Mapgirl’s Fiscal Challenge

Well, I was feeling lucky last week, but now BRKB is sliding with the rest of the market and I am officially in the red with all of my retirement accounts. This means everything is shrinking in value, and not that I’m actually in debt. Which I am. But not against those accounts. I don’t margin trade.

At any rate, I took a good long look at my new company’s 401k and the money I socked away into it in 2008. It’s about $6000 for my Year-to-Date contributions. Not too bad, but not too great either. It’s more than the minimum required for the corporate match. You see, I don’t get the match until I’ve been with the company for a year. Then, if I read the documentation right, I get a match up to 6% of my salary for that first year’s worth of contributions. After that, I get the match with each contribution.

At least, that’s what I think the documentation says. And if it’s true, then I get to stop putting in money right now because my account is down 20% this year and I would have been better off paying taxes on the money and putting all that cash into my pocket. Corporate match be damned.

Now that I realize that I can’t really make this 20% loss back for a good long while, I’m thinking of throwing the baby out with the bathwater and destroying my last goal of contributing to my 401k plan. I’d like to stop now thank you and put all that money towards debt reduction. It’s a surer bet for me financially than my retirement.

Sounds crazy. I know. I should be dollar cost averaging all these low share prices in my 401k.

But what do you think? Am I better off stopping my retirement contributions, paying tax on the income and using the extra take home pay to guarantee myself a rate of return approximating 6.75% on my credit card debt? (It averages out to less than 7% APR right now.)

Lots of places are saying do nothing different right now. Or bank cash for an emergency fund and be conservative in these trying times. Just this morning NPR had someone tell me that paying down debt now is the best action.

My rate of return on my 401k money is -20% for 2008. What do you think of a +6.75% rate of return in the form of less credit card debt?

Goal #1
Specific - Contribute to my 401k plan

Done. But I reduced my contributions to 5%.

Grade: Pass

Goal #2
Specific - Reduce my credit card debt
Measurable - By 50% or $9,137 (rounded up to $10K)
Achievable - Monthly payments of $762

Because I committed to a very expensive Christmas present for my mother, I’m abandoning this goal completely and will probably resurrect it in 2009. I did what I could and it’s down 16% as of this report.

Grade: Fail

New Goal #3:
Specific - Reduce my credit card debt on my highest balance card ~$13K
Measurable - By 50%
Achievable - ~$825 a month

Because this card is the one with good balance transfer rates, I gave my mom Christmas money out of this account.

Grade: Fail

In light of failing on my last two goals, and willfully abandoning them for the rest of the year, what are my goals now? Honestly, I don’t know. The market is a mess and I feel like I should just work on holding some liquidity in the form of cash at my brick and mortar bank. That might sound odd, but I think that’s best for now.

Alright. I give up. Last month, I did ok. My credit card payments totaled $1200 which went a long way to paying stuff down, which let me move the Debt-O-Meter just a wee bit.

But if that was so successful, what went wrong?

I got a call from my mom. I promised her a new dishwasher for Christmas because her current one is 10 years old and broke. It really helps free up her time to run it overnight after dinner’s over. But there’s also been a lingering problem with the fridge. It leaks water and I hate walking downstairs in socks and step into an icy pool in front of the door. It stinks.

Since the dishwasher is kaput and the fridge rather crappy, I told me mom to get a matched set. In a couple years, I figure we’ll replace the stove and range hood later. But I need to have a chat with mom. I’m not an ATM. There’s something going on, and I’m guessing that the market is a little too wild and wooly for her taste and she’s worried about being unable to retire within 2 or 3 years. Therefore, she’s asking me and my sibling for money for all kinds of stuff. She’s sneaky and she alternates between me and my sibling so it never seems like much. However, we figured out what she was doing. My mom isn’t financially illiterate. She runs her own business and has for years. I think she’s just exhausted from taking care of my dad after his stroke two years ago and finances aren’t at the forefront of her mind. Now that it’s time to retire, it doesn’t look pretty with the current economy.

So fine, I’ll be sending her a check for an extravagant present this year, with the caveat that there will be no present for Mother’s Day next year, and that she will have to keep waiting for help on a new roof for the house. Much as I’d love to take care of it now, it’s just not possible. Even if I had a full emergency fund, a new dishwasher for mom isn’t an emergency if you ask me. I just worry how long the roof is going to last because I can tell it needs some work.

Is it me, or are you struggling between your goals and reacting to little crises? Would a fat wad of cash in the bank help or not?

Snowflaking is a derivative of the Debt Snowball. I’m not a formal snowflaker. Silly names don’t mean much to me. But I did pull a classic snowflake maneuver this week.

I put away $200 more into savings. And I looked at my money for the rest of the month and decided that I could put $100 towards my credit card debt, bringing my total payment to $1100. Sure, I could have put the saved $200 total towards my debt for a total of $1300, but I’m still edgy that my Save-O-Meter is low.

At any rate, I think I’ll end up doing more snowflaking till the end of the year.

What strategies do you use to save money on interest and pay down your credit cards faster?

1. Closing Date - I pay as close to the closing date as I can. That way I have the lowest balance I can all month and pay less in interest.

2. Extra Payments - I try to send in extra payments when I can. Budgeting lately has been helpful in finding more money to send. (I use the term ‘budgeting’ loosely. It’s more like being mindful of what I spend.)

3. Use Balance Transfers judiciously - Not all offers are created equal. Watch out for one-time transaction fees and expiring low rates. The best offer you can find is a balance transfer offer with no transaction fee and a low rate that lasts until the transferred amount is paid off. I never see these anymore, but I don’t shop for them either. Lately I’ve pushed all my balances onto two cards incurring a low rate till January 2008. That puts my rate around 6.5% and 7.2%. I now pay off the balance on the other three cards I have. Those include some recurring subscription fees and the occasional big ticket item.

4. Don’t charge any more - Cut up your cards if you have to. Learn to pay off your balances each month. (see above)

What else do you do to save money on credit card interest and snowflake/snowball your debt?

After realigning my Save-O-Meter and Debt-O-Meter a few months back, I have updated the figures to accurately reflect what I have in my accounts. I am happy to report that I’ve made some good progress on both fronts. I’ve gone from 5% to 8% on my Save-O-Meter thanks to regular weekly savings of $25, and a few new account referral bonuses. My Debt-O-Meter is up from 5% to 11% as well.

Some notes:
1. My Save-O-Meter includes 1 brick and mortar savings account at a very low rate primarily for overdraft protection, 1 CD and 1 ‘high yield’ savings account. I use the phrase ‘high yield’ loosely as that account is well under 4% APR these days. It does not include anything in my checking accounts, even though I’ve been holding a little bit of a reserve in them. Nor does it include anything at Prosper or Paypal.

2. My Debt-O-Meter is delayed in reporting. For instance, my balances are actually down 16% as of the time of this post, but the displayed amount reflects what I reported to Net Worth IQ at the end of August. The reason for the gap was a large $900 payment I made on the 5th of the new month. Eventually, I’ll get around to reporting that, but maybe not. I’m about to charge some plane tickets for Thanksgiving soon.

3. I’ve pretty much walked away from having an Emergency Fund right now. When I first started blogging, the Save-O-Meter represented my start at an emergency fund, but then I had to liquidate it for an emergency and a dream of buying a motorcycle. (whee!) I’m working on building it back up right now, but I’m also not in a hurry either.

I bought some gas early this week so I could truck my butt out to the boonies for a corporate conference in the countryside. It was actually pretty great as I got some excellent training for my resume that directly impacts my project. All meals were paid for out there and I was covered for mileage and tolls. I’m about to get back $107 in reimbursement.

Yesterday, I spent $5 on coffee, a bag of chips and a lottery ticket for kicks. ($132 million jackpot. Why not?) My co-worker bought me a hotdog and a Diet Coke as a treat for lunch from Costco. (There’s a running joke in the office about buying one another lunches for losing bets. She was buying someone a hotdog so she said she’d get one for me too. She’s very nice.)

Today, I’ll be buying lunch on my way into the office. Then tonight, I’ll be buying groceries for a camping trip this weekend. If I am lucky, I will spend less than $50 total this week. Maybe beer will make it a few dollars more.

Not too bad this week. I was able to also kick over another $200 to my credit cards. That will be $1050 I threw at them for August.

N.B. I forgot to post this last Friday.

I’ve successfully been able to budget all monthly fixed expenses into one semi-monthly paycheck. That includes more-than-minimum payments on two credit cards.

Because of my stimulus package payment and some squirreled away savings, I’m able to take almost one entire paycheck and put it towards credit card repayment.

I still can’t nudge the Debt-O-Meter, but at least I’m moving forward on the credit card debt after the set back of a $5K BT for the bathroom remodel/ceiling replacement.

The bathroom is looking pretty sharp though. Almost done. Almost.

It’s a mess because of my bathroom remodel. But I soldier onward. Expect a net worth write up later this week.

Goal #1
Specific - Contribute to my 401k plan

While I am tempted to cut my contributions, I am holding steady. It’s kind of hard though. I really, really would like the extra cash right now to throw at the construction project.

Grade: Pass!

Goal #2
Specific - Reduce my credit card debt
Measurable - By 50% or $9,137 (rounded up to $10K)
Achievable - Monthly payments of $762

In April I cashed out a CD that was expiring and putting it towards this goal. But since I have a construction project going on, it’s making this difficult. What I have done is to shift around the interest rate on some of my debt, but in the process I’ve also taken on $5000 more. I am considering moving that to ‘Other Liabilities’ on my balance sheet/net worth like I did with my medical expenses so I can remain focused on my original goal. Not sure yet.

Grade: Fail. Miserable failure.

Goal #3
Specific - Reduce my credit card debt on my highest balance card ~$10K
Measurable - By 50%
Achievable - ~$450 a month

I did end up making a $800 payment in April. I also made an extra $250 payment to try and snowflake my debt. And then the bathroom disaster struck. I took out a $5K BT on this card, so I am no where near achieving this goal. However, I think it’s fair to say this goal needs a mid-year revision.

New Goal #3:
Specific - Reduce my credit card debt on my highest balance card ~$13K
Measurable - By 50%
Achievable - ~$825 a month

Grade: Fair - Neither a Pass, nor a Fail as the goal has to be altered.

Wow. The economy must be doing some funky things because my credit card interest rates are going DOWN. Meanwhile, my limits are going UP.

I reported that I have 11.99% APR debt right now, but the statement came in the mail recently and it’s actually at 11.24% APR. I’m thinking I can call them up and try to leverage it down to single digits.

If you haven’t called your companies yet to lower your rate, you might want to do that now since rates are dropping.

Since the ceiling needs repair, I figure I should do the entire bathroom. I thought maybe it would cost $5K, but after talking with a few people, I need to budget closer to $7K. I suppose this is a very salient lesson that everyone needs an emergency fund. Say 3-6 months of take home pay, which of course would cover the repairs. Unfortunately, my emergency fund has only about $1.5K in it.

In desperation for cash, I looked at all my options here. I have credit available on my HELOC and on my credit cards. I have a few CD’s expiring, which I was going to liquidate anyway to pay down debt. But since there is an emergency here and now, I’m going to use them to fund the repair.

With construction, you usually have to pay a deposit of some sort to get the work started. In my case, the earliest construction can start is in another week. The work will take approximately 10 days, taking me to early May.

In looking at my cash flow and available credit, I decided, rather sadly that I cannot attend my friend’s wedding in Boston this month. There’s just no way I can find a hotel room under $200 a night anywhere near the festivities or near the hotel where my best friend and her husband are staying. I’m looking at $1000 for just hotel and rental car alone at a time where I need the $1000 for something else.

I have balance transfer checks coming to my house all the time for a promotional rate less than 2% APR. Unfortunately, these BT’s have a fee. A friend asked me if that fee was capped out but reading the fine print, I couldn’t find any mention of a cap. I called the customer service line and asked about a cap. However the representative said he couldn’t change the BT fee. Instead he offered to change the rate from 1.9% to 1% APR after looking at my sterling payment record. It’s the best he could do, but I’ll take it.

Now the trick here is that I’m sitting on $5K borrowed for 1% APR. Do I pay off my 11.99% APR credit card balance of $4K only to ring them up further as the construction work progresses, or do I hold onto this wad of cash and wait to pay it out to the contractor? (It’s going into an account that doesn’t bear interest so there’s no arbitrage going on here and there isn’t enough time to move it around and take advantage of that sort of thing unless I’m paying off the credit card.)

The last $2K I need, I figure can come from liquidating all of my savings accounts and my next two paychecks. The problem now is that I’ve shot my 2008 debt reduction goals to pieces.

I’ve been sighing a lot this week. Life. It’s what happens to you. Dealing with it can suck, but I look forward to having a shiny new bathroom with better lighting in the shower and for the mirror when I put on make up.

Luckily for you, this week, several PF bloggers have Emergency Fund posts.
Five Cent Nickel: On building an emergency fund
Get Rich Slowly: Learning to love his emergency fund
Plonkee: On why they’re no fun