Becoming Debt Free

• 2012-05-19

  Man with a plan

  From July to October 2011, I sat down a few days before the first to write out my monthly budget, using Dave Ramsey’s monthly cash flow budget. And I had phenomenal success with it. I saved $1000 for an emergency fund, started saving for a new computer and my move to DC, and I found myself less and less worried about money between paychecks. I knew where every dollar was going. I had a plan.

  But I haven’t done a budget since. Now, I’ve done pretty well with my money not having a budget: I’ve paid nearly off nearly $7000 in debt in seven months. But I’ve also spent $1550 in non-budgeted items (new bed, new iPhone, moving into and immediately out of a cheaper place.) If I had been budgeting, and thinking six months ahead rather than six weeks ahead, these things could have been budgeted for.

  So for June, I am returning to the budget. I put together a worksheet in Numbers that is essentially the same as Ramsey’s printed budget. I put in formulas so it will automatically calculate totals and find the percentage of income I’m spending in each category. My bank account allows me to set different categories for my savings, so I’ve created categories for electricity, water, phone, transportation, hair cuts and personal items. Every pay day I will go online and allocate savings to each category. Previously, it was one big lump of money, and I kept track in my head how much I needed to save and what bills had to be paid with that.

  The percentage of income for each category of the budget has already proven interesting. I know I don’t spend a lot of money on other stuff, but I surprised to see rent, utilities and debt repayment will account for 88% of my spending (debt will be 52% of June spending - that’s insane.)

  There is a lot of value in deliberate action. Sitting down each month to write the budget helped get me going on this 11 months ago. I’m going to find traction again and really focus to get this stuff paid off, once and for all.

• 2012-05-07

  Instacast for iPhone

  I’ve been using Instacast for several weeks now, and I’m finally ready to say: I’m a fan. I’ve listened to podcasts for years, some times two or more a day. And it was listening to Dave Ramsey’s podcast for about two weeks that finally convinced me it was time to change my financial ways.

  While I enjoy podcasts, there have always been a few complications syncing them through iTunes. iTunes can look for and download new episodes every hour, but what if I sync my iPhone between the time a new episode is available and the time iTunes checks and downloads it? 

  I can always pull the episode up on iTunes on my iPhone and stream it, but occasionally I get an error - “This content can’t be played on this device.” If I can stream it, and I switch away, the podcast stops, and when I go back to it, I start at the beginning and have to scrub to find where I left off. If the podcast is less than 50MB (the size limit for 3G downloads,) I can download it to my device, but that can take five to ten minutes per episode, and I have to search for and download each new episode individually.

  Instacast solves all of this. It looks for new episodes at a user-set interval (mine is every hour,) and sends a notification when new episodes are available. If I’m connected to WiFi, it automatically downloads them - you can set it to download over 3G, as well. Instacast uses iCloud to save where you paused listening, so if you’re streaming, or you switch to another iOS device, you resume playing right where you left off.

  Podcasts are a big part of my entertainment, because there is a huge variety of content, and it’s all free. What was an inconvenience downloading and syncing with iTunes, Instacast makes simple and seamless. I’m a fan.

• 2012-04-29

  Snapshot

  I’ve been working on the debt snowball for ten months now, and it really accelerated six months ago when I sold my car. So, how have I done since July last year, when I started?

  Wells Fargo car loan: $1750 (Paid)
  CapitalOne credit card: $1550 (Paid)
  CitiFinancial personal loan: $4400 (Paid)
  Bank of America credit card: $1025 (Expected payoff, July 2012)
  Hospital bill from 2009: $600 (Paid)
  Toll road bills from 2010: $75 (Paid)

  TOTAL: $9850

  I also saved $1000 in an emergency fund, although that currently sits at $750.

  Where have I made mistakes?

  The balance on my CapitalOne card was $750 in July 2011, and was paid in full in November, but I have spent $1250 more on the card. I should have closed it in November, or at least practiced the restraint I said I would. $450 was used to purchase a new iPhone, when my original (2007) iPhone stopped working. $150 was used when I moved into (and, two days later, moved out of) a new place.

  My emergency fund was reduced when I moved into the new place. The new place would save me $100 to $200 each month, and when I signed the lease, everything looked great. When I moved in 30 days later, the place was a disgusting mess, and one roommate made some inappropriate, creepy comments to me, so I moved back to my old place two days later. I received my deposit from the new landlord, but she kept the $275 for the first half-month’s rent.

  And in the first week of April, the air mattress I have been using since October developed a series of fatal tears, and after a week of sleeping on the floor, I decided to buy a bed. A low-end queen mattress, split box springs (more expensive, but easier to move and maneuver,) a simple metal frame, and delivery cost $560.

  iPhone, bed, non-refundable rent at new place, and moving costs: $1435. If my bed and phone had kept going, I’d be $1000 closer to being debt-free.

  Lessons learned: Not all that glitters is gold - the new house was supposed to save me a bunch of money, but instead, it cost me $400. Staying put, though more expensive, allows peace-of-mind with great roommates.

  I need to budget more money. In January, I began to budget more money for utilities, since it continuously cost more than I budgeted. I need to do the same for transportation, as I usually have to put a few dollars of my own on my Metro card, and I’m finding a lot of value in the ZipCar program.

  I’m really excited to see the end of the Bank of America card, which has long-since been closed, so no threat of running it up again like the CapitalOne card. I won’t be able to save as much money as I had hoped between the end of the BOA card and my student loans entering repayment, but I should be able to save some.

  And writing it all out, I should stop beating myself up over not having paid more on the BOA card. $10,000 in ten months is pretty good progress. I should feel pretty proud of that.

• 2012-04-28

  I get around

  I made the decision to move to DC in no small part because I could live without a car. Not having a car has saved me $350 to $400 per month, which I have used to pay down debt. As an added bonus, my employer gives a monthly stipend for public transportation, which most months covers all but about $25.

  My original plan was to rely on walking, buses, and the Metro, but set some money aside each month for taxis or other transportation costs. I quickly realized taxis were far too expensive, so I put the money towards debt repayment and relied on my feet and public transit.

  Recently I signed up for ZipCar, which has a small application fee, and a reasonable annual membership, and charges $8 to $10 per hour for the cars. Gas, insurance, and parking is paid by ZipCar.

  I used ZipCar to rent a truck a few weeks ago to move. It cost $40, about what a moving van would have, but no paperwork, easy to get to, and it included gas. The following week I rented a car for a quick visit to the mall - the bus would have cost $1.50 but would have taken about 3 hours round-trip, ZipCar cost $15 but I was home in a little over an hour. And a few days ago, I rented an SUV to pick up a box spring for my new bed. That trip cost $15, way cheaper than the mattress company’s $65 delivery charge.

  ZipCar has saved me time and money. And for April, ZipCar has cost me about $100 (including a discounted annual membership,) significantly cheaper than it cost to own my former car.

  Six months into city living, and walking and public transit meets 98% of my transportation needs. But I’ve been very happy to discover ZipCar, and will continue using it for those rare times walking or riding won’t cut it.

• 2012-04-21

  Student loans

  I’ve been seeing a lot of murmuring online about student loans. For the first time, student loan debt has exceeded credit card debt. People are delaying major life decisions, like buying a home or getting married, because half of their income goes to loan repayment and it’s all they can do to keep their heads above water.

  A friend on Facebook “signed a petition” for student loan forgiveness. This particular petition called for people to pay no more than 10 percent of their income for no longer than 10 years - the outstanding balance would then be forgiven.

  This doesn’t seem fair to lenders, who, unlike with home mortgages, didn’t do any hoodwinking or hide important information when they made these student loans. It also fails to teach the borrower any lessons. If such a bill passed, I would end up paying about $22,000… even though I borrowed $65,000. It’s not fair for the taxpayers to eat a $30,000 debt just because it’s inconvenient for me.

  Better, I think, is lowering the interest rate. Some loans have interest rates between 2 and 4 percent, but that is set to rise to 6.8 percent on July 1. Keeping interest rates low makes repayment easier. Currently, half of my payment goes to interest. If interest only accounted for a quarter of my payments, or a tenth of my payments, I would be able to pay down the principal quicker and be done with the loan itself quicker.

  Long-term, college costs have to be addressed. I would also like to see the federal government take over all student loans - private companies are much less flexible with repayment schedules and frequently have higher interest rates, and having third-party loan servicers (companies responsible for collecting payments) have worse customer service and fairly crummy web portals for managing the loans.

  Short-term: don’t give us amnesty on our student loans. Just give us a little breathing room, through lower interest rates, and possibly forbearance periods without interest accrual.

• 2012-04-12

  Fuck it

  Sometimes the plan needs to disappear for a bit. And I think that’s the case here. In the last three weeks, I had to replace my iPhone and my last pair of shoes. $500, boom, gone. The air mattress I’ve been sleeping on since October developed several tears in the seams, which has rendered it unable to hold air for about a week.

  Because I had to replace my iPhone and shoes, I’ve been debating about the money for the bed. Do I return the iPhone (and use my crummy flip phone,) sleep on the floor, and buy a bed in June after I pay off my last credit card? Do I return the iPhone and buy a bed? Do I keep the iPhone and buy a bed? If so, how much does it hurt to pay off the last credit in July rather than June?

  A week of sleeping on the floor has given me the answer: it’s time for a bed. I haven’t had once since moving here, it will be nice to not have to inflate it every night, and it probably won’t get cold like the air mattress did.

  I had a plan to be done with credit card payments in June. But a few legitimate things came up. So the plan has to change. But I guess it will all be alright, and if not, at least I’ll have a cool phone and a nice place to sleep.

• 2012-03-22

  Good advice

  Steve Jobs in February 2010:

  We know if we need to acquire something - a piece of the puzzle to make something big and bold - we can write a check for it and not borrow a lot of money and put our whole company at risk. The cash in the bank gives us tremendous security and flexibility. You never know what opportunities are going to be around the next corner.

  Tim Cook in February 2012:

  I would say we’re judicious and deliberate. We spend our money like it’s our last pennies. I think shareholders want us to do that. They don’t want us to act like we’re rich. We’ve never felt that way.

  Save for the future, spend wisely.

• 2012-03-15

  Over the hump

  I signed a lease for a new place last night. It’s in a nicer neighborhood, close to a Safeway, about a 15-minute walk to a Metro station. The house is nice enough, even if there will be four roommates. Glad I only share a bathroom with one other person.

  And it will be between $125 and $175 cheaper per month. What does one do with more discretionary income?

  First, the grocery budget is growing a little. Too little food money has caused me to rely on my CapitalOne card too much - I’d love to pay the damn thing off, and really be done with it.

  Next, attack the Bank of America card. The balance is $2700 today. In six paychecks, it will be gone. Gone. GONE! The last payment will be made on my birthday.

  Then, from mid-June until mid-October, when my student loans become due, I will save like a madman. My goal is to save $4000 during these four months, for a total emergency fund of $5000 - roughly three months of expenses.

  I’m not good with ambiguity. I like things defined, and stable. It would be nice if I could stay where I’m at, and my roommates would stay, too, but the reality is, they’ve got plans to move on this summer, and I would end up with new roommates. So if I have to get new roommates, I might as well live in a cheaper place, and try to achieve a few goals.

  This is where things start to feel really good, financially.

• 2012-02-28

  Failure to plan, plan to fail

  As planned, I paid off the CitiFinancial loan this month. But I didn’t successfully complete the $100 February Food Personal Challenge.

  By the middle of the month, I had spent the $100 for groceries. I charged an additional $88 of groceries, and $64 going out ($40 of it on drinks with friends.) I went $152 over budget. That’s not stellar.

  The takeaway from Austerity Month? Meals need to be planned! Large-dish meals, like chili and shepard’s pie make the money stretch a little, and are great for work lunches. But just buying the things I like to eat (Pop-Tarts and hot dogs) doesn’t cut it.

  Going forward, my food budget will increase, but not much. I plan to have $125 for food per month, but I’d like to try to not spend more than $100. More ramen and rice may be in my future. I should start planning my meals now.

• 2012-02-21

  A measure of service

  Want to see how much a company values you as a customer? Pay off your balance, and see how smooth the process is.

  I should have known better than to think paying off my CitiFinancial loan would be without headache. Just three and a half months ago I got to go through the hassle of paying off my CapitalOne card (here and here).

  I sent my final payment to CitiFinancial. The check was deposited. I have an image of the cleared check. But the payment hasn’t been posted to my CitiFinancial account, and a phone call revealed the payment doesn’t seem to be in their system.

  The lady at the Colorado branch (where I took out the loan) asked me to go to my bank, and have them fax a copy of the cleared check so she can investigate the issue. So I’ll do that.

  Maybe it’s coincidence, maybe bad luck. But it feels like companies that rely on subprime borrowers like myself will do whatever it takes for the last payment to be a pain in the ass. CapitalOne took two $700 payments when I only authorized one $700 payment. And CitiFinancial cashed a $1500 and, for the first time in two and a half years, my payment didn’t get credited to my account.

  That just doesn’t feel right. I won’t be doing any more business with them.

• 2012-02-20

  

  Save time? I pay my bills with my bank’s online system, and can schedule ALL of my monthly payments in less than a minute.

  Save money? My CapitalOne card’s interest rate is 2.5 times HIGHER than my next-highest interest rate.

  No time savings. No money savings.

• 2012-02-18

  Last month, I got a letter from a law firm, requesting $272.15 for some long-since-overdue toll road charges.

  I called the toll road company to see what it was all about. I had $27.15 in charges due, from June 2010. For some reason, the in-car device for registering trips on the toll road failed to work for about three weeks, and they instead took pictures of my license plate and sent a paper bill.

  Turns out, for license plate tolls, the toll road relies on a third-party for matching license plates with addresses for billing, and they used an address I hadn’t lived at since August 2009. She requested I email some documents, which I did.

  Three weeks later, I hadn’t heard anything, so I called back and spoke with a supervisor. The documents didn’t provide the information they needed (and they didn’t bother to call or email me about it.) I didn’t have the documents they wanted, so the supervisor said the collection law firm would have to handle it, and she could request they cancel the $200+ penalty, but I would likely still have to pay $20-$40 in collection fees.

  I called the law firm yesterday, and the woman there was perfectly nice. She said the penalty had been removed, but I still owed $33 for the toll charges and $40 for the collection fees. I asked her to send me a paper bill, and she said I could pay over-the-phone. No, a paper bill, please. As she confirmed my address, she stopped to suggest I pay online. Paper bill, please. She wasn’t as pleasant after that.

  The situation still didn’t feel right to me. I used the toll road, but rather than matching my plates to the account I had with them, they used a third-party which had a very out-of-date address for me, and because they were sending bills to a place I didn’t live, it went to collections. I wanted to pay my bill, but fees that were 200% more than the charges felt wrong.

  I woke up this morning, and dug around in some old papers. And I found the documents the toll road wanted! So, I called them up, they recalled the account from collections, and I paid my $33 in tolls. Perfectly fair and reasonable.

  Persistence with the toll road company, adamantly requesting a paper bill from the law firm, and being too lazy to throw out old papers saved me $240.

  I guess I was wrong when I said there were no more surprises. I’ll try to avoid absolute statements like that in the future.

• 2012-02-16

  More blame

  From No Debt Plan:

  So you used to make six figures? Great! Even in a high cost of living area you were pulling down a healthy amount of cash. Now wait a second, what did you spend that money on? Rent? An expensive home? New cars with financed loans?

  How much of that income went into savings? How much of it went into a rainy day emergency fund? How many planned to be unemployed at some point in the future and prepared for that day?

  Yep.

  While others have hurt, I’ve had tremendous personal success, and I’m preparing for the future. All with a bottom-30% income.

  Who would the unemployed blame for that?

• 2012-02-13

  

  My last payment to CitiFinancial will be made Wednesday, thanks to Austerity Month. And the wheels are spinning as to how I attack the next (and LAST!!) credit card.

  If I follow the debt snowball payment schedule, I would pay off the card in early July. But if I can cut $50 a month out of my regular food/discretionary spending and apply it to card payments, I would be done at the end of June.

  And if I can cut $100 each month, I will be done June 8. My 27th birthday.

  It’s about priorities. Would I rather have $100 more each month for the next four months, or $100 less each month for three and have the card paid off a month early? It probably won’t be much fun. It will mean no new bed. No desk. No set of pots and pans. No iPhone. No iPad.

  But to turn 27 years old, having crawled out from a mountain of credit card debt in just under a year, and being well on my way to pay off student loans and save for the future?

  It will be worth the three-month sacrifice.

• →

  Now

  It happens today.

  Because, if not today, when?

  New Year’s Eve is ten and a half months away. The first of March is more than two weeks away.

  Can you wait that long to change?

  It has to happen today.