How forgotten debts can create havoc with your credit score

It’s important to know of past missed or disputed payments or forgotten debts.  You may think that an issue has been resolved, but if it hasn’t it can drag your credit score into a black hole.  Follow one couples experience in being turned down for a mortgage and finding out it was all due to a disputed missed payment to the gas company from years prior.

New Year’s Resolutions: Finances in 2011

Besides losing weight, losing debt is one of the top New Year’s Resolutions. While we’re all feeling so warm and fuzzy about the new year, I’ll let you know what some of my goals are. They are beastly hills to climb but I’m feeling better about the coming year. In fact, I’m more optimistic about this year than I have been going into year’s past. Before it would have been more wishful thinking, but I’m heading into 2011 bullish and with a go-get-em attitude.

So… here are my resolutions and I’d love to hear yours. Along the way, I’m hoping to gain some tips and tricks from other bloggers such as Frugal Zeitgeist, Mom Saving Mom, How I Save Money and more.

  1. Improve My Credit Score: In 2010 I increased my credit score by 30 points to 728.  I’d love to get above 750 in 2011
  2. Pay Off Overdraft Accounts: These are expensive buggars so I’d love to get these to $0 from $7,500
  3. Pay Off Amortized Loan: I have a 60 mo. loan that has 4 months left totaling $2,100
  4. Pay Off Subcontractor Account: $2,200
  5. Pay Off One Credit Card: $12,800
  6. Stay the course on the rest of debt paydown

So, that’s the story and I’m sticking to it.  I’d love to hear what your financial resolutions are and how you are tackling them.

I’m in Debt. Where to Start?

They say admitting a problem is the first step in dealing with it.  The only thing is, I haven’t been denying it.  I’ve known and been managing the mountain of debt over the past few years and slowly (and I do mean slowly) there are shards of light poking through.  No, it may not be the “I’ll be debt free in X days” but instead the sense of “ah…my lungs aren’t collapsing.”  

Where do I start?

  1. Take inventory of your debt.  Yes, it’s ugly.  I do this in excel with each account name downt the left and the month/year running along the top.  I input the the ending balance of each account at the end of the month.  I do include property taxes, etc. and not just credit cards,
  2. Find a few blogs to read every day.  You never know where the next tip or bit of inspiration to get you through the day comes from.  Some of my favorites are Blogging Away Debt, Beachgirl’s Budget Blog, Windy City Blues and Counting My Pennies.
  3. Make a Monthly and Weekly Budget.  You don’t need a fancy system for this.  You can use a notebook, the back of an envelope or stolen napkins from the washroom at the gas station – it really doesn’t matter.  Write down how much you take in each month and how much you are obligated to payout.
  4. Prioritize.  Easier said than done.  What items can you not go without each month (e.g. health insurance, prescriptions, utility bills); what items can you do without (e.g. weekly dinner out); and what items can you focus on trimming either by competitively shopping or seeking a reduction in the bill (see my lower your cable bill article).
  5. Set Short-Term and Long-Term Goals.  For the month of September, I’m looking to add no new debt.  I realize that sounds crazy, but it’s the only realistic goal given what I know the income and expense outlook is for Sept.  In October, I’m looking to pay our 2009 tax bill.  Long-term I’d like to have no debt other than the mortgage…but that’s a long way off!

This is my starting point and it may be different for you.  Yes, you can get into the “what do I pay off first?!?” conversation and we will.  For now, let’s just call a spade a spade and in this case, the spade is buried pretty deep in debt.

2009 Personal finance resolutions

With every new year we set resolutions.  Losing the weight of debt on your shoulders, trimming the fat from the budget and toning up assets should rank at the top of lists for 2009. 

Let’s face it – 2008 was a real financial stinker.   401k’s lost value, home values fell, credit card debt skyrocketed, unemployment, salary cuts… drink a dixie cup of cheap champagne and say good riddance to 2008.  2009 is the year to get your personal financial house back in order.

Here are some resolutions for thought:

Cutback on Credit Card Usage
Tuck the plastic away and pay cash.  Yes, cash.  It’s that paper and coin stuff in your wallet or purse.  Become friend again with George, Abe and Andrew.  If you aren’t a cash-carrying fan, use your bank debit card.  You’ll be less likely to spend the extra $5-$50 if you know it’s coming directly out of your bank account.

Make a Budget
Strange as it may seems, many people don’t know where their money goes each month.  If this happens to be you… it’s as easy as a notebook and a pen.  Write down what you spend every day for a month.  Track every penny from the electric bill to tipping the parking attendant.  Once you know where you spend, you can start making adjustments.  Be realistic and be ready to cut things – even if it’s for a month – to see if you really miss it.

Make a Commitment to Know and Improve Your Credit Score
If you don’t know what your credit score is, you need to.  It’s like knowing your weight.  If you don’t know what the number is and set a goal, how will you know when you get there?  Find your credit score using sites such as MyFico which is free an provides you with a full credit report.  Improving your credit score by paying bills on time and lowering debt will save you money in the long-run by being rewarded with lower interest rates.  Tip: Mark your calendar to order a credit report every six months to track your progress.

Pay More Than the Minimum
Yep.  If you are only making the minimum payment on accounts, not only are you paying more in interest but you aren’t taking the opportunity to improve your credit score.  Try and pay and extra $10-$15 on credit cards and if you are extremely disciplined, try and pay an extra 5-10% on your mortgage payment (if not each month, every few months).  Over time these extra few dollars can save you hundreds if not thousands in interest.

Create a Snowball Debt Payment Plan
If you don’t know what a snowball debt payment plan is, read past entries to get started.  It’s quite simple to do and will provide motivation and a great deal of satisfaction in addition to saving you – – – – money!  More for you, less for the credit card company.

Create “Found Money” Situations
Maybe it’s participating in a few focus groups over the year or cleaning out the garage and selling items on Craigslist or eBay.  Maybe it’s finding a job on the weekend or a freelance opportunity.  Make 2009 the time to earn some extra income to apply to your snowball debt plan.

Contribute the Maximum to Retirement Plans
The stock market is in the tank but we know it will come back so why not be buying when stocks are on sale?  Invest in yourself and put the maximum you can towards retirement.  If your company has a 401(k) contribution match – take advantage of the free money.  Don’t forget to contribute to your IRA too!

Start an Automatic Savings Plan
Even if it’s $25 a paycheck, put it aside in an ING savings account.  Having it set aside for emergencies will provide a great deal of comfort.

Get Smart About Your Personal Finances
Don’t assume you know everything or stick your head in the sand trying to hide from it.  Face your fear in the comfort of your own chair or in the library.  Read a few self-help personal finance books.  You will learn a few tips along the way and stay disciplined.  I’ve listed a few books below to help get you started.

 

Bonus Round Resolutions
I haven’t made it this far but someday I will!!!  The two most wonderful resolutions one could possible do is to save 10% of each and every paycheck and to make an extra mortgage payment each year.   This is a long-term goal of mine and not one that I’ll be able to achieve in 2009… but there’s always 2010.

 

Billshrink – Shrink, shrink, shrink my bills

BillshrinkIf you haven’t tried Billshrink yet, what are you waiting for?  It’s easy, it’s free and best of all it’s about YOUR specific usage. 

Billshrink monitors the marketplace for you to tell you when your carrier/service or competing carriers/services have new/better plans that can save you money.  (Hey, if you were waiting for your wireless provider or credit card issuer to call you to let you know about other plans available to save your money well… I hope you look good in blue.)

Billshrink has two services available now – wireless/cellphone and credit cards.  It’s pretty easy and I’ve blogged about the wireless service before. 

How does it work? 

For wireless, just import your wireless plan (you need to have your wireless phone number and online account password handy for your wireless provider) and Billshrink quickly analyzes your usage and what other plans on the market would save you money.  Best of all, you can also see what the coverage is like for the carrier for your home, work or other zip code areas.

For Credit Cards – you select your credit score, which card service you have (Citibank, Chase, etc.), average balance you carry and perks you get – miles, cash-back, points.  Billshrink then crunches all of the current plans out on the market and suggest which cards can save you money.

Best of all, be sure and GET the mailings as when new plans come onto the market based on YOUR usage, Billshrink sends you a new report – free – with the saving details.   I like letting someone else crunch all the numbers for a change! 

 

Found Money – Stopping little charges everywhere

We all need to find some money, right?  “Find a penny pick it up and all day long you’ll have good luck” or so the saying goes.

I’ve stopped using my credit card for all but work-related travel (which gets reimbursed) and the infrequent online purchase.  I stopped treating my credit card statement like my 401k statement – tucking it in the drawer without opening it and I found some money!  How so? 

Recurring Credit Card Charges
Yes, recurring credit card charges, the monthly charges for services you likely forgot you signed up for and no longer use.  You know, the Typepad blog account for $4.95/mo., the AOL service you no longer use, the subscription to have access for your monthly credit report (which I get for free off of my online bank account).  It all adds up. 

I went through and highlighted what I absolutely didn’t need and/or was work-related that I hadn’t been expensing.  I scheduled two hours to go online, get on the phone and cancel the accounts and in one case for an monthly insurance charge looked to have my rate reduced.  How much did I save?  $94.93 a month or $1139.16 annually, not including interest charges.

Take a look at your latest statement.  How much do you have in recurring charges?

Snowflakes Continue to Pay-off Debt – July Goal Met!

For those of you following my July goals, #2 on my list was to pay-off $8,000 in debt.  I have a Capital One card at 14.9% that I’m attacking with a vengence using the debt snowball method.

On Monday I gave you the debt-busting update where month-to-date I had paid off $6,856.77 … leaving $1,143.23 towards my crazy goal.  I’m happy to report that more of my items sold on Craigslist within the last 48 hours.  Yes, 2 ceiling lights, 2 CD towers and my CompuTrainer…used for indoor cycling/training sold and today I’ll take $1,300.00 to the bank! 

This brings my monthly debt pay-down to $8,156.77.   I have more things on Craigslist and an evening focus group that is estimated to pay $150.00 before the end of the month.  Yippee!

As for the Capital One card?  Applying the $1,300.00 plus tossing in $13.94 for luck, I’ll be down to an even $6,300.00.  I never would have thought I’d be down this much in one month just by focusing on one account at a time.

Call it obsessive compulsive, call it crazy.  I call it paying less interest to da man.

If you are trying to put your financial house in order and need a little inspiration… stay tuned!  There’s plenty of encouragement on budget updates from Kelly and Twiggers, a debt-paydown powerhouse.  There’s plenty to learn from everyone out there… plus get a few cheerleaders to help you along the way.

Debt-Busting Monday – Found Money

It’s been a busy weekend of organizing, listing items on Craigslist and crunching numbers.  From #6 on the 6 Ways to Pay-Off Debt Quickly – Found Money!

Over the weekend we sold the kitchen sink (seriously) that was somehow leftover from construction.  After being on Craigslist for a month, it sold for $225 which was great.  Add to that the $75 from a focus group, selling back vacation time and an assortment of miscellaneous items on Craigslist I was able to transfer $5,933.97 to the nasty Capital One card. 

This leaves a balance of $7,613.94 at 14.90%.

One of my July goals was to jump start the snowball debt payment process and pay-off $8,000 worth of debt.  Between my first few snowflakes and this weekend, I’m up to $6,856.77… leaving $1,143.23.  With only 11 days left in the month I’m somewhat confident that I’ll get close to the monthly goal.

I have another $2,500 – $3,000 worth of items for Craigslist and eBay.  That’s if they sell at the amounts I’m hoping.  I have 15+ items yet to list.

It really does pay to focus on ONE account at a time.  Yes, it is all-consuming on the brain, but it works. 

Need more inspiration?  There are a number of people out there who have found themselves into debt and through grit, determination and a little creativity, getting themselves out. 

How to Payoff Debt Using the Debt Snowball Method

Once you have made the commitment to stop increasing your debt-load, the next step is to setup a plan to payoff your debt.  Specifically, non-mortgage debt.

The method was made popular by Dave Ramsey’s 7 steps for getting out of debt and getting your financial life in order.  The plan is quite simple, takes very little time to setup and most important – you can see results on a regular basis to keep you motivated and on the wagon.

Here’s how the Debt Snowball Plan works:

  1. List all of your non-mortgage debts in order of smallest balance to greatest with the minimum payment on each.  I also list the interest rate on each.  If I have two similar balances, I list the highest interest rate account first as shown in the example below. Note: Ramsey’s plan states you should focus on balances only as debt snowballing is about behavior modification… with 0% cards I have to disagree with him so this is my modification to the plan.
  2. Determine how much you can pay towards your debts each month.  Make the minimums on all of the accounts except for the first account (smallest balance) on the list.  Put any and all extra money towards this account.  Maybe it’s an extra $50 a month. 
  3. Once the first debt account is paid off, take the money (minimum payment + extra) being paid on  account #1 and apply it to what you were paying on account #2.  
  4. Repeat until all accounts are paid off.

Snowball Debt Payment Plan Example

By paying on the smallest balance first, you see progress which helps you stay motivated.  As the amount of money you can apply towards debt increases, balances decrease and suddenly the last account balance doesn’t seem so daunting.

For me, it’s focusing on that first account.  Trying to juggle all of the balances in my head is overwhelming.  By having the goal of paying off the first account, I target any and all found money (snowflakes) onto this account.   

First Big, Fat Snowflake in July

It’s snows in July – at least in my household.  I’m making progress on my July Budget Goals.

Since July 1 I was able to sell some items on Craigslist to pay down debt –

  • Desk lamp $35
  • Bathroom sconce $75
  • Ceiling light $50
  • Misc. Furniture $600

In addition to this, I rounded up all of the loose change in the house and cars, including the change jar.  I wrapped it all up and took it the bank yesterday for a whopping $162.80. 

I was pleased with the amount until my statement arrived yesterday and the interest on my Capital One 14.90% card was $160 for the month.  Grrr.  I’m more determined than ever to pay this puppy off ASAP.

On a brigher note, I did transfer $922.80 last night to the Capital One card.  That’s a nice, juicy snowflake!