Sargoth's Financial Advice Thread

[Sargoth]

I am not an accountant, nor am I a financial advisor, nor do I hold any financial certifications or licences. But, my advice is free. :)

[RollaFett]

Ok, I have a little over $20,000 in debt (credit cards). Uhh..what do I do?

[Javen]

move, change your number, get a new identity. That should work for a while.:nahnah:

[Sargoth]

Ok, I have a little over $20,000 in debt (credit cards). Uhh..what do I do?

First off, how is your credit score? If it's decent, you probably get many offers for 0% APR intro rates for balance transfers. With a good credit score, you should have no problem getting two 0% cards with a 10-15k limit on them. Of course, read the fine print!! There will usually be a balance transfer fee (which is negligible, considering you're getting up to 18 months w/out interest). But other fees and charges may apply. It is vital that you make every payment on time! Even if a payment is posted just a day late, most cards will cancel the 0% APR.

Now, let's assume your current APR is about 9%. For 20,000, your monthly monthly minimum payments are probably about $300-$350 a month. At 0% don't be surprised if you see this drop by about 50%! So the next question is: What do you do with the additional $150 a month?

First: If you don't yet have a Roth IRA, open one ASAP!!! This can be done for as little as $500, and you can contribute up to $4000 a year. Started early enough (early 20's) a Roth will make you a Millionaire by the time you retire - if you're a late starter, you'll need to be more aggressive with it.

Second: What other debt are you carrying? (Student loans, mortgage, car payment). The extra money would be very well spent applied to paying off additional principal on one of these.

Third: You haven't opened your Roth IRA yet??? Get busy!!

Fourth: Put it somewhere where it will work for you. Bank rates suck! Look at other accounts like money markets or CD's. You can usually get in to these with lower balances than other securities. -or- if you already have a securities account open, it's a bull market!! Run with them!

Fifth: Put it towards the principal of your 0% credit cards.

Now, let's assume your credit isn't good enough to score the 0% offers. The first thing I'd do, would be to find out what it would take to raise your credit score. The better your credit score, the better rates you get on all kinds of loans. You are entitled to a free credit report every year. Get it, and use it to see what you need to do to raise it.

After you have a strategy for raising your credit score, let's look at getting rid of those damned credit cards! If you're a homeowner, you probably have a bit of equity in your house. Consider a home equity loan or line-of-credit. These rates should be quite a bit lower than your credit card rate. Most importantly here: make sure you trust your loan officer/mortgage broker. Ask as many questions as you can, and make sure he answers them. HE Loans/LoC's usually come with plenty of fees and closing costs. Some banks will offer "a no-closing cost option", which usually means they'll jack up your interest rate, or tack on some other "fee". This is seldom a good idea. You'll want to make sure you get a fixed interest rate. Consider buying down points on the loan, it'll usually save you in the long run (plus, it's a tax write off).

Home-Equity loans have two big advantages over credit cards: 1) The lower interest rate. 2) The interest you pay on them is a fat tax deduction.

Ok, we're down to the last possibility: either your credit is poor, or you are not a homeowner. Again, look to increasing your credit score. Your next line of attack is the credit card companies themselves. If you call them and ask "nicely", they may just reduce your rate. Tell them you've gotten an offer from a card that beats what they're offering. They'll probably give it to you on principal. The credit card market has lots of competition, play that to your advantage.

[RollaFett]

Yeah, I'm with the last possibility. Credit, while not poor, also isn't good. Plus, I'm not a homeowner.
That $20,000 I mentioned is splti over 2 accounts. One is a credit card with a very good rate. The other is a loan where I consolidated a few different cards. Unfortunately,the rate for that is 21.9%. Balls. There's about $15,000 in that.

[Sargoth]

21.9% ?

Yeeeowwwch!

Ok, couple of questions...

What kind of loan is this?

How many years to repay?

Do you have a prepayment penalty?

Are you making additional payments against the principal?

How much space is open on that lower interest rate credit card?

[Tovor]

Sargoth, I have 13,000 on 3 credit cards. I missed a few payments and the interest jumped up to 29.9% on all 3 cards. Yes, that's right, 29.9%. Now my minimum payments are 540-560 on all 3 cards; over 1,600 per month in interest as of this month. I can't pay this. I'm trying to find a means to survive this. Have you heard of Payment Protector? It's a company that works along with credit cards to protect your account in case you lose your job or have a life incident such as baby or a crisis. The only thing that I think that it's good for is the once a year holiday you can take. Meaning, that once a year you take a holiday from payments and interest in the case of a crisis. I've had Payment Protector before and have used it, but cancelled after because it does add up to a bit of money. It's .89 for every hundred dollars of your balance. So for a card with a 5,000 balance it comes to 44.90 per month or about $115 for all three cards. I'm thinking about signing up for it again for all 3 cards. I'll have to wait a month after getting it, and go into crisis mode and at least get one month free of interest and fees, to get my head above water a small bit. But it will actually be 2 months after getting it before I'll have the interest free month, meaning that I will spend 230 to save a month of 1,600. That seems like a no brainer, but on the other hand I don't have 230 to use and I'm looking into other options as well, though they are all so daunting.



What do you think?

[Sargoth]

^ Ok, first off, in the immortal words of Ford Prefect: "Don't Panic!"

I'm very leery of payment protection services. For the fees they charge, it usually isn't worth the service they provide. You mention you can take a "holiday" for a month. Does this mean that they *pay* the bill for you? Or does it mean that they allow you to miss a payment without penalty? If it's the former, then it might be a good idea (depending on the fine print). If it's the *latter*, and you only get a payment deferrment, then absolutely, positively, do not buy it. All that means is that you've paid $230 for the privilige of having another month of interest compounded against you. It's a rip-off.

You do have the immediate problem of making your payment on time, that's for sure. Have you called your CC companies to ask for a lower rate? If you don't call to complain, they'll *gladly* keep your rate at 29.9% (thank the new federal bankruptcy legislation for that one).

Secondly, check your credit report. Assess how bad the damage was by missing those payments. If it isn't totally wrecked, you should be able to apply for another card at a much lower rate. You own your condo, right? See about cashing out some equity (see my post to Rolla above).

[Tovor]

^ Ok, first off, in the immortal words of Ford Prefect: "Don't Panic!"

I'm very leery of payment protection services. For the fees they charge, it usually isn't worth the service they provide. You mention you can take a "holiday" for a month. Does this mean that they *pay* the bill for you? Or does it mean that they allow you to miss a payment without penalty? If it's the former, then it might be a good idea (depending on the fine print). If it's the *latter*, and you only get a payment deferrment, then absolutely, positively, do not buy it. All that means is that you've paid $230 for the privilige of having another month of interest compounded against you. It's a rip-off.

You do have the immediate problem of making your payment on time, that's for sure. Have you called your CC companies to ask for a lower rate? If you don't call to complain, they'll *gladly* keep your rate at 29.9% (thank the new federal bankruptcy legislation for that one).

Secondly, check your credit report. Assess how bad the damage was by missing those payments. If it isn't totally wrecked, you should be able to apply for another card at a much lower rate. You own your condo, right? See about cashing out some equity (see my post to Rolla above).
I have called to complain and they won't drop it, although she may have mentioned that if I make the payments on time for a few months they may lower it. I did apply for another credit card in the fall when my score was better than it was now, when I wasn't in such a situation as I am now where I have far more debt to income.

With the payment protecter when you take a holiday, it is not a deferrment of the payment, it means that for that one month, they will pay the payment and interest.

[Sargoth]

I have called to complain and they won't drop it, although she may have mentioned that if I make the payments on time for a few months they may lower it.


That's not good. Did you ask to speak to a supervisor? Run your credit report to see where you stand. If you get better leverage against them (i.e.: a competitor offering a better rate), it's only good business for them to lower it.

I did apply for another credit card in the fall when my score was better than it was now, when I wasn't in such a situation as I am now where I have far more debt to income.
Good!! What's stopping you from doing a balance transfer to the lower rate card?


With the payment protecter when you take a holiday, it is not a deferrment of the payment, it means that for that one month, they will pay the payment and interest.Hmm. If there's no fine print involved (like a long-term committment to their service), then the numbers say "go for it". Of course, caveat emptor.

[Tovor]

I did apply for another credit card in the fall when my score was better than it was now, when I wasn't in such a situation as I am now where I have far more debt to income.
Good!! What's stopping you from doing a balance transfer to the lower rate card?
Ah, I had forgotten to complete my statement. I was turned down because I'm overextended; debt to income ratio is too high. Point was, I was turned down when my score was better than it is now, so there is far less of a chance I can get another card now.

[Sargoth]

Ah, I had forgotten to complete my statement. I was turned down because I'm overextended; debt to income ratio is too high. Point was, I was turned down when my score was better than it is now, so there is far less of a chance I can get another card now.

Ok, that changes things....

I ran your numbers through an amortization calculator, and see that your debt will be cleared in 36 months (as it stands). Normally, CC companies will want to spread out payments as long as they can so they can keep getting interest off of you nearly indefinitely. That tells me that they probably consider you to be a very high-risk borrower, and I assume your credit report will reflect this as well - again please run this yourself to see where you really stand.

Now, you mentioned three cards. Have you spoken with all three lenders? If even one of them budges on your rate, you could trim several hundred off your payment. I'd call them after each and every payment is received to see if they're willing to work with you. Don't let them give you vague answers like "we may be able to help you - some day." Pin them down. Find out what rate they will offer and starting after how many payments are received. And make them commit (in writing, if possible).

Have you looked at a home equity product yet? If you can qualify, the rate will probably be sub-prime, but will almost certainly be under that exploitave 29.9%.

Honestly, from what I hear, you may want to consult a professional. Your current lenders appear to have a stranglehold on you - $1600/month would bleed just about anyone dry. There may be other debt consolidation products available to you that you can use. If you go this route, make sure you go with a reputible agency - there are a lot of snake-oil lenders out there.

Good luck, bro!

[redsabre]

There is help available, both to get out of debt, and to avoid the perils and pitfalls of credit in the first place. The link below might seem kind of strange; all I ask is for any one so inclined to listen with an open mind. The narrator is George Gordon, who is kind of a legend when it comes to teaching people how represent themselves in a court of law. He is also a staunch Libertarian and is a practitioner of the Mosaic law, as well as the host/narrator of his radio program. The link is to the radio archives; the section perhaps most relevant to those of us with credit woes will be found in the January 2007 section of the archive. Each program is one hour long; since Mr. Gordon is the sole advertiser, that translates into about 55 minutes of news you can use. Downloadable in MP3, realplayer and windows media player format. May the Force be with You!

http://www.georgegordon.org/Radio_Archives.htm

[RollaFett]

21.9% ?

Yeeeowwwch!

Ok, couple of questions...

What kind of loan is this?

How many years to repay?

Do you have a prepayment penalty?

Are you making additional payments against the principal?

How much space is open on that lower interest rate credit card?

It's a line of credit loan.
I believe it's a 5 or 6 year deal.
No penalty if I pay off early. Is that what you meant?
If possible, I'll send extra money, but that's easier said than done.
Not much space left on the lower card. Maybe $1,500.

[Sargoth]

If possible, I'll send extra money, but that's easier said than done.
Not much space left on the lower card. Maybe $1,500.

Ok, let's crunch some numbers for you. Let's assume, worst case, you cannot get a lower rate, and you're stuck with the 21.9%

$15,000 amortized over 72 months @ 21.9% interest comes out to an out of pocket of: $27072.00. That's $12,000 in interest alone!! Now, that's assuming you're making the minimum monthly payment of $376. Let's see what happens if you add $124 to your monthly payment for an even $500. That drops your out-of-pocket by 6,000 dollars!!!! Not only this, but you're paid-in-full after 44 months!

Now, let's take a happier path. Let's say you get your rate reduced to 12.9%. By paying $500/month, you'll save an additional $4000, and be paid off in a mere three years!!

You may pose to me "I can't afford to pay another $120 a month." Faced with these numbers, I have to counter with "how can you afford not to??"

Now, let me ask you the $12,000 question: Have you sat down and drawn up a budget (and do you stick to it)? How often do you go out to eat? How many times a month do you go to the movies? Do you always "shop for price" at the grocery store? Do you have a Starbucks habit? Once you see where each dollar is going every month, I'd be willing to bet you can find some things you can live without. $124 can be spent very quickly!

[RollaFett]

Once you see where each dollar is going every month, I'd be willing to bet you can find some things you can live without.

Whiskey? Never!

[Sargoth]

Whiskey? Never!
If you live in a State that allows retail liqour sales, you'll find a Costco or Sam's Club membership is a great way of saving money on booze!
:shots:

[RollaFett]

No such luck here in Jersey.

[Sargoth]

From another thread:
Crap, the five tickets I bought for the Play 4 game (a small nightly lottery in Florida for amounts up to a few thousand $, far more realistically easy to win than the million dollar lottery) last night did not have the winning numbers for last night's drawing.

Tov, I hope you realize that I'm only doing this because I love you...

... and this will hurt me much more than it will hurt you.

:spank: :spank:

From what you described to me above, I have to call your situation 'dire'. In a condition like this, one of the worst uses for your funds is the lottery. The five dollars you spent only have a one-in-two-thousand chance of working for you. It would have been much better spent going towards principal on your debt.

But Sargoth, it's only five bucks!

If you talk to financial advisors or debt coucilors, you will often hear a term called the "Latte Factor". The "Latte Factor", (probably named after the overpriced $5 Lattes at Starbucks) is a very small - but reoccurring unnecessary expense. This is an expense that, over time, adds up to real money. Any $5 a day Latte Factor, be it Starbucks, the Lottery, Cigarrettes, bottled water, fast food, etc. is something that can either be eliminated (don't buy lottery tickets), or replaced with a lower-cost equivilant (Screw the $2.50 liter of bottled water, fill up your own from the tap for a penny).

In simple arithmetic: $5 a day adds up to ~$150 a month or $1825 a year!! Is that Starbucks really worth $1800 of your yearly net?????

If you want to get through this without filing for bankruptcy, Tov, you must scrutinize every penny that leaves your pocket until you get your debt under control. And yes, that means hard sacrifices. But it is a matter of financial survival.

If you like, you can PM me your budget (you do have one.... right? ;) ) and I'll try to see if I can detect any red flags.

[Tovor]

I hear what you're saying. But to be honest, I never played the lottery before but for a few times over the years. I tried with the smaller games because unlike the one in 65,000,000 chance of winning 65,000,000, you have a one on 2,000 chance of winning some realistic money.

[Sargoth]

Tov? Rolla? How are you guys doing? Any changes?

[Master Cephus]

Hey Sargoth, what's your opinion of Dave Ramsey?

My wife and I are trying to follow some of his ideas with our money. The only debt we have is my student loan (~$18k), but the payment is like $70/month with like 3% interest on it.

We rent our house, own both cars, and only have a couple thousand in savings. We want to save up to try to buy a house, and also we would like to start family.

Any thoughts?

[Tovor]

Tov? Rolla? How are you guys doing? Any changes?
I just lost my job, and I'm actively trying to find another. Submitting my resume, I am, to several companies.

[Sargoth]

Hey Sargoth, what's your opinion of Dave Ramsey?

I skimmed his book, and wasn't really impressed with it. He gave some, imho, poor advice on debt and credit. For example, he made some comments to the effect of "don't use 0% deferred interest plans, because the majority of people don't pay them off in time". Of couse, if you use it incorrectly, it won't work in your favor. But if you do pay it off in time, you'll get to play with the issuer's money for free.

Also, his "don't use debt to make money" rule. If I can get a home equity loan at 7%, then take that money, and invest it at 15%, I've walked away with 8% profit (plus the heloc interest is tax deductible).

Ramsey seems to be geared towards people without financial discipline. If you can't pay your bills on time, of course you want to avoid debt. Then again, I've only read part of one of his books.


My wife and I are trying to follow some of his ideas with our money. The only debt we have is my student loan (~$18k), but the payment is like $70/month with like 3% interest on it.
You are in great shape then!! 3% is a sweet rate. Let it ride, for now.


We rent our house, own both cars, and only have a couple thousand in savings. We want to save up to try to buy a house, and also we would like to start family.
Sounds good. You do have a Roth IRA set up, right? If not, start one today. You'll thank me in 30 years. ;)

Now, to the house...

The biggest financial mistake I've made in my life - the one I still kick myself for over and over again, is my wife and I rented for nearly six years. (Stupid Sargoth!) $54,000 spent making our landlord rich. Uggh! A house is one of the best investments you can make. Even if you get a small "starter home", you'll start building equity instantly. Plus, the interest on your mortgage is 100% tax deductible. Also, interest rates are insanely low right now. I can't speak for Alabama, but Phoenix metro is currently a very strong buyers market. Sellers and builders are offering free upgrades, free closing costs, even new cars to attract buyers! Check your local market to get a feel for it. And don't worry too much about not having much savings (yet). There are lots of mortgage products available for people without the 20% down payment. If you just get a "starter home", don't be afraid to look at an interest only product. The first five years of a 30 year loan pay mostly interest anyway. Let me know when you guys start looking, and I'll let you know about some of the pitfalls we ran in to.

And finally, to the family...

Babies are *amazing*. They are also timesinks (and expensive ones at that). Consider getting established in the house first. Your wife can't help move furniture when she's pregnant. :)

[Sargoth]

I just lost my job, and I'm actively trying to find another. Submitting my resume, I am, to several companies.

Uggh! When it rains....

Hang in there, bud!

[RollaFett]

I'm a little better. I just got a new card ($7,500) with 0% rate for balance transfers, and I have a line of credit ($8,000) with 8.9%. Between the two, I can split the remaining $14,800 I have at 21.9% and be in much better shape.

[Zedekk]

Sith Lords don't have "Latte Factors"!!!!

Okay, so maybe we do have one or two...

*grumble, grumble* "...stoopid lattes..." *pours latte down the sink* "Never again!"

*Goes out to buy a latte to celebrate*













..."what?"

[Sargoth]

I'm a little better. I just got a new card ($7,500) with 0% rate for balance transfers, and I have a line of credit ($8,000) with 8.9%. Between the two, I can split the remaining $14,800 I have at 21.9% and be in much better shape.

Sounds like you're making good progress!! Remember to pay as much against the principal as you can (avoid 'minimum payment syndrome'). How's the budget coming along?

Sith Lords don't have "Latte Factors"!!!!

I always have coffee when I watch radar. You know that.

Everybody knows that!!

[RollaFett]

'Budget'? Now let's not get ahead of ourselves. baby steps. ;)

[Sargoth]

Bumped for Miss Blizzie's benefit.


And why do I suddenly feel like Tovor? :nahnah:


You're situation sounds tricky. While there might not be much advice I can give you about your immediate problems. There are some things you may want to keep in mind to improve your long-term financial well being, thus preventing situations like this from happening again.

While all situations are different, when you break them down to their simplest components, you'll always see that there are two key points to target when you see your paycheck being stretched too thin:

1) Decrease your expenses.
2) Increase your income.

1) Judging by your past posts, your expenses seem to be under control. If you have a budget drawn up, and are confident there's nothing that needs to be adjusted, skip on to step #2. If not, it's time to start crunching some numbers!

2) Now we come to what I feel may be the crux of your situation; increasing income. Let me preface this by saying that I have the utmost respect for what you do. Education - especially of children - is a noble and selfless undertaking, and I'm sure it is something you are passionate about. That being said, there are several hard questions I would suggest you ask yourself:

a) Are you comfortable that your position has enough advancement opportunity to put you into better financial situation in the near future?

b) Are you comfortable taking on the risk of going without medical insurance? You are capable of covering Cam's current medical expenses and prescriptions out-of-pocket, but something like a simple trip to the ER for a broken wrist could be a one-way ticket to bankruptcy.

c) Will your current position and situation allow you to retire with a modicum of comfort?

d) Are you comfortable with the 'seasonal' nature of your work?

Now, if you answered "No" to any one of these questions, the final and most important question you need to ask yourself is:

Would you be willing to give up the personal fulfillment of your current job for the financial security that would come with a career change?

This isn't an easy question. It's very personal, and should be made with your family and friends within quick reach. But I believe it is something you may wish to mull around for a while.

Best of Luck! :)

[Sargoth]

So, what's everyone going to do with their check from the gov'ment?

[Krogenar]

So, what's everyone going to do with the money they earned, that the government has returned to them?

Fixed. ;) (At least for me -- some people will be effectively receiving money that they did not earn from the government.)

I plan on paying down the principal on my mortgage.

[Jedi Master Harrison]

No such cheque in the UK, mores the pity. :ohwell:

[Horse_Head]

Hey, Buddy, can you spare a dime?

[Sargoth]

Got a PayPal account?