Annual Salary = $56k & Credit Card Debt = $10k
June 13, 2008
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This is part of Ask The Money Mender series
Dear Cindy,
I am recently divorced and just purchased a house. My problem is this. I make an annual salary of approx. $56k. I currently owe approx. $l0k in credit cards and am just paying the minimum amount. I have $20k in retirement and also have a piece of jewelry that I would like to sell that is worth approx. $10-$15k. What would be the best approach in ridding myself of debt? Should I suffer the loss of liquidating a portion of my retirement, sell my jewelry or would the bank make a loan against the jewelry or retirement? I am 48 yrs. thank you for your help. I feel I’m working to pay interest. ~ Nancy
Hi Nancy, the most important thing for you to do is to really sit down and get a clear picture of all of your debt including minimum payments, balances and interest rates (you can use my Debt Payoff Spreadsheet).
Next, determine what your true, after-tax income is and your total expenses including those that don’t happen every month like Property Taxes, Insurance payments, Gift purchases, Home and Car repairs, Medical, Vacation, etc.
When you have determined what your true situation is, you will know whether or not you can pay more on your credit cards.
Selling the jewelry would be preferable to liquidating your retirement. Banks will probably not make a loan against the jewelry and cannot against the retirement (although if it is a 401(k) you may be able to take out a loan). If you liquidate your retirement there will be penalties and taxes to pay and you will be “eating your seed corn”.
If you do take out a loan, getting clear on your real expenses will be even more important so you don’t end up in this same situation a couple of years down the road.
Another thought is to see how you can turn a hobby into a business (which may also be tax deductible). Is there anything you do well that you could charge others for?
Hope this helps!
Warmly, Cindy
It’s 2 AM and I’m worrying about money…
June 12, 2008
Yes, even Money Experts worry about money. Does this happen to you, too?
It used to happen to me a lot before I became a Money Expert (and was one of the reasons I became one).
So, what am I worried about? Well, maybe if I share them with all of you, I’ll be able to go back to sleep!
Here’s my list:
The Recession: What will the Recession mean for my business and what does it mean to all of you. What can I do to ease you through it?
My Business: I’m currently enrolled in a new marketing and business development course and it’s great! And, it’s taking a lot of time. So, I’m worried about how to fit it all in and not turn any clients away.
My Money Pit of House Projects: A couple of months ago, I decided it was time to put in new carpet upstairs. But, before that could be done the walls going upstairs and in the hallways needed to be painted. But, I couldn’t paint just them - the downstairs walls needed to be painted, too. And now that the walls look beautiful, the window coverings need to be replaced and the doors look really dingy.
As for the carpet… When my son, Toby, pulled it up, we discovered that the original owner had done some really strange things on the steps around the railing and now I have a drywall mess that’s going to be expensive to fix.
So, my home improvement budget is blown and I’ll have to put some of it on a credit card. I’ll probably use Home Depot for the carpet and they have 0% for 12 months which lets me push out the payment until after next tax season’s bonus check. (I did call them to ask if they had any discount coupons and they sent me one for 10% off the carpet itself - every little bit helps).
Ah, I do feel better! Back to bed.
Would you like to get your money worries off your chest? The comment box cries out to unburden you!
Warmly, Cindy
Safety Net Savings
June 12, 2008
Do you walk the high wire of personal finance? Is every month a balancing act that works only as long as the next paycheck arrives on time? What happens if that next paycheck doesn’t arrive? The cause could be many things which you cannot control: an illness, a layoff, a sales slump.
If some unexpected event interrupted your next paycheck, would your household’s financial balancing act come crashing to the ground? Would you be forced to resort to debt to fill the money gap?
Financial emergencies happen to just about everyone at one time or another — and usually when you least expect them. Prevent an emergency from turning into a disaster by building your own Safety Net Savings. A Safety Net account is a reserve of savings that allows you to pay your normal expenses in the event of a sudden drop in income. And it helps avoid the need to turn to credit as a solution, which can result in a perpetual cycle of debt. Resorting to debt to cover lost income can mean years spent digging yourself out of debt.
The Safety Net account is the second step in a three-step savings program for financial freedom, that also includes your:
Anti-emergency fundTM: Money set aside monthly to pay for the non-monthly expenses that often get left out of our financial equation, such as quarterly insurance, car repairs, appliance replacement, holiday spending, taxes and the family vacation.
Investment savings: Money set aside for retirement, college and other long-term financial goals.
Build Safety Net Savings by setting aside a specific amount from your paycheck each pay period, with the understanding that the money will not be touched unless a justifiable financial need arises. How large a safety net account should you build? That depends on your personal financial situation.
- Are you self-employed? Or does your income fluctuate seasonally or due to commissions? Do you have a medical situation that could cause added expenses or loss of work income? You may need to plan for a larger safety net.
- Are you well-settled in a stable job? Do you have plenty of sick leave or vacation built up? Does your company provide a good severance package in the event your job is eliminated? You may be able to get by with a smaller fund.
Most financial planners suggest a fund cover three to six months of normal and necessary expenses. The most important thing, though, is to just get started!
Use your monthly spending plan to determine the total of those normal and necessary expenses. You don’t need to include everything from your monthly spending plan — in times of lost income you probably shouldn’t be thinking about new clothes, vacations or entertainment expenses. Do include costs of food, mortgage or rent, household utilities, credit payments and other necessary expenses (DON’T forget non-monthly expenses such as insurance, car maintenance, and taxes). Multiply that figure by three or six months — or whatever period you’ve decided is necessary — to arrive at your Safety Net Savings goal.
Now start saving — emphasis on the “now!” One of my favorite phrases is “Save early and often”. And pay your savings first. If you don’t, you’ll likely find some other way to use that money. If you think all your income is going toward necessary expenditures, try recording your spending. You’ll probably see that some of the things you spend money on really aren’t that necessary and may not even give you any real pleasure! Cut those out first and put that money toward your safety net.
Safety Net Savings is intended to be accessible in the event of an emergency, so don’t sock it away in a long-term investment. Keep it in money market funds or short-term CD’s. Of course, you won’t earn much interest, but the point of the Safety Net Savings is to avoid having to use credit cards at much higher interest rates. I keep my Safety Net Savings at ING Direct. I started out putting $100 per month into CDs and have gradually added to them over the years so that now I have $600 coming due each month should I ever need it.
Safety Net Savings offers benefits even when you’re not using it — the benefit of security and peace of mind. Knowing that you’ll be able to take care of your needs, and those of the people who depend on you, can relieve a huge mental burden you may not be aware you’re carrying. Experiencing that sense of security may also make you feel more comfortable taking a few personal risks to enhance your quality of life, like changing jobs or starting your own business.
Remember, when you have a safety net beneath you, you can be a lot more fearless walking a tightrope!
Warmly, Cindy
Why Check Your Credit Report Regularly?
June 11, 2008
This is part of our Pay Debt Quickly series sponsored by PDQ Pay Debt Quickly kit.
Besides paying your bills regularly and on time, the single most important thing you can do to show that you are a good credit risk is to know what’s in your credit report.
Studies have shown that many credit files contain errors that can harm your credit rating, leading to rejections when you apply for loans, insurance or even a job. The errors range from simple human error to being mixed up with a similarly named person.
It’s essential that you check your credit files and monitor your credit regularly in order to protect your good credit standing, even if you always pay your bills on time.
And if your credit needs improvement, checking your report will help you find any problems that can be cleared up. A correct credit report, paying your bills on time and the passage of time will ensure the highest scores.
You can get a free copy of your credit report from each credit reporting agency at www.AnnualCreditReport.com. Try getting one at a time and you spread them throughout the year. At this site, you will have to pay for credit scores.
If you’d like to get them together (credit score and credit report) go right to the original source: MyFico.com to get all three.
You could get your free reports and then use My FICO free Credit Score Estimator to get a ballpark credit score (if you’re planning to get a loan or mortgage, you’ll want the real thing).
It is a good idea to check your credit report once or twice a year so you keep on top of any problems that might creep in.
Feel free to share your thoughts and questions about Credit Scores.
Have Cindy personally review your credit report. Order your Certified Credit Report Review.
Warmly, Cindy
Got Cell Phone Gripes? They Can Hear You NOW!
June 11, 2008
Article republished with permission from Credit.com.
If you’re tired of having to pay when you leave your cell phone company for a better deal, this is THE time to vent your frustration! The FCC is meeting tomorrow, Thursday, June 12th, to discuss those hefty early termination fees, which range from $175 to a high of $250, according to Consumers Union (CU), the publisher of Consumer Reports. CU is spearheading an email campaign through its site, to let the FCC hear from customers, not just the cell phone companies, because: “You shouldn’t have to pay up just to get better service elsewhere.”
While the FCC could put limits on these fees, the companies want something in exchange. “They want to take away consumers’ right to sue them for potentially illegal behavior in exchange for lowering these fees,” says CU, “a possibly worse situation in the long run.” In fact, a class-action lawsuit was just certified to proceed in California, challenging the companies’ unfair business practices, including early termination fees.
“Cell phone companies shouldn’t get special legal treatment just for giving consumers a fair shake!” says Consumers Union. I agree! So I sent an email to the FCC, and hope you will, too. CU makes it really easy to tell the FCC what you think. I doubt that it took more than a minute to add my name and address — as well as a personal note — to the excellent message CU drafted. And I feel better for having spoken up. Try it, you’ll like it!
After you’ve sent your message to the FCC, please come back and let us know what your other pet peeves are about your wireless service. With over 200 million of us having cell phones, imho, we ought to get better protection and treatment! Do you agree with me?
Nancy Castleman - Co-author of “Invest in Yourself: Six Secrets to a Rich Life” and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.
Article republished with permission from Credit.com.
