t about to give up so quickly, though. I started thinking about our 401k’s. I listen to Dave Ramsey a lot, and he always advocates putting all retirement saving on hold while you get out of debt. We had not done that - 3 years is a long time to put off retirement saving. I enjoy listening to the Dave Ramsey show, but obviously, I don’t agree with everything he advocates (hi there american express!) (dave’s opinion: credit cards = big big no no)

Desperate to cling to THE PLAN! THE PLAN WE CAN’T ABANDON THE PLAN! I investigated what our scenario would be if we dropped all retirement savings and put it toward debt. — What I found, OF COURSE, was that any extra money we got in our paychecks would just be taxed more to the point that our checks would hardly be any bigger. And also, since our withholdings are off anyway, it just meant that we would have an even bigger tax bill next year.

It really cemented to me how awesome retirement savings are! I then TOTALLY turned a corner. Screw the plan. RETIREMENT is the new plan! (Have I mentioned I can be a very fickle girl?) I went gallivanting off in the complete opposite direction — what if I UPPED the % of my paycheck (my husband’s is already at his company max of 7%, blech) so that by the end of the year I would have reached the limit for 401k contributions? While I still think this was an awesome idea, it would result in a lower tax bill, but not by enough to make it so we could actually live on the resulting check I would get, and debt? FUHGEDDABOUTIT!

In the end, I did raise my contribution percentage a bit. And for our estimated 2008 taxes, instead of doing a dollar amount additional withholding on our W-4 for the extra taxes, we changed nothing on our W-4s, instead, we are saving the extra money each month - that way we’ll have the money for the taxes next year, and we’ll get the interest income. We won’t have any penalties for doing this, so why let the government have it until it’s due? Yay for interest!

So our 3 year plan is still very much in the air. After a month of not thinking about it whatsoever (and oh lord our totally blown budget shows it), I can see that .. well, I was getting a bit obsessive about everything. I was poring over our budget, over our debt spreadsheet, WAY too often. However, ignoring everything is not the answer either! But not being able to sleep, and getting sick over this was a little extreme. And I had been forgeting that we won’t be living with 1k less each month FOREVER… it’s this extreme right NOW, because it’s halfway through the year! In January, we will both get our W-4 set up properly, and I am going to set up my 401k withholdings so that by the end of the year I’ll have hit the federal limit, and we can see where that puts us.

Next up: our blown budget, and iphones! did we? didn’t we? Stay tuned!

So this is month 2 of having our amex blue cash, and I thought it would be interesting to track our cash back each month.

At our statement closing last month (May), we spent a total of $2,993. They don’t really tell you which transactions go toward the bonus categories (gas, groceries, drugstores) and which don’t, but they do have a “cash tracker” that shows your percentages in each category, bonus (1%) or regular (.5%). In May we had spent 23% in the 1% cash back bonus categories, and 77% on the .5% categories. This amounted in total cash back accrued in May at $18.38

June went roughly the same way, with our statement balance (statement closed yesterday) at $2,993 and year to date cash back earned at $38.48. It also shows that our percentage of spending went to 30% in the bonus categories and 70% for everything else. (I wish it would show you with each transaction!)

So we seem to be earning about $20 a month, and that is at the lower percentage cash back. We will start earning 5% on the bonus categories and 1% on everything else once we cross over $6500 in spending. I don’t know if it will switch over right when we hit the $6500 mark (which will be in about $600 more bucks, so not long) or if it will wait until after the statement closes.

Another thing I wonder is those bonus categories. The gas I’m not worried about, and neither for the drugstore, but the grocery store is a little baffling. First of all, we used to do all our grocery shopping at the Super Target near our home. There is a Safeway that is really close, but they tend to be a bit expensive. So big grocer trips = Target, stuff you need for dinner that night/picking up milk on the way home = Safeway. Well, in the transaction, Safeway has a little “GROCERY” in there in one of the fields. However, Target came up as “DISCOUNT STORE” which made me think.. Hmmm, probably not getting the bonus category there.

So this month, I tried to keep our grocery shopping at actual grocery stores. I hit Shopper’s Food Warehouse (which is good because their prices are even better than Target’s, but they’re kind of a ways away) and also Harris Teeter (not sure on these prices yet). Neither Shopper’s nor Harris Teeter had anything in their transactions to designate them as ‘grocery’.

Now my understanding is that text in the transaction is actually put there by the STORE, not by amex, so it could be that that has nothing to do with what category they fit in, but it makes me nervous all the same.

I probably shouldn’t worry because in May 23% of our spending was in bonus, and in June that went up to 30%. Could that only be because gas got so much more expensive? Or is it because the money that was going to Super Target went to stores now designated as ‘grocery’? Or maybe both?? I may give amex a call to make sure Harris Teeter and Shoppers are ‘grocery’, and see if the 5% kicks in when we tick over $6500, or at the next statement.

Also can’t wait to see what our new high yield checking account gives us back in interest - I’ll post that when I have it available.

-99k

GOAL ACHIEVED: NO MORE CREDIT CARD INTEREST

So when we last left our heroine, there was much dithering and swooning over whether or not to stick the heft of the credit card payments into high yield savings while only paying the minimums on the cards themselves. Then the point quickly became moot, since our heroine noticed a hefty non-capped 3% balance transfer fee, and the whole idea was dropped.

(Let’s just drop the third person now, shall we, because I SO can’t carry that off through the whole post.) When I noticed the fee, I went scouring the internet for any 0% no fee balance transfer offers, and came up with a ONE very lonely offer. Every other offer either had the $75 min BT fee, or was not for 12 months - it’s amazing really, as I can remember when we were shredding tons of these offers not so long ago. So after some scouring, I found the Citi Professional card with 0% and no fees for the first 12 months. I went ahead and applied, and promptly forgot about it until I received my shiny new card in the mail with a limit of $15,000 about a week ago.

I promptly put in a balance transfer for our remaining usaa mastercard, and am currently waiting for that to go through (any day now).

When it does, all our credit card debt will be at 0%. Here’s the breakdown, in order of which 0% rate expires first:

citi home rebate mc: $7,278
rate adjusts 12/08

discover: $6,355
rate adjusts 3/09

citi professional mc: 13,230
rate adjusts 4/09

We will be able to pay off each one of these cards before they adjust. I’m very excited to not be paying any more credit card interest!

A few remaining questions we’re going to readdress sometime:

Should we start closing cards as they are paid off?

We have 2 cards that are at a 0 balance now, USAA mastercard, and Citibank American Express. We are not going to close our USAA mc, as it has always been our primary card, has the highest credit limit, and has the longest history. The AMEX however, was opened one year ago? two years ago? (I can’t remember, I probably should check) and I don’t really see us using it ever again. For now, we’re leaving it open, as apart from the usaa card, it’s the card with the next longest history. We don’t even have cards to it, so there’s no danger of a balance running up. The other cards we have open (citi home rebate, citi professional, discover) have even shorter histories and are also questionable on whether we should keep them open or not.

I’m not sure we should even worry about hurting our FICO score. The fact is, we just refinanced our home in February and are not planning on moving for some time, we purchased my husband’s car last year and my car won’t need replacing for a few more years at least (knock on wood) - and when we do replace it, hopefully we will save up and do it with cash. I don’t see any future loans happening in our future, and if that’s the case, who cares if our credit score goes down a bit? As we pay down more cards, then the debt to credit limit ratio would get better and better, even if we hack the total credit limit down by closing a card or two.

All good points to deliberate on.. guess we will see.

Should we go back to the “sock the extra debt money into HY savings” plan?

I am thinking yes. But I have no problem letting things settle down first. We’re smack dab in the middle of birthday season (just our household, 2 over and 2 more to go) and we started the kids’ sports season (evening practices, saturday games) which means I don’t have as much time to loll around in the evenings poring over spreadsheets. I’m content to let the balance transfer go through and revisit this then.

And finally, should we start using our rewards card?

RL has piqued my interest in her comments about their month-to-month spending using a HY checking, putting expenses on a good rewards credit card during the month so the checking balance builds up and earns interest, and then of course paying it off in full each month.

We’ve already decided to start using our USAA rewards card (pretty much 1% cash back) but the HY checking account idea sounds good as well. (Charles Schwab offers a good one, although it’s down to 2.26% interest now.) Not sure we’re ready to change checking accounts, but it is on the table for discussion.

Well that’s it for now.

Any comments on the move and new design would be welcome!
(Yes, I’m vain and am wondering if anyone is out there.)

-99k

We recently sat down and looked at all the interest we’re paying on credit card debt and tried to figure out how we could cut it down.

First, we called the 2 cards that have an interest rate (the 3rd of our cards is already at 0%) to see if they could lower the rate. They both would not - although, both pointed out that the rate for this month would be lower, since the prime rate had dropped. They were correct, each fell a bit, so that the 2 cards are at 11% and 10%, but we still weren’t happy with this.

So I looked around for any 0% balance transfer offers, found one for discover, and applied. We were approved, and the $6.5 balance on our citi amex (previously at 11%) has now been moved over to this new discover card. The discover card 0% rate is good until next april. Now with the citi amex card balance at 0, we can move our $16k usaa mc balance over to citi amex, using their 0% balance transfer offer which will be good until this October.

A couple of thoughts about all this swapping around.

First off, I realize that some people are not keen on the 0% balance swapping. That’s fine, stick with your beliefs, whatever you feel is right. I don’t like paying interest, period. If I can find a way to NOT pay interest, I’m going to use it! Now, having said that, it is true that in the past, we have transfered a balance over to a new 0% card, and then run up the balance on the old card. Not good. THIS is the practice that one should not be keen on - with good reason. It got us into this mess! We are on a plan now, and there will be no more debt racking up!

Next: Credit cards are tricksy. They like to play favorites with the balances. Take the citi amex. We had a balance of 6.5k on there at about 11%, with a credit limit of $20k. They have offered us additional 0% balance transfers. Sounds great, right? that’s 14k of unused credit we could be using at 0%. Perfect!

Not so fast! If we had transferred a balance while we had a balance NOT at 0% (the $6.5k was at around 11%) — then every payment we sent in would automatically go toward the 0% balance, and NONE toward the 11% balance. That would mean that the $6.5k balance at 11% would NOT GET PAID DOWN AT ALL, until the 14k at 0% balance was GONE. That would be a lot of months, with a LOT of interest each month, which is the entire reason we’re doing all this swapperoo-ing — to AVOID INTEREST. No thank you, Citibank, get another shmuck to fall for it.

So, we are now currently WAITING. The $6.5k balance has been transferred, and I’ve even sent in about $60 so that the balance on the card is a CREDIT of around $60 (I’m anticipating the finance charge). I am waiting until after the next statement to instigate the next balance transfer, just to make SURE that there will be NO BALANCE that may incur finance charges during the time we have a 0% balance as well. In the meantime, I’ve switched our main debt snowball payments from the $6.5k balance on the citi amex (that is now on the discover card) to the $16k balance on the usaa mc, which will be moving over to the citi amex. Pay down the one with the interest charges first, is my philosophy.

Finally: the $16K balance will only have a 0% interest rate until OCTOBER. That is REALLY pushing it. Hopefully we can get that paid down before it reverts back to an interest rate, but even if we don’t quite make it, we will still have saved a bundle on interest. It seems like an awful lot to pay off by October, until we do a few calculations.

Some artillery in our arsenal:

• one month (i think it’s May) we’ll have 3 paychecks from my husband instead of the usual 2, he gets paid bi-weekly
• we’re expecting $1k back from our state taxes, and
• of course can we all say together, TAX STIMULUS! That’s another $1600 that will be going toward debt

So along with our usual debt snowball, we’ll have an additional $4400 going to debt between now and October (and that’s not counting the $2.5K from the bonus that’s heading over to debt this month!) It may be crazy, but my goal is to get that 16k GONE by october! Let’s run some numbers to see if it’s doable:

Seven months between March and October to pay off $9100:

$9100 / 7 months = $1300 a month.

That is doable, baby. Very doable. We may have to crank it up a notch, but we can do it!

So the moral to this post is: Credit card companies are tricksy, we must watches them, yes we must!!

Obviously, our long term goal is to pay off all debt aside from our mortgage.

I’ve already broken this down in terms of what debt gets paid off first. I am aiming to get all credit card debt paid off by next March.

However, before I go whole hog on the debt snowball, we need to get some savings in place first. Because both my husband and I work, and because our monthly expenses are fairly high, I want to get $2000 set away in a savings account for emergencies. That’s high priority.

Secondly, I want to get a buffer in place so we can use YNAB’s rule #1. Between the two of us, we bring in around $7500 a month. This is not equal to our expenses, so I know we wouldn’t need that full amount as a buffer.. Also, I don’t mind building up to that gradually. Already there is cash building in our checking account due to budgeting money in categories for yearly expenses money that is earmarked, but won’t be spent for several months.

And this is a very short term goal, but as I’ve mentioned previously, we are refinancing our 1st mortgage to a 30 fixed (currently, it’s a 5/1 arm and would adjust next year. With interest rates as low as they’ve been, we decided to go for it now) I am socking money away to bring to our closing, which actually, is happening on Friday (barring anything disastrous happening). I put $1500 away last month, and have earmarked another $1500 in February’s budget so we will be bringing $3k to closing. Other closing costs and prepaids will be rolled into the mortgage. (BTW, how antsy am I to get that final closing cost sheet? Answer: VERY ANTSY.)

So, my short term goals:

-$3k to take to closing (which is this friday, so this one is about to come fruition)
-$2k in emergency savings
-build up a buffer

My husband gets a bonus at the end of February/beginning of March every year, and lucky for us, it’s a good chunk of change! In the past, we have used it on things we want. This year, we’ve decided we want to be out of debt more than we want more “stuff”. HOWEVER.. we did decide that we would take $1,000 (total, not each of us) and blow it on fun stuff. I am going to get a flash for my camera (about $250), and he is going to get a PS3 (I think around $400, but honestly, I have no idea). I am hoping that a few hundred left over we can put toward car tires, but we will see.

We have decided that the rest of the bonus will be divied up as follows:

$2000 will go to savings,
$2000 will go toward building a buffer,
the rest will go toward debt.

I am especially glad that we haven’t put a number on the amount going to debt, because then if the bonus comes in at MORE than we thought it would, we would be tempted to lump the “extra” into the fun money. I have tentatively planned on $8,000 going toward debt, as $12,000 is around what last year’s bonus came out to. Again, if there is more, a few hundred going toward car tires would not be amiss with me!

So the buffer I’m still a little fuzzy on when exactly we’ll have a full one. I managed to sock away $1500 in Jan. and Feb., for the closing costs. In March, we’ll have $2k toward the buffer from the bonus, we’ll be getting $1500 back from escrow on our old mortgage, and if I can stuff another $1500 into that category (as I showed I could do in jan and feb) in March, then we could be operating on $5k worth of buffer money in April and put all April paychecks in the “primary” category instead of “supplemental”.

This sounds GREAT, but at the same time, it would put a bit of a damper on the debt snowball. We would only be able to do the minimums march and april if I went with that plan, meaning we wouldn’t really kickstart the snowball until MAY. Ergh. Anyway, I’m just not sure. Given that we managed to pay off $750 in January even with socking away $1500.. maybe we can do both. I guess we’ll see.