There are many places to invest money. There are credit card consolidation loans. There are many many books about getting out of debt and making over your budget and building your financial future. How do you know which is right for you? Do you start small? Do you go big? Do you pay off smaller debts first for peace of mind and a sense of accomplishment, or the higher interest debt in order to save on how much interest you end up paying out.
My first step was to know where I am starting. Going to places the source to check your credit score can bee tricky and expensive. Many times you get enrolled in recurring charges and it is difficult to cancel. It has happened to me and many others. I like a credit monitoring service that pulls from all three credit bureaus and has some protection, alerts when your credit is run, and even simulators to see where best to put your money to raise your score. You can dispute incorrect information on the report. I would first check with the bank or credit card company you already work with and see if they offer anything of the sort. I started with this one: Privacy Guard. You will need to enroll both you and your spouse, and it is a good idea to check your children's every now and again as it is common source of identity theft.
My next step was to track and curb my spending by getting a money management software. They are free ones you can manage online and from a mobile device such as mint.com or software available for download. It has helped me create a calendar of when bills are due and a budget. This will come in handy when I start using credit cards to work for me, instead of me working for them.
Right now, I am not ready for investing, and I have already started a get out of debt plan with my own budget system I have used for years and money management software. I am looking for what to do next. How to start saving and how to divide it up for various things (and still keep track), how to use credit to build credit and rewards both in a positive way. How we both manage spending, especially if one would like to surprise the other. If any of you can point me in the right direction, that would be great!
Melanie
Posting this in two parts due to the word count Nazi's at blogspot:
ReplyDelete==Warning! Financially blind leading the financially blind! :p ==
About 7 years ago, when we were getting out of college and the reality set in that student loans were going to come due along with all of our built up credit card debt we panicked, because the private loans alone were over $700 a month each. Mike was working at Walgreens, and I was working at Best Buy. It was not the ideal situation that DeVry promised us.
1.) We quickly refinanced our federal loans out for 20 years through Sallie Mae for a TINY interest rate, like 5% or something and applied for the 1 year of economic hardship deferment, and were approved.
2.) We set up a plan to pay off my car within the year of economic harship so that we wouldn't be making two payments of that size at once (Mike's mom's suggestion).
3.) We refinanced our house and sucked Mike's private loans into our mortgage using the small amount of home equity we had available to us. (This at Mike's dad's suggestion, and while obviously not ideal, it was marginally better than the broken knee caps that the mafia-I mean private lenders- were "offering" us.)
4.) We called all of our creditors (Capital One, Home Depot, MBNA, 1st financial Bank, and Target) and got them to agree to stop interest charges immediately and settle on smaller than owed debt totals (usually they settled for the amount initially charged and "forgave" the accrued interest and fees) and let the creditors set up automatic monthly payments directly from our checking account until the agreed upon totals were reached.
While I would readily do the first three again, The fourth - I would NOT do again. As soon as we agreed to settle our debts, those accounts went from being 30-120 days past due via the original lender to "collections accounts" that had a status of "settled". It turns out that while we saved a few hundred dollars in interest by settling with those creditors , our "collections debt" would take 7 years to go away. Our best chance of improving our credit was waiting until the collection debt was gone, because it turns out that good payment history on a mortgage and your student loans doesn't help for shit because they're not considered "revolving debt", and it's "revolving debt" that builds and destroys your credit.
I have a personal rant here - we have two sets of friends who filed for bankruptcy, had cars repoed, and foreclosed on their homes three years ago. Both of those sets of friends have since bought new cars and homes and have credit scores in the high 600's. I find it ridiculous that someone can throw up their hands and say "I fucked up, I lived above my means for YEARS, but I quit, you fix it!" and get a good credit score before the person who admits, "Yeah, we messed up, and we worked our asses off for 7 years repair the problem". - end rant.
So in the mean time, with no credit cards (revolving credit), and a bad credit score, we've lived hand to mouth, and to me, that's a step in the right direction (having lived above our means in college).
Early on in our marriage it became clear that neither Mike or I can save money worth a darn, if we have money, we spend money. We have found that the best way for us to manage our funds are to have several bank accounts with purposes. I actually got the idea from my mom, who lives in a small cash-only town. She has envelopes full of cash that have purposes (grocery, travel, Insurance, etc.). We live in the modern world, so we have multiple debit cards (I write what account in tiny writing on the signature strip on the back) rather than envelopes. Our main account is nick-named "Bill Pay". Mike has a private account, and I have an account. We also have a savings account (which we use to save up for house projects).
We initially had Wells Fargo, but they were very fee-happy, consistently put deposited funds on hold for 10 business days. When they tried to put a 10 day hold on the WIRE TRANSFER that was the down payment on our house, we walked out of Wells Fargo and signed up at Bank of America and have never looked back. Bank of America provides free online bill pay, and if you set up your account online, there are no minimum balance or direct deposit requirements to keep your accounts free of monthly maintenance fees. They provide a free portfolio software (like Mint) to track your spending, but the reality is, I'm pretty good about that.
ReplyDeletebiweekly money is direct deposited into our three checking accounts. The bulk to bill pay, $300 to my account (groceries, household supplies, medications, eating out, clothing, etc.), and $75 to Mike's account (Gas, Last FM, Web hosting, Wednesday morning breakfast burritos).
We manage the Bill Pay account by having an excel spreadsheet set up like a checkbook register. I usually keep this spreadsheet scheduled out about a year in advance. Each month we quickly cross check the excel sheet with the B of A online Bill Pay schedule, then double check to verify that funds are actually removed (sometimes Orkin or the pool service company will sit on a check for upwards of a month before cashing it). The process of scheduling out so far in advance allows me to see where we will have extra income and how I can use those funds to help pay off debt or save for future projects.
6 Years after having paid off Mike's college Capital One card, Capital One mailed him a 0% introductory APR card with a $300 balance. We chose to use that in lieu of his gas account, so now he spends money on that credit card and we pay the credit card each month. A year later (currently) the card has a credit limit of $1,750.00 and an interest rate of 16.9%, which while high, isn't awful (given our situation). Interest rates don't matter at all if you plan to pay the card off each month. I was nervous about the high limit, but the reality is that I am relieved to have an account where when something comes up - say a wedding in Kentucky, or a wedding in Las Vegas, or two cats with urinary tract infections, we have a quick short term solution while we scramble to reorganize and accommodate.
Mike feels that the credit card is a good method of allowing him to "surprise" me, since the only reason I would investigate his spending is if a monthly bill was exorbitant and I was looking for fraud. I feel confident that anything I buy him using my checking account is a surprise, since he doesn’t check those.
Curbing spending is always hard. I think I went about 5 years without one new article of clothing for myself. We cook a lot at home, we don’t go out often, we buy generic.
Mike says he keeps his spending down by continually telling himself we're broke, even if he knows we're not. He says his hardest battles are with games that are on sale in steam. He says he stops himself from buying new games by counting the number of games he owns that he still hasn't beaten (or played at all for that matter).
Budgeting doesn't mean we can't have fun, but it does mean we have to plan better, and often further ahead.
Now we're finally at a point where there is light at the end of the debt tunnel. We plan to have my medical debt paid off in two months, and our student loans should be paid off in four years. In 4 years we’ll have to look into long term goals, savings, retirement,etc.