Category Archives: Debt

The Root of Our Money Problems

We finally found the root of our money problems. Want to know what it is? According to my wife, it’s me.

When she said that in the car to me the other night, I laughed it off. But as I sat there and thought about it, she was absolutely right. I brought the most debt into the marriage and I probably would still be racking it up if I wasn’t with my wife. I was the most reckless with money before we got married.

But there are still things I do today that damage our finances. For one, I always seem to suggest eating out. Actually, my wife said “I was the problem” after I suggested grabbing something quick to eat. We have a ton of food at home and yet I always seem to want to eat out no matter where we are. What the heck is wrong with me? I really want to be debt free and yet I always want to spend.

I mentioned before that we want to still enjoy some “finer things” while getting out of debt. We would like to eat out once or twice a month and go to the movies occasionally. It just helps us from going insane.  However, I have taken the eating out to an extreme. If I had to guess, I would say we ate out about a dozen times in May. Most were the fast food variety but still expensive none the least. About 90% of those occurrences were my idea.

I guess you could say that I have been a big consumer for most of my life. I grew up on a family farm and started earning fairly good money (for a kid) by the age of 10. I did what most kids would do at that age with money. I spent it and I spent it ALL. However, I earned way more than most kids my age and I got to buy the more expensive items that many other kids only dreamed about or begged their parents for. Life was good.

What I guess I am trying to say is that old habits die hard. I would imagine that many of you are having this same problem. It’s hard to go from one extreme to the next and I’m finding that out that hard way. I once spent with wreckless abandon and now I am trying to pinch every penny. Life is hard.

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What would you say has been the toughest for you? Cutting spending? Setting up a budget? Opening up the lines of communication between you and your spouse?

Debt Update: Finally Settling Down

Phew, what a month. I moved (sort of), started a new job (kinda) and became a full-time husband (finally). So financially, it wasn’t the most amazing month ever but it was still good. I received my first new paycheck and my pay jumped up about $80 for the two weeks. Anything helps, especially now we are used to living on the lower income.

Looking ahead, May should be a good month for us. We get an extra paycheck due to how the paydays fall and the increase in my paycheck should help.  Here is how we did for April!

Debt Update: Another One Bites the Dust!

March was another good month for us in terms of debt reduction. We were able to pay off the personal loan and send some more money to our family member loan. In all, we paid off $2,139.82 in March. Not too bad at all!

This is the month I start my new job and where we really start attacking out debt. We will not longer have higher grocery bills, two rent payments, etc. My salary is also going to increase this month!

With all of those factors considered, I am anticipating our debt snowball (amount over the minimum payments) to average about $1,500 a month. That should help us get that family loan done in less than 1 year. We can’t wait!

Here is our updated debt spreadsheet:

Use Your Credit Card as an Emergency Fund?

A few months back when I wrote about how our small emergency fund saved us, No Debt Guy commented on how having an emergency fund in cash may be counterproductive. Here is what he said:

I have often wondered if having an emergency fund is the best way to pay off debt or is it counter productive?

For example if you are carrying at credit card balance of $2,500 and have $2,500 in your emergency fund you would be better off paying off your credit card and rebuilding your emergency fund.

What if you have an emergency? You can still take a cash advance from your credit card and you are no further ahead.

This does take some serious discipline, but you will save interest costs.

He does make some interesting points. However, I feel that one needs to be SUPER cautious with that type of system.

Most of you are probably in some type of debt. It’s why you’re here. You’ve probably overspent with credit cards and bought things that you didn’t need. I know I have. So, shouldn’t your main goal to be rid of credit cards forever? Like Dave Ramsey often says, “no one EVER told me they got rich by using credit cards”. I have to agree with that point. When I was using my credit card that gave me cash back, all I could think about was hitting that $50 mark so they could send me a check. So, I would spend more money to earn 1%-3% back. Talk about counterproductive! There was no way I was going to get rich by playing that stupid game.

So, I figured I would come up with a few reasons why it may be counterproductive to use a credit card (or any other line of credit) as an emergency fund. Here are some things to consider:

You May Redefine What an Emergency Is

It’s been said before that using a credit card makes you susceptible to spending more. So, wouldn’t using your credit card for an emergency be the same thing? If you car breaks down and you only have $1,000 to fix the problem, wouldn’t you shop around? I know I would. However, if I were using a credit card I would be more likely to just give in to the initial price and pay it. It’s only on a credit card, right?

I think you may also redefine what an emergency fund is. For example, would you typically use your cash emergency fund to pick up a small amount of groceries if you are out of grocery money for the month? Probably not. But if you have that credit card to fall back on, you might just head to the store when you may have some things to eat at home. If you are like me, you would probably pick up more items too!

You’ll Miss the Experience of Paying With Cash

Most people say that it’s harder parting with cash than it is using a credit card. I’m a little more skeptical but I still think it’s true. However, I think having a cash emergency fund makes you learn to handle money better. I mean, you got into credit card debt by using credit cards. How is still using a credit card in emergencies going to make you any better at handling money?

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Personally, I love having a cash reserve. It just makes me sleep better at night knowing that I can actually hand someone cash if I have a financial emergency. Handing them a piece of plastic would be much harder to handle knowing what I’ve been through financially.

How about you? Cash or credit?

Debt Update: February 28, 2010

February was a short month in terms of days but a big month for debt repayment. We managed to eliminate $2,532.86, our biggest month ever! This was in addition to replenishing our emergency fund (about $800) that was depleted from paying some estimated taxes in January. We feel great about what we were able to accomplish this month. It’s even more uplifting knowing that in the next few months, our income is going up and our expenses are going down thanks to the new job.

We were able to pay a big chunk on the personal loan in February and by this time next month, it will be gone. We also started paying on the family loan for personal reasons. We just wanted to get started on it and the family member could also use the money due to some unforeseen circumstances. Another great reason not to get into a family loan. Now onto the spreadsheet!

Debt Update: January 31, 2010

January was a fairly good month for us. Even after depleting our emergency fund and them pumping it back up to $1,000, we were still able to pay off over $1,400 in debt. Also, keep in mind that the $1,400 we paid off is only the reduction of principal and doesn’t count the interest we paid. So technically, we are making over $2,000 worth of debt payments per month.

For those of you who don’t read my weekly article over at Frugal Dad, I recently announced that I got a new job in Washington, DC. The job doesn’t start until mid-April, but it will be a HUGE income boost for us. This new job will increase our income by approximately $4,000. I will be doing the same job but since I will now work in Washington, I get a cost-of-living pay increase. Another great thing about the new job is that we will no longer have to pay rent in Pennsylvania. The new job will help us cut our expenses by $4,800!

Since we have already been living on less than we make, ALL of these new earnings and savings will be put towards debt. That is an $8,800 new shovel! It will feel great knowing that we will be able to pay things off almost twice as fast.

Anyway, here is what we paid off for January: