Debt Managment (or, how to keep from fucking yourself finanically)

[LilMissMkIII]

Mike - THANKYOU for this thread! It has (finally) helped me hammer home what I have been preaching to my bf for a year!!!!

After nagging at him for 12 months, he has finally decided to put extra payments on his personal loan and credit card each week! *happy dance*

 

[Clueless]

Mike - THANKYOU for this thread! It has (finally) helped me hammer home what I have been preaching to my bf for a year!!!!

After nagging at him for 12 months, he has finally decided to put extra payments on his personal loan and credit card each week! *happy dance*

be sure to reward him....

 

[LilMissMkIII]

Haha! Yes sir!

He will be further rewarded when we buy our own house with a gigantical garage!

Once he gets these debts out of the way, we will have enough cashola to afford mortgage payments for a VERY decent house!

 

[annoyingrob]

The 2nd half to debt management is retaining the discipline to not max the cards out again.

I can remembe a good friend of mine years back. He ended up with about 5k in credit card debt by the end of high school. He had this great idea of taking out a loan from the bank, using that money to pay off his credit card, then pay off the loan at a much lower interest rate. It was a good idea in theory. Fast forward a few months, the card's maxed out again, and he's just doubled his debt.

My rule of life: "If you can't afford to buy it in cash, you can't afford it"

 

[flight doc89]

Ive had my checking account for over 11 years, never once owned a check book. Never wrote out a single check either, I hate checks and never saw the need for them. Debt card for everything ;p

i only write checks for bills that have to be mailed. everything else goes on the debit card, but i still write my debits into the register in my checkbook.

I'm gonna d/l a copy of quicken just to check it out; never thought about that one till you said it

 

[mkiiSupraMan18]

SC, you should add in the first post that if you're paying 18% interest.... yeah.


Also, call your CC company every 6 months and tell them yo want your interest lowered, if you pay it off every month, tell them you don't plan on keeping a balance on the card until it's at 6-7%.

I agree w/ trucker's approach. I've got $5k bike payment, $7500 student loan, $20k car payment, my wifes $50k student loan, mortgage... So i pay $175, $200, $600, $800, and $1500 /month... When I et the bike paid off, it will be $375 on my student loan, $600 on the car... etc etc... when my loan is paid off, $975 towards the car, $800 for the wife.... pay the car off, $1500 on the wifes student loans, $1500 on the mortgage... when the glorious day comes and all we have is the mortgage... making double monthly payments... We are gonna be kicking some serious financial ass. Sure we'll pay more interest for awhile, but whenever we kick over a payment the extra is just going to principal and it will get eaten up very fast.

You can do Quicken on-line for free, just signed up the other day. You get a pretty good feel on how it works (I didn't want to buy it w/o knowing what it was) The pie charts are almost sickening, lol. I really liked seeing the 'this month I made $____.' 'I spent $____' 'I saved $_____' We put in all of our bills and things, and my wife and I had a very nice conversation about our allocation of funds... (I got in trouble, lol) Also, there's no hiding money from each other. She knows I spent $50 on paintball crapp on 10-1 and took my allowance away for the rest of the month. :icon_bigg


I'm loving these threads though. We need more advice from those w/ experience!

 

[Supracentral]

SC, you should add in the first post that if you're paying 18% interest.... yeah.

I picked 18% as a median rate. Some people who have PM'd me about this have 23% rates. Some of these cards give you a "low" rate, but if you are late on one payment, the rate jumps to 27.99% or something ridiculous like that. But it's not the company's fault, it was right there in the contract when it was signed.

The people who need this advice the most are the ones with poor credit, high rates and limited income. The ones most likely to have a problem, and the ones most likely to get a bad rate.

If I did that amortization chart at 23%, the numbers would be even more chilling.

Also, call your CC company every 6 months and tell them yo want your interest lowered, if you pay it off every month, tell them you don't plan on keeping a balance on the card until it's at 6-7%.

Once you're in a position of strength, that's a very good approach. A lot of folks around here aren't there yet, I'm trying to not overwhelm people.

You can do Quicken on-line for free, just signed up the other day.

The online version is limited quite a bit, the actual software can do a lot more for you. The whole try before you buy approach is something I strongly support.

You get a pretty good feel on how it works (I didn't want to buy it w/o knowing what it was) The pie charts are almost sickening, lol.

Yea, it really gets the data up in your face though. No pretending to yourself about where the money goes, and when dealing with something as 'real' as personal finance, that's a good thing.

I'm loving these threads though. We need more advice from those w/ experience!

I'm not suprised so many people seem to be anti-capitalist these days. Nobody has taught them the basics. Many of the people who seem to rail against the system don't understand how it works, don't understand how to work within it, and feel like they are getting "screwed" all the time. Threads like this help people realize that, yes, your government, your teachers and your parents may have failed you if they didn't teach you this stuff. But you can learn it on your own and be much more successful by doing so.

If nobody taught you the rules and threw you into a game, it's not the rules or the game at fault, it's the people who didn't teach you. With that said, I'm trying to help people teach themselves and fix the problem.

 

[mkiiSupraMan18]

I don't see why anyone who has made several monthly payments on time couldn't get a cut in their interest though. Just remind them that there are PLENTY of other companies who would probably give you a lower rate.


I started getting credit cards at age 16, even after my parents telling me NOT to do it. I'd go to sears and get something like a nice jack or some tools and they'd ask 'would you like to save 10% by opening up a sears account?' I'd have the cash in my wallet but figured $25 off, why not. So I stuck the money back until my bill came and paid it off. I did this anywhere I could save some money...

*edit*
I also have to add...

Don't get into debt w/ someone who doesn't have the same financial goals as you.

If your dream is to be debt free by age 35, don't open a CC w/ someone who wants to live paycheck to paycheck w/ little room for emergency spending.

 

[Clueless]

I don't see why anyone who has made several monthly payments on time couldn't get a cut in their interest though. Just remind them that there are PLENTY of other companies who would probably give you a lower rate.


I started getting credit cards at age 16, even after my parents telling me NOT to do it. I'd go to sears and get something like a nice jack or some tools and they'd ask 'would you like to save 10% by opening up a sears account?' I'd have the cash in my wallet but figured $25 off, why not. So I stuck the money back until my bill came and paid it off. I did this anywhere I could save some money...

They wouldn't do that for me....insufficient credit history they tell me.

 

[mkiiSupraMan18]

OK. Proven wrong. Add this to the list.

 

[nguyen95465]

Thanks for starting this thread.
I was going to buy 2k worth of stuff for my supra today but when I read this thread I felt the need to pay off all my cards instead. :madfawk:Now that I have all zeros across the board on my credit cards I feel better. ::w00t::

A quick question for all you financial savvy peoples. I have some credit cards that I do not ever use. I was told in the past to not close them just let them go with no balances to help with my credit score. Is this wise or should I just close the accounts?

 

[Supracentral]

Thanks for starting this thread.
I was going to buy 2k worth of stuff for my supra today but when I read this thread I felt the need to pay off all my cards instead. :madfawk:Now that I have all zeros across the board on my credit cards I feel better. ::w00t::

Congratulations! You just did yourself one hell of a favor. Just don't run the balances up again.

A quick question for all you financial savvy peoples. I have some credit cards that I do not ever use. I was told in the past to not close them just let them go with no balances to help with my credit score. Is this wise or should I just close the accounts?

Maybe this will help:

Length of history is something you want. If you have a card for 5 years, then cancel it, it's got a 5 year history. If you keep it for 3 more years and just don't use it, or use it rarely, it has an 8 year history.

Here's what I would do. Use the card for things like gasoline, keep it active, and pay it off at the end of each month. Everytime you get gas, set the money aside for the CC bill.

However, since the credit industry calls someone a "deadbeat" who pays the bill off every month (I'm not kidding, because they make no money off of you that way), every once in a while, buy something big and pay it off over a few months.

Example, you want a PS3, save the money for it first (so you don't get stuck with a cc bill you can't pay), but pay for it with your CC and pay it off over 3-4 months. Yes, this costs you a little bit of interest, but it shows good history with the credit card company. It lets them make a little money for giving you the card. Low balances with occasional high purchases that are paid off over a short period of time will help your score a lot.

Something else about credit scores - they drop instantly, and take 2 or 3 months to recover. If you open a new credit card, expect to see your score drop, then slowly come up over time as you make payments on time, etc.

If you're late on a payment, once again, expect an immediate drop, with 2 or 3 months for the score to recover as you follow up with on time payments.

Percentage of credit used is a big one as well. In general, a maxed out $2000 credit card looks far worse than TWO $4000 cards with $2000 each on them when it comes to your FICO score. Even though you owe twice as much, you're only using 50% of the available credit.

Debt to income ratio means a lot. If you make $200 a week and have $20000 in debt, you're going to be hurt by it far more than a guy who makes $2000 a week and has the same debt.

NEVER get new credit cards (or cancel cards) or car loans right before trying to do something like buy a house. Be sure your score as stabilized at it's high point before applying for a mortgage. All of those actions will temporarily lower your score.

 

[iwannadie]

Is it better to keep a zero balance or something like 40% of your limit at all times on the card? Someone told me that if you keep zero then it just shows you can control yourself but your not using you credit at all. If you keep 40% it shows your Using the credit and keep it managed, which lenders like.

It made sense to me, but just wanted some more input on it....

 

[Supracentral]

Is it better to keep a zero balance or something like 40% of your limit at all times on the card? Someone told me that if you keep zero then it just shows you can control yourself but your not using you credit at all. If you keep 40% it shows your Using the credit and keep it managed, which lenders like.

It made sense to me, but just wanted some more input on it....

That's why I suggest using it the way I described above. Regular use, with occasional "major purchases" paid off over a relatively short period of time.

It shows that even though you have available credit, you use it wisely, and finance larger purchases as needed, but since they are paid off over reasonable amounts of time, it shows you are managing your credit well.

They want you to "use" the credit (so they make money) but not "abuse" the credit (which puts them at risk of you defaulting). The whole idea is to play the system so they are confident that when you do ask for credit, you will repay it. That's the name of the game.

Interest rates work the same way. Lenders charge high rates when they feel there is high risk and you have limited options. Lenders charge low rates when they feel there is low risk, and you have many options so they have to attract your business.

Supply and demand works in this industry, just like any other capitalist industry. You're trying to prove to them, via your actions and history, that you are wise about managing your money, and that you will do what you say you will do. They in turn will give you lower rates to keep you as a customer as you're allowing them to make money with low risk.

On time payments, reasonable use of credit, occasional balance carryovers that allow them to make money, good debt to income ratios, less than 50% of available credit used (35-40% seems to be the sweet spot), term accounts (like cars loans) paid out to the end, with good history. This profile makes a lender VERY comfortable that you are "good for it" - and your score will reflect that.

Edit: Here's another suggestion. If you have a lot of credit cards, and you get them all paid off, you may find yourself in a position where you have too much available credit. (Your credit/income ratio still looks bad even though you have $0 balances). Call the credit card companies and tell them you'd like to REDUCE the credit lines on your accounts. They will do this rather than completely lose your business. This, like the other changes, will take a few months to raise your score, but it will help. I'd suggest keeping one card (the one with the best terms) with a higher limit and reduce the others down to the minimum they allow (usually about $1000).

The entire idea is that when you get to the point of wanting to do something like buy a home (probably the single largest purchase you will make in your lifetime), you want a low rate and good terms (30 year fixed, no variable rate crap). The way to get there is to manage your FICO score. With an 850, you will be able to get just about anything you want.

 

[SupraMario]

Since Theresa is so much younger than me (15 years), she sometimes can give me a different perspective. In this case she pointed out to me that they didn't teach this to her in high school like they did when I went. In fact she said that that college is the first time they bring this stuff up these days, if at all. To me, that's far too late and it's a critical failure on the part of our schools. This is information you need to know in a capitalist society. This should be part of the very basics we teach teenagers. Since we have so many young people here at SM, and a good number of them who aren't in, or don't plan to go to college, I thought this was really important.

And yea, in general money in savings is losing you money if you have high interest debt. Remember you've still got the cards to fall back on if you have an emergency, so taking $500 out of savings and applying it to a credit card still leaves you with the money available if it comes down to it.

You should also have some cash on hand in a small fireproof safe, just in case as well, but that's a different topic.

Well considering almost 90% of the colleges are the same(Student wise). Here and I'm sure its even worse at other colleges. Credit card companies have free reign over the school advertising wise. HELL they almost always have a sign up for a credit card get a free pizza deal here. Most students also have never balanced a check book, or even really paid bills. So the "if at all" part, is far more correct now that it ever has been.

 

[Supracentral]

Well considering almost 90% of the colleges are the same(Student wise). Here and I'm sure its even worse at other colleges. Credit card companies have free reign over the school advertising wise. HELL they almost always have a sign up for a credit card get a free pizza deal here. Most students also have never balanced a check book, or even really paid bills. So the "if at all" part, is far more correct now that it ever has been.

From the credit card companies perspective, it's good business. Look at the differences between the earning potentials of non college to college graduates (Numbers from the 2000 census, they are proportionately higher now, but the ratios stay about the same):

Average Annual Earnings

Education Level	Average Salary (US)
Professional Degree	$109,600
Doctoral Degree	$89,400
Master's Degree	$62,300
Bachelor's Degree	$52,200
Associate's Degree	$38,200
Some College	$36,800
High School Graduate	$30,400
Some High School	$23,400

Average Annual Earnings—Different Levels of Education.
Source: U.S. Census Bureau, Current Population Surveys, March 1998, 1999, and 2000.

Going for the college students is smart business. The colleges should be making sure they are teaching these folks to manage this credit if they are going to allow people on campus to solicit business.

 

[iwannadie]

Well considering almost 90% of the colleges are the same(Student wise). Here and I'm sure its even worse at other colleges. Credit card companies have free reign over the school advertising wise. HELL they almost always have a sign up for a credit card get a free pizza deal here. Most students also have never balanced a check book, or even really paid bills. So the "if at all" part, is far more correct now that it ever has been.

I watched some documentary that talked about that. Maxxed Out I think it was called or something. Its crazy how they go after college kids with no job going to school full time. Then a kid the same age working full time cant get a credit card at all.

They also mentioned some stuff about the fees that credit card companies rack up. Not in interest but just late fees and usage fees and all that. Someone said for every $1 they owed(including interest fees) they were paying an additional $3 in other fees.

Someone told me his grand dad warned him before he went to college "dont sell your [credit] soul for a pizza and a tshirt".

 

[Supracentral]

I watched some documentary that talked about that. Maxxed Out I think it was called or something. Its crazy how they go after college kids with no job going to school full time. Then a kid the same age working full time cant get a credit card at all.

See the chart posted above, they are taking a risk to grab some of that larger income down the road. When a $24,000 a year working guy defaults on a card, most of the time that debt becomes completely uncollectable. They guy doesn't have, nor will likely ever have the assets you could take to cover the debt. The college kid will likely amass wealth, and will pay you off (with penalties and interest) when it gets in the way of him moving up in the world.

They also mentioned some stuff about the fees that credit card companies rack up. Not in interest but just late fees and usage fees and all that. Someone said for every $1 they owed(including interest fees) they were paying an additional $3 in other fees.

If those fees are listed in the contract, the only person at fault is the one who's making the late payments or doing the things that generate the fees. If you're adult enough to sign a contract, you should be adult enough to read one, and live up to its terms.

Someone told me his grand dad warned him before he went to college "dont sell your [credit] soul for a pizza and a tshirt".

Good warning. More people need to hear it.

---

Here' something else I wanted to touch on.

Say you want to buy a $165,000 house as your first home.

You go to the bank and find that a 30 year fixed rate mortgage at 6.35%; gives you a minimum payment of $1026.69 a month. They also offer a 15 year fixed rate mortgage at 6.05% gives you a minimum payment of $1395.93.

You think, I can pay that $1395.93, but it will be "tight", and it gets my house paid off in 1/2 the time, it's the better deal, right?

Yes, it's the better deal but it's not always the right choice. Here's something that will trip you out. If you can afford the $1395.93 a month payment today, but go for the 30 year loan you can do this:

You take the difference between the two; $1395.93 minus $1026.69 equals $369.24.

If you get the 30 year fixed, make your normal mortgage payment of $1026.69, but pay an extra $350 a month towards the principal, the loan will be paid off in 16 years, but you'll have the freedom to pay the lower "minimum" payment of $1026.69 rather than being stuck with having to pay $1395 if you get in tight spots. Since the $350 is "optional" you can skip it when you need it.

This does cost a little more money, but a lot of people find that flexibility nice to have, and don't mind paying a little more over the term of the loan for that extra freedom. If your income goes up, you can bump that extra $350 to $400/$500 or whatever you want. You might wind up paying off your 30 year fixed mortgage in 12 years.

I'm not saying this is the right thing to do, but just keep in mind that buying a house on a 30 year fixed and making 30 years worth of payments is only ONE way to own a home, not the ONLY way.

 

[trucker]

Don't get into debt w/ someone who doesn't have the same financial goals as you.

If your dream is to be debt free by age 35, don't open a CC w/ someone who wants to live paycheck to paycheck w/ little room for emergency spending.

THIS INCLUDES YOUR SPOUSES/POTENTIAL SPOUSEs!!!!!!!


If you are not on the same page, your marrige will fail. Mine did. The plan i was using was started after the second time my parents bailed me out when i discovered what was going on behind my back with money.Yes i am partly to blame. But these things were done behind my back, and were pretty easily hidden from me while i was either working two jobs or on on the road. I thought we were really working out of the same book for a while, i just didn't know she had another one.

In short she fucked me, house payments that i sent home were stashed somewhere. Her income was stashed somewhere(btw in a marrige, it is "our income", and "our bills", not his and hers).I trusted her to be doing the right thing.


I WAS VERY WRONG


I came home to a letter telling me the auction date for my house. I made more than enough money to pay it, it was strictly malice on her part. Basically she told me "sucks to be you"....prolly good thing i don't own a gun.

and for my trouble i get to spend the next 11 years giving her a quarter of my take-home

Money problems are the #1 cause of divorce in the US


i'm a fucking statistic now...

 

[mkiiSupraMan18]

^ Same thing happened to my brother, which is what reminded me to point it out to everyone. His (now) ex-wife would spend money on the stupidest crapp... My brother does God knows what in the computer field and brings home more money than my wife and me put together... What did he have to show for his hard work? A slowly falling CC bill and a SHIT TON of (worthless) stuff off E-Bay.

I wonder how she's doing w/ the guy from Red Lobster... lol stupid _____. :icon_bigg

*edit*
and since it's a car forum, I'll throw in how much better his life is now... He got to throw something like $3k at hit Fox body last month and never had to think twice about it.