More About Balance Transfers

Balance Transfers are a good way to reduce debt faster
As I said yesterday, a large part of my success in paying down my debt was using balance transfer offers.  I can't stress enough how much faster you pay off your debt when you transfer a high interest balance to a low interest one, as long as the transfer fees don't eat up your savings.

Moving from a higher fixed interest rate to a lower fixed interest rate is generally a good deal
For example, if you have $15000 on a 22% card and the transfer fee is 5% to change the rate to 10%, at $300 a month paid toward that card it would take you 136 months to pay it off at 22% and 70 months at 10%, including the $750 you will pay in transfer fees.  

Teaser rates can also help pay down your debt faster
I realize that most offers nowadays aren't a fixed rate forever, they're usually a teaser rate, then a higher rate later.  For instance, today Discover is offering 0% for 18 months, with a 4% transfer fee, then a rate that ranges from 12% to 23%, variable.  If you can pay off your balances in 18 months, then it's a savings on any rate 6% or higher.*

If you can't pay off your balance, then it's a bigger savings at rates of 6% or greater until the rate resets.  Therefore it is a good deal if (a) you can pay it off rapidly after the 18 months or (b) you can transfer the balance again before the higher rate kicks in.  You can calculate (a) by taking the current balance of the loan, subtracting out the payments you will make over the next 18 months, then running that number through a balance calculator that shows you total interest paid, using the number of months after the 18 month period is up that it will take you to pay off the loan as the number in the debt free deadline.  (b) is pretty much a matter of looking at your credit score and guessing.

If you can pay off your balance in less than 18 months, it may or may not be a savings.  You can calculate whether it is a savings by running it through a credit card calculator like this one, using your current interest rate and the time it will take you to pay off the loan.  Then compare the total interest paid to the cost of the balance transfer fee.

It's no fun, but it helps in the long run
As I said, I did this pretty much constantly for the first two years that I was paying down debt, until I got a 3% for the life of the loan offer from Amex and could transfer all of my credit card debt there.  It got really tiring; I can't tell you how happy I was to pay off my last revolving debt on that Amex .  But it saved me a ton of money over trying to pay down the cards at the original rate.

* Because the balance transfer fee comes out of the original total, and credit card rates are compounded daily or monthly based on the debt at the time of calculation, you don't pay more in interest until you reach a 6% interest rate.  (It's actually a number greater than 5.5 and less than 6, so I rounded up).

Debt Organization

The Next Steps to "Out with the Old, in With the New" are to clean up your debts and to create a debt repayment plan.  I've been working at this debt repayment thing since 2005, so my debts are pretty consolidated at this point.  I've got three left - 2 interest-free loans from family members, and my student loan consolidation at 1.65%.  So there's not much cleaning left to be done.

As far as repayment goes, I've decided to throw everything at the family loans first, because it bothers me way more to owe money to my family than it does to owe money to a big bank.  Basically, I'm putting aside enough each month to pay family debt #1 in full in June 2011.  Then I will start paying down family debt #2, but I don't anticipate being able to pay it off until July 2012.

In August 2012,  I will start on my student loan, although my plan for it is a bit different.  Since the interest is only 1.65%, I anticipate being able to make more than that, risk free, on a savings account when I can start throwing money at it.  So I plan to save extra money until I have enough in a savings account to pay it off in full, then make that my account for automatic withdrawals and leave it be for the next twenty years or so.

But the reason that my debt is so manageable now is that 5 years ago I did everything on the Simple Dollar clean up list, multiple times.  I played the card transfer game all the time.  Basically, I would find a card that would give me 6 months or more interest free, transfer my debt there, and then pay it  down as much as I could before it was time to transfer it to the next 0% offer.  Eventually, I got a 3% for the life of the loan offer from Amex, transferred all my balances there, and then didn't use the Amex card for years until I had the loan paid back (this was back in the bad old days when credit card companies were allowed to pay off your lower interest rate loans first).  I was always careful not to pay more in fees than I was saving in interest when I did balance transfers.  And it worked: I paid those loans back far faster than if I'd continued to pay off my original balances at the original rates.  So, if you have credit card or other high rate debt, I encourage you to spend some time on bankrate or a similar site and see if you can do any better than you are now.

My Bigest Mistake, and How to Fix It

I thought I would plow through the Simple Dollar's "Out with the Old, in with the New" in order, and #2 is "create a five year sketch."   But it tied in too well with #3 and #4 "figure out your biggest mistake" and "plan how to erase that mistake" to block them out separately.  Because my biggest mistake was giving up my last set of life plans without figuring out where I wanted to go next.

In 2003, I was a shiny new law school graduate, and I knew exactly what I wanted to do: become an associate at a premier law firm in Texas.  That was in the middle of the last recession/depression/economic slowdown, and the market for newly minted lawyers was crap.  Since I couldn't get the associate job right out of law school, I did the next best thing and got a federal clerkship.  I really lucked out and got one in Texas.  It was a two year term, and I figured that would be enough time for the market to pick up and allow me to get the associate job that I wanted.  I wasn't exactly where I wanted to be, but I was on the path.

Clerking was pure misery.  I had waited tables in undergrad, and I thought I hated that.  Clerking was worse.  It was dull, it was monotonous, it required me to keep a set schedule in which I woke up at 7 am every day and  spent eight hours a day catering to the whims of another person.  It was Hell on Earth.  It was pretty much a starting associate position, except the hours were shorter and the pay was worse.  Also, I really liked the judge that I worked for, both as a lawyer and as a human being, and my summer clerkships had already taught me that I could not assume that it would be the same for the partners I might work for.  Life was too short to spend like this, even for the money premier law firm associates made.

So I decided to go to Beijing.  This isn't as weird as it sounds, I had studied Chinese in undergrad and before law school; I wasn't fluent, but I was conversational.  I had always thought I might like to work there.  Unfortunately, Mr. Goat hates China, so he wanted me to be 100% sure that moving to China was what I needed to do before he moved out there with me.  I had a good time, but I decided that it wasn't really for me.  I have a delicate constitution, and I just couldn't hack the pollution; I was sick pretty much continuously.  So in May 2006 I came back to Texas with no real plan for what to do next, and I pretty much did nothing for the next two years.

In March 2008, Mr. Goat got a 100% telecommute job and we moved back to my family's ranch.  I tried ranching full time for a while, and I enjoyed it, but my constitution again got in the way.  In May 2009, I started having some pain in my right hip.  By October 2009, I was pretty much disabled by hip pain and headaches, and it's only been in the last couple of months that I have really started to recover. 

So now we have a full-time manager on the ranch and I am no longer in the work rotation there.  I could work back in, but I am not sure that that is where I would like to be.  I've also got an offer from a friend who works as a broker to mentor me there.  I don't know much about the day to day operations of the job, but she seems to believe that a love for the stock market and complex formulas (which I have) would translate into enjoying what she does.  Also, if I'm going to have children, now is pretty much the time to start.  Or I could give writing for profit a shot, which I have said I was going to do for the last 5 years and have never done (this may be a sign that it ain't gonna happen).

I have a ton of great options to choose from, so what I need to do is decide a direction and start heading toward it.  I just can't seem to make myself decide - some days one thing seems better, some days it's another.  I'm paralyzed by the idea of shutting down so many choices to pursue a path, but what I have now are so many choices that nothing is getting done at all.  I'm beginning to think I should just flip a coin.  But I've decided in the spirit of Out with the Old, in with the New,  that, by the end of January, I'm going to have a five year sketch. 

I'm setting it at the end of January because this is an exercise that will take a lot of thought, time, and prayer for me, and I know that I won't have the mental energy for that for the next two weeks.  But if I don't put a time frame on it, then it's just too easy to push it further and further out on the to do list, and continue to compound the mistake.  Now I have written it out in black and white, with a date, so I have to be accountable to myself for it.

Did anyone else have blocks like mine or problems imagining where they would be in five years?  How did you move past it?

I've gained weight since last Christmas ... but today I don't care

I had a Christmas party today.  I confidently took out my party dress from last year ... and it didn't fit.  Well, it sort of fit.  I could SQUEEZE into it, and I only looked a bit like a sausage around the chest and hip area.  And it only dug into my arms a bit.  Trying to prolong the denial, I almost talked myself into wearing it, but then I had a rush of sense to the head and went and found a slightly less dressy dress for the party.

So,  anyway, I was kind of moping on the way there.  I knew I hadn't maintained my weight as well as I had wanted, and now I couldn't wear this dress (which I love) to this party or my cousin's wedding this weekend.  I was feeling kind of sorry for myself.

Then God definitely smacked me upside the head and told me to get over myself.  No sooner did I walk into the party than I found out that one of my friend's daughters had been arrested for child abuse, and it was the talk of the party because it had been the lead-in story on the local news the night before.  (I had not seen it since I don't have a television.)  Also, it was on the second page of the local newspaper.  So I called the friend and, sure enough, her daughter is using again, and the child abuse allegations stem from poor decisions she made while under the influence.

Let's compare problems here - a 7 lb weight gain vs. a daughter who (1) is charged with things that could put her away for 40 years and (2) is back on drugs, not to mention having everyone she knows hear about it on the evening news.  Suddenly my problems (the need to eat less candy, the need to find or buy a new dress before Saturday with no money left in my discretionary budget) just didn't seem so bad.  And then my mom took me shopping and bought me a really cute new dress for my birthday.  I sure am blessed!

Net Worth Calculation

Per day one of The Simple Dollar's out with the old, in with the new, I calculated my net worth today.  I'm afraid that I'm a bit like Babci when it comes to hard numbers, so I'm not going with exact figures - but although my net worth remains negative, it is about 3% of the negative number I got when I first sat down in 2005 and figured out just how much trouble we were in (answer: a lot).  Basically, since then, we have improved our net worth by paying down debt and saving for retirement.

Paying down debt
This is pretty obvious.  As the debt goes down, the negative side of the net worth calculation goes down, making the positive side count more.  

Additionally, that nasty interest that makes the negative number go up every month, even when you are not adding debt, becomes a smaller and smaller factor.  When we started this journey, we had debt on which we were paying 22% variable .  Now our highest interest rate is a fixed 1.65%.  We got there through a combination of paying down high interest debt and transferring it to places with lower interest. 

Saving for retirement
We are a long, long way from retirement, so the smart place for our money to be is in equities.   Because we didn't panic, and kept our money in (and kept putting money in) through the 2009 crash, our retirement accounts have actually grown past the value of the money we originally invested in them by about 6%, even though we had 2/3 of our money invested before March 2009.  Naturally this number fluctuates every day, but I am comfortable that it will continue to reflect a broad upward trend over the years.

Because most of our net worth is in retirement savings, we also have a big pile of debt remaining.  But I am comfortable with my decision  to put money into retirement accounts rather than debt repayment for two reasons.  First, because the interest rate on our debt is low, so the cost of paying it off over time is low.  Second, because Roth IRAs (where all of our retirement money is located) are a very good deal if you believe that income tax rates will be higher for your tax bracket in 35 years, and putting money into Roths is a use-it-or-lose-it deal every year.   So I am paying the taxes and interest now for the comfort of knowing that, in retirement, my income tax rate on this money will be 0.

Anyway, it has been a while (at least 6 months) since I calculated our net worth, and I was pleasantly surprised by the result.  If we are able to keep up our debt repayment at our current level, we will have a net worth of $0 in 3 months!  This will a huge milestone for us; we have had a negative net worth since day one, as I brought a ton of student loan debt into the marriage. 

Have you calculated your net worth recently?  Was it a surprise or not?

Reflecting on 2010

The year's not quite over, but this year I hope to have my goals and financial plans together by the 1st, so I'm starting with a recap of how well I did this year.  When I made these goals, I was thinking that the surgeries I had just finished and the physical therapy I had just started was going to give me a relatively pain-free year. Unfortunately, it didn't work out that way, but as of October, I think I'm finally getting my medicines in balance and my pain under control without opiates.   


1) Religious / Spiritual:
     A)Never miss church unless sick or out of town.  Win. I've gotten into a good routine vis-a-vis church, so I consistently make it when I am in town.
     B) Participate in a mission or outreach with my church.  Fail. This never really got off the ground.
      C) Read The Message: The Bible in Contemporary Language.  Fail (s0 far).  I'm through to Kings.
     D)Write every day in a prayer and gratitude journal. Fail.
     E) Continue to Tithe. Win.  
2) Health
     A) Maintain my weight between 145 and 155 pounds.  Fail (but not too badly).  Today my scale says I weigh 161 lbs, but my weight does fluctuate; last week it was 158.  Not where I want to be, but nowhere close to regaining the 30 lbs.
     B) Swim or do Physical Therapy 4 times a week.  Fail to Win.  Didn't happen for me until July, and I was sick during one month, but I have made it to the gym at least 17 times a month for all of the last 5 months.  I see a big difference in my cardiovascular fitness.
     C) Do Physical Therapy Exercises Every Day. Fail. The exercises didn't end up helping, and I dropped them.
     D) Practice Aikido Every Day.  Fail.  I barely did any aikido this year.

3) Financial 
     A) Pay off loan from relatives in the amount of $1000.  Win. One more debt paid off!
     B) Pay off loan from relative in the amount of $30,000  Fail.  My health did not allow me to find any extra money to pay this off.  I did keep working on it, though, and I should be able to pay it off in July 2011 if everything goes smoothly. (Update 1/1/2011 WIN - got the money together to pay this off in December 2010)
     C) Fully Fund 2009 and 2010 Roth IRAs.  Win.  And this year the stock market actually went up, so there was some advantage to getting it together early.

4)  Dreams
     1) Write something besides this blog. Fail.  I didn't even do a good job writing  on this blog this year.
     2) Learn how to Accompany on the Piano.  Fail.  This fell by the wayside about March.
     3) Get officially affiliated with a dojo.  Fail/Win.  I didn't manage to figure out aikido, but I did find a nice Judo dojo, so I'm back to my Judo practice 2x a week.
     4) Keep up with my Chinese.  Fail.  This fell by the wayside about March.

5) Prosaic
     1) Practice with my carry firearms at least once a month.  Fail.
     2) Keep my house in a reasonable state of neatness.  Fail (but not too badly)  My house never really got neat, but it is not any messier than it was a year ago.


There's a lot of fail there, but a bit of win too.  OK, so the lessons I learned from this to use next year are:


(1) Prioritize goals.  I made myself a wish list and called it "goals," but basically it required too radical a lifestyle adjustment in all areas of my life.  I need to decide what is really important to me and set a few clear goals at a time to really get this to work.


(2) Don't make the perfect the enemy of the good.  On the other hand, I've got several goals that, while I did not succeed, I made some progress.   For instance, I won't be paying off the 30K loan this year, but I did keep throwing money at it, and, barring unforeseen problems, we will pay it off in July.


(3) Sometimes life kicks you in the nadgers.  Some stuff on this list did not get done and should have.  But a lot of stuff just fell by the wayside while I tried to regain a modicum of reasonable health.  Although I should have re-prioritized sometime around March (when I knew that there wouldn't be a quick fix), I kept thinking it would turn out OK and that I'd have time to catch up.


The Simple Dollar is doing a "a daily series focusing on specific activities you can do right now to set the stage for a great 2011."  I'm thinking about using it as my template for resolutions next year.  How are you going to set goals for next year?

Why the Next Congress won't Fix the Deficit

The WSJ has an article about what percentages of your taxes the federal government spends on what programs.  There's an attached table showing two hypothetical families.  This table shows that the first 44% of our tax dollar goes to (in descending order) Social Security, Medicare, Medicaid, and Interest on the National Debt.  The next 18% pays for the military (they broke it down into the categories of non-Iraq/Afghanistan operations, Iraq/Afghanistan operations, personnel, weapons, and research).  That's 62% of tax revenue right there; in order to cut the deficit we'll either need to make deep cuts in everything else or cut some of this stuff out.

There are a few things on the list that I think should have been gone a long time ago.  For instance, Headstart (which sounds nice in theory but, in practice, does not change educational outcomes) takes up .2% of our tax dollars.  Agriculture subsidies take up .3%, and, as a sustainable farmer, I'm telling you that the number one thing we could do to improve farming practices in this country is to cut this subsidy.   But there's a lot of stuff on the list I don't want to give up, like federal highways (which make up 1% of our tax dollars).  So we can't just cut "everything else" and call it good.

So basically, to live within our means, we need to cut either social programs, military programs, or both. Given the powerful interests behind both that are entrenched in Washington, how likely do you think substantive cuts in these areas are right now?  Basically, we're going to be wallowing in debt until the pain of the debt is greater than the pain of cutting these programs.  Here's hoping we're Greece and not Zimbabwe!