Saturday, October 18, 2014

Understanding the Credit Game

Have you been tracking your expenses as requested in last weeks post? Any thoughts to share so far? I wasn't restricting my spending and we were purchasing more than usual because we are doing things at the farmstead. Spent a little over $400. Paint & painting supplies, food, gas & N100 masks with filters. No credit used.
Nancy Thormann's got me thinking about how much you are able to save if you get yourself out from the credit game.
While I have technically known that you really pay a lot to borrow to purchase a house, I went to a mortgage calculator and discovered:


How much you pay $300,970.80 (total amount you pay) – $165,000 (loan amount) 
= $135,970.80 (your cost to borrow that money). 
Every time you are using accumulated credit debt, you are paying back much larger amounts of money. 
And this my friends, is the envelope that arrived with the Deed to our property, instead of a coupon payment book.



Not so smart way to pay off your credit cards...
I do not recommend this next step. At this point we refinanced the house to pay off our credit card debt. We were still on the brink of financial toxicity in our thought process. But, we wisely started using cash only from that point.
We focused on three points
1) Not using our credit cards. Basically we got rid of them, with the only exception for one card for online purchases. With this card, I immediately go to my bank account and pay the amount to the credit company. You should actually think about that too. Decide if having your information out there is worth the risk.
2) Using cash only. If we didn't have the money, we just don't buy it. Once you get the credit cars payment eliminated, you might be surprised how much more money you have to spend. Suggestion: Why not add up how much you are paying in credit card debit each month? Are you only paying minimum payments?
3) Building up an emergency cash reserve to pay for those things that you need. We are dedicated to this principle.

Honestly, I haven't read or taken the Dave Ramsey financial courses, but I know somethings we do fit into that system and it is one I would recommend highly, particularly how to pay off credit cards, budgeting with envelopes and prioritizing the establishment an emergency cash reserve.
Lastly, Peter Bendal Kear had some excellent suggestions I wanted to make sure everyone got a chance to read his thoughts.
"A couple things I would like to add. A bank is not a good place to store all of it keep an emergency fund on hand. Along these lines realize that paper and even hard currency will lose it's monetary value when the system crashes (Perky's emphasis added). One words about debt and bills which comes in 2 types IMO. Things like electricity, phone, food, etc. which are either the same or variable monthly charges can be budgeted for but hey if you don't pay and something is shut off be able to do without are not something to worry much about. Budget for them and well if you can't afford them or the system goes down be ready to do without. Other things like mortgages, car loans, credit cards, etc have a set monthly payment on a debt you owe. All of these things can be paid with 10% added to the payment (less or more is okay I make 20% on our vehicle) in order to pay them off and get out of debt quicker. This also has the advantage in some cases depending on your financial institution of being ahead in payments so that if you say had to stop paying for a time you would be covered. Now keep in mind secured loans are ones that they will take the collateral (home, vehicle) so in my mind part of prepping is making sure that does not happen thus the extra payments. Thing is if the system crashes who is to say I owe this and force payment as well so I guess I could put that same 10% into a savings but then what do I know my house is paid for and I am about a year ahead on my only vehicle loan."
Next Friday, The Big Hairy, Scary Step...
For more information...
10/10/14 I am currently adding more blogs posts to explain a little more in detail about how we got to this point in our journey. These posts are listed here under"Financial".

Romans 13: 8 Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law. (NIV) Note that the previous chapter is talking about actually paying what our owe.

6 comments:

  1. GREAT POST!
    We are debt free here, but that doesn't mean we don't have the normal monthly bills plus property taxes, car & health insurance.
    How I handle our finances is pretty simple. I added up the total for all insurances (house & cars) and our property taxes, I simply divide the total by 12 months (1-year). We are totally dependent on our social security payments and have no retirement income (thanks to the 2008 market crash we lost over $700,000 in 15-minutes). This way I am sure that when any one of these bills are due, I have the cash to deposit into the bank and write a check. We no longer keep our cash in a savings account. We keep a small amount only in our checking. We pay cash for almost everything.
    I did start using our credit card because we receive great points to shop at Cabela's. We have walked in many times, found what we NEEDED (not wanted) and walked out without paying a penny, However, every single time I pay something with a credit card I keep the receipt, mark it in RED and put Credit Card on the top. The credit card receipts are paper clipped together and a running total attached. I know how much we can spend and I know how much we have spent - once we get close to the limit for that particular month, all credit card purchases stop. When the bill comes due, I simply pull the cash, make a deposit at the bank and write the check for the full balance due.
    We just learned that we have a super high credit rating too! This is based solely on our credit card use (only use one) and full payments.
    I use cloth folders. I also have a folder for Christmas Gifts, B-Days, Grandkids, etc. At the end of the month (or when our next S/S checks come in), I take any money left in my wallet, divide it in half. One half for the Holiday/Birthday folder and the rest goes into my savings folder.
    It's a simple system but it works for me. I have managed to save almost $10,000 since I started using this method.

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    1. Bobbie,
      That is excellent, I am going to share that in my next post. We lost a boat load in the 2008 crash also. The biggest decision for us was to withdraw all our money out of our 401k's last year. We paid big penalties and taxes, BUT we now have the cash and know beyond a shadow of a doubt that it won't be lost if/when another crash occurs.

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  2. Wish we would have had time to pull ours out before the crash. My husband actually called our agent telling her to get us out now (before the market even started crashing). She agreed and then left for a 2-week vacation. She did not inform us that we would need to sign a certain form to close our accounts. We were left out to hang and burn and that is exactly what happened. No money left to pull out of our accounts.
    It was a sad day for us -- even my husband's 401k's were lost. We had been contributing since the 1970s! Poof, gone in 15 minutes.
    No more - WE control what little money we have now.

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    Replies
    1. Oh, what a terrible thing to happen. I hope that people are paying attention to what is happening.

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  3. Me too! I hope what happened to us doesn't happen to anyone else. It's an awful experience watching your life's savings go down the toilet right before you eyes.

    ReplyDelete
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