"D" IS FOR…

D-E-B-T.

This is a nasty 4-letter word.  Perhaps it doesn’t have its origins in the Anglo-Saxon heritage like so many of our other 4-letter profanities, but where-as 4-letter words may sound coarse or uncouth, DEBT is vulgar to the core of our well being.

 

Let me enlighten on the definition of debt:

1.      Debt is an obligation owed by one party (the debtor) to a second party

2.      Something owed, such as money, goods, or services.

3.      The condition of owing: i.e., a young family always in debt.

4.      An offense requiring forgiveness or reparation; a trespass.

 

While we may argue and disagree about the value or the disgrace of “bad words” in society, I think we can all agree that debt is a curse to all who are obliged.  Is there good debt versus bad debt?  Should one live totally free from debt and is that even possible?  Good questions.

 

Answer: maybe and maybe

 

In my very first blog and in each subsequent blog, I talked about the fact that we don’t live in debt.  When I expressed that, I was referring to consumer debt, versus the debt of home-ownership.  So, we do owe money for the mortgage on our property and therefore are technically in debt.

 

But……let me explain.  In 1991, when we “purchased” our first home, we “bought” it for $39,000.  We carried a 15-year, fixed mortgage and paid approximately $385/month.  At that time, I was still paying off my student loan.  But, both my husband and I were working full time, and we did not have any children to support.  So, not only were we easily able to pay our monthly mortgage payment, and my student loan, and all our other expenses, we were also able to save money.

 

Even back then, over 22-years ago, we lived by our rule of not carrying any consumer debt.  If we used our credit card to make a purchase, each month we would pay off the balance.  We would accrue mileage points and then use the points to get free airline tickets so we could visit our families in Pennsylvania.  Rather than the credit card company making money from our credit card purchases, we actually made money from the credit card company by getting several free airfares.  That particular credit card company decided they didn’t want us as “customers” anymore and sent us a letter declining us further credit.  Why?  They didn’t want to keep losing money on us! 

 

Make no mistake.  Credit card companies are in the business to make money….lots of money.  The less you, the debtor, pays each month, the more money the credit card company makes.  Of course you already know this intuitively, but let’s look at this numerically: 

 

How do credit card companies figure the minimum monthly payment?

The minimum monthly payment is based on the account balance rather than the particular interest rate. It's typically around two percent of the account balance.

Both the minimum monthly payment and the account balance are stated on the credit card statement. The monthly minimum percentage can be calculated by dividing the minimum monthly payment by the account balance. The following is an example of how to compute the minimum monthly percentage on an account with a balance of $1,000, and minimum monthly payments of $20 and $25: 

Account balance	Minimum monthly payment per statement	Calculation	Minimum monthly percentage
$1,000	$20	$20 divided by $1,000	2.0%
$1,000	$25	$25 divided by $1,000	2.5%

 

Paying only the minimum monthly payment is a fool's game. In most cases, the bulk of the minimum payment goes toward interest, and just a smattering goes toward principal. If your prior month's payment was late and you get hit with a $29 late fee, chances are none of the payment will go toward principal. Thumbs-up for the credit card company; thumbs down for you.

The following table illustrates how much you will save in interest if you make more than the minimum monthly payments on a credit card with a $1,000 balance and a 19 percent interest rate.

 

$1,000 credit card balance 19 percent APR 2 percent minimum payment
Monthly payments	Time to pay off debt*	Total interest you will pay*
Minimum (Starts at $20 and goes down a little each month)	22 years	$2,400
Fixed $20	8 years	$1,000
Fixed $30	4 years	$450
Fixed $40	3 years	$300

 

*years and amounts have been rounded-off.  Notice that the total interest paid on the original debt of $1,000 is MORE THAN twice the original debt.

 

Source: http://www.bankrate.com/brm/news/cc/20020814l.asp

 

But here’s the thing….

 

American Household Credit Card Debt Statistics: 2013

 

The average US household credit card debt stands at $15,216, the result of a small number of deeply indebted households forcing up the numbers. Based on an analysis of Federal Reserve statistics and other government data, the average household owes $7,098 on their cards.

 

Source: http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/

 

And how much interest do you figure will accrue on credit card debt $7,098??? 

Oodles, that’s how much. 

 

I don’t about you, but I don’t want to pay two times or three times or any times as much of the value of whatever is I’m buying.  And I don’t want to be carrying such a debt burden for consumer debt.

 

For those of you who already carry a hefty consumer debt, it’s a slow slog out and I would like to talk more about that slog, but in a separate blog entry.

 

Now, when it comes to mortgage debt, or student loan debt, it gets a bit trickier. With respect to whether or not to carry mortgage debt (i.e., purchase a home versus renting) is a personal choice; each carries certain benefits and risks. 

 

So, my one piece of advice with respect to mortgage debt is this: make sure to carry no more mortgage debt than you can realistically manage and play the “what if” game.  For example:

 

What if my spouse/partner or I lost our job?  Could we/I still pay the mortgage? 

 

As tempting as it is to go for the maximum you can borrow to buy the house of your dreams, I urge you to NOT do that.  As the anti-NIKE slogan might go: 

 

JUST  DON’T  DO  IT.

 

I urge you to build yourself a safety zone and give yourself plenty of breathing room for bad financial things to happen.  If they don’t happen…WAHOO! – you’ve got savings for whatever you’ve ever dreamed about doing.  But if they do…guess what…you’ve got yourself that proverbial financial safety cushion and that’ll make the handling the bad financial thing just a bit easier for you.

 

I’ve already gone on my rant about student loan and student debt and how I feel that what we’re doing to our newly educated college folks is an absolute sin.

 

And just so you know, as of June 2013 the average student loan debt (undergraduate) was listed at $32,054.   

I really love Ted talks.  I found a Ted talk that not only talks about the crippling impact of debt, but also discusses the importance of 5 financial rules.  I’m going to end this blog entry and I encourage you all to take the next 11 minutes to watch this:

 

Five Financial Rules To Live By

 

Next blog I’d like to explore a few more “D” items; “DIY”, discounts and dependents…and whatever else comes to mind.
 

It's time for a disclaimer:

I’m not a financial planner, nor am I a business guru. What I am is a very practical person with (as my mother always said) “a good head on her shoulders”. I have good common sense and am old enough to trust my inner core and follow my instincts.

C IS FOR: CREDIT CARDS,COST CUTTING, COUPONS, CARPOOLING/COMMUTE OPTIONS, CONSERVING, COUCHSURFING, CREATIVITY AND WHATEVER ELSE COMES TO MIND

Before I charge off on credit cards and cost cutting and all the rest of it, I need to say one more thing about celebrations.  Today my oldest child turns 18 years old.  Although technically still a teen, legally an adult.  Change and celebrations are big in our household these days! 

 

H A P P Y    B I R T H D A Y!!!

Credit Cards

 

I’ve already covered how I feel about credit cards and credit card debt.  You may recall in my first blog I talked about how we pay off our credit card each month.  And, in my second blog entry I challenged readers to go without their plastic money for a week. 

 

I’ve had another opportunity to go without my credit card.  Last weekend we received a call from our credit union asking us to verify a number of recent purchases.  Guess what?  There was one purchase we didn’t recognize... it was a $450+ purchase made in California for building supplies…made at 7:30 in the morning.  NOPE – wasn’t us - and with that our credit card account was frozen.  While I feel really good about the constant vigilance of our credit card company to look for fraud, it makes me feel very uneasy to see just how easy it is for folks to rip off someone else’s account.

 

*Note:  Turns out that it wasn’t fraudulent activity afterall….it was a bill we didn’t recognize, but in the end legitimate.  Nonetheless, our old cards have been shredded and we’re awaiting new ones.

 

Cost Cutting and Coupons

Cost cutting and coupons go hand-in-hand.  I’ll admit something; I’m excellent at cost cutting, but I’m not very good at the coupon cutting.  My mother was a pro at coupon cutting.  It was more or less her other job.  She’d spend hours each week cutting coupons and organizing them by categories.  Then when we went shopping she’d whip out her coupon organizer (which wasn’t terribly organized) and find which commodity went with each coupon.  While it was insanely time consuming (and kind of drove me batty), she was able to save significant sums of money on our grocery bill.

 

I think coupons can be extremely effective and I know many people who have saved significant sums of money by using coupons on a regular basis.  I want to share two websites for coupons.  One website ranks the top ten coupon services and the other website ranks the top 25 money saving coupon blogs.  Click on the hyperlinks below for more information:

 

 

Online Coupon Service Review -- toptenreviews

 

 

Faithfully Frugal and Free Top 25 Frugal Money Saving Coupon Blogs

 

 

Carpooling/Commute Options

 

Depending on where you live, carpooling or other commute options can either be quite practical, or downright difficult.  I live in the latter category.  Carpooling happens where I live, but it isn’t really incentivized or in any way built into the infrastructure.  When I lived in Washington state, at the base of the Olympic peninsula, there were two things I remember about carpooling. First, there were these state established carpool parking areas, scattered about the region.  Next along the I-5 corridor, there were lanes especially designated for carpooling.  Carpooling was much more practical, and as a result, used quite a bit.

 

Commute options is as it sounds…an option or an alternative to the “normal” way of transporting oneself.  We do have a “Commute Options” week where I live, but I feel like the participation rate amongst community members isn’t that high.  The primary reason is that there just aren’t a lot of good alternatives to driving one’s car.  There is public transportation, but it’s not very convenient, dial-a-ride service, taxi transportation and there are those who are compelled to transporting oneself by personal steam (i.e.,walk, run, bike, skate, scooter).  By and large, the vast majority of people drive their car, day in and day out.

 

I just learned that the Oregon Department of Transportation sponsors a program called “Drive Less Connect”.  Who knew?  The things one learns when one starts to write a blog and enjoys sharing resources with others!  The huge bummer about Drive Less Connect…is that it doesn’t serve the county I live in.  Here are two links you might have interest in.  The first is a short youtube video about this program and the second is the website.

 

Youtube Drive Less Connect

 

 

Drive Less Connect

 

 

Conserving

 

This goes without saying.  Conserving our precious natural resources; conserving our commodities, conserving in general is a fundamental principle in our golden living.  What this means on a day-to-day level is this: we consciously and conscientiously think about the things we buy, whether it be food, clothing, electronics, household good, etc.  We have a set of guiding principles, and then once we buy, we use what we buy wisely.  At the end (if there is an endpoint), we might compost, donate or re-purpose before we ever think about discarding. 

 

CouchSurfing

 

I’ve already talking quite a bit about CouchSurfing.  It is a fascinating social phenomenon.  Perhaps it’s not for everyone; but we really, really enjoy both being a host and “surfers”.  As hosts and as surfers we don’t just willy-nilly take everyone who asks to stay with us and we don’t just willy-nilly stay in any old place.  No, we try to be judicious and prudent and selective, not only for reasons of personal security and safety, but because we want the interchange to be interesting.  Again, as I mentioned, CouchSurfing is much more popular in non-USA countries and amongst the younger generation.  However, as US citizens that don’t quite meet the criteria for “the younger generation”, we plan to continue with our CouchSurfing experiences.

 

Creativity

 

Creativity is essential for solving problems, especially ones that involve living on a golden shoestring.  It seems like there’s never enough money to do that which we want, but there is….there really is.  One needs to be creative and think differently than expected.  How???

 

Buy less

Buy used

Don’t buy (barter, share)

Walk

Use a Bike (no matter your age!)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carpool

Plant a garden

Cook at home

 

--------------------

 

You guessed, it…after the “C’s”, comes “D”.  I think next week I’ll focus on debt related issues…and whatever else comes to mind  -- or whatever else you’d like to discuss.

 

It's time for a disclaimer:

I’m not a financial planner, nor am I a business guru. What I am is a very practical person with (as my mother always said) “a good head on her shoulders”. I have good common sense and am old enough to trust my inner core and follow my instincts.

 

 

 

 

C = SO MANY THINGS! – I HOPE YOU'LL INDULGE ME

In last week’s blog I ended with:““C” is for: Coupons, Carpooling/Commute options, CouchSurfing, Creativity and whatever else comes to mind.”

Since then, many new “C” words have come to mind that really have little to do with living within our means and strategies for saving money.  I hope you’ll indulge me as I talk about some other things that are of particular importance.

 

COSTCO

Yes, it’s a place to shop and it’s great for bargains and buying in bulk.  I think I talked about COSTCO last week.  But, it’s also a place of employment and indeed my husband has returned to work at COSTCO. 

So, I can no longer say that we’re a family of four living on ½ of a salary.  Needless to say, even with him returning to work (in a part-time status), we’re still (and I’m afraid will always be) living on that Golden Shoestring and still adhering to our two major principles: 

 

We Don’t Spend More Than We Earn and

We Don’t Live In Debt.

It sure is nice to have more income, especially as we enter the summer months and a new chapter.

 

CULMINATION, CHANGE, CAREER, CONGRATULATIONS

 Both of our daughters have culminated their school year.  While one moves on to seventh grade, the other moves on to a new chapter and to change.  She’s ended her high school career.  We officially celebrated on Saturday with a glorious graduation ceremony.  With that accomplishment comes a:

 

HUGE CONGRATULATIONS!!!!

 

CELEBRATIONS

 

With the culmination of a school year come celebrations.  On Wednesday we celebrated our youngest daughter’s completion of another year of school.  On Thursday we began celebrating the completion of our oldest daughter’s high school career.  On Saturday there was a wonderful graduation ceremony.  From the graduation ceremony, the celebrations began.  The celebrations will being going on for quite some time!

 

 

 

 

 

COLLEGE

 

Yes, college is on the horizon for our daughter and for many of her friends.  With the anticipation of college comes a host of new and exciting adventures.  Possibly moving away from home, settling into a housing situation, registering for classes, finding the classes, buying the insanely expensive college text books and pursuing a career.

 

I want to take a moment to talk about college costs.  I’m going to go off on a small rant here; I hope nobody minds.   As a parent of a soon-to-be college student, and as a working member of society, I loathe that we burden our young people….any college student…with so much debt.  I think it’s both morally wrong and financially a disaster to have a new college graduate burdened with excessive debt. 

 

I’m not saying that all debt is bad; nor am I saying that borrowing SOME money for college is necessarily a bad thing.  But finishing college and starting a career with multiple tens of thousands of dollars of debt is, in my opinion, downright foolish and insanely stressful.

 

I will do everything in my power to minimize the debt burden my daughter(s) have through their college career; furthermore, I will urge them to do everything they can to minimize their debt burden. 

 

It means finding money that is not tied to loans or earning money.  We’re trying to do both.  We’re on a bunch of different scholarship websites; unfortunately many of them involve signing up for wacky contents.  And we’re urging our daughter to get a summer job and if possible to find a job while she’s at college. 

 

I’m reminded of what my parents used to tell me when I was little: “Shari, money doesn’t grow on trees.”  to which I would like to add the following:

 

“College debt is not an outright necessity nor is an obligation.”

“Think before you borrow.”

“Find the “free” money”first (grants, scholarships, etc.)

 “Work, work, work…”

 

Okay, I think I’m done ranting for awhile.  But others aren't.  Here's a video about the student debt crisis.  It runs close to 30-minutes. 

 

Scholarslip: A documentary about the student debt crisis

 

 

I think I’ll pick up where I left off last week, in the next blog entry.  I do want to talk about some of the topics I mentioned, such as: cost cutting measures, coupons, carpooling/commute options, CouchSurfing and creativity. 

 

Oh – one last bit of news.  Our Airbnb business cards arrived.  Next step is to get them out into the public spaces. 

 

 

 

It's time for a disclaimer:

I’m not a financial planner, nor am I a business guru. What I am is a very practical person with (as my mother always said) “a good head on her shoulders”. I have good common sense and am old enough to trust my inner core and follow my instincts.