Everybody Loves Your Money

Nickel over at FiveCentNickel has accomplished what I would really like to do. He has paid off his mortgage in about 7.5 years. You can feel the excitement and satisfaction in his writing as he explains how he did it. I’m impressed.

We are also paying additional towards our mortgage since it’s really the only debt we have. My goal isn’t quite as aggressive as Nickel’s but I do intend to be able to pay the mortgage off when my daughter enters college. We’re off to a great start!

Currently we are paying an extra payment each year by participating in our credit union’s FREE biweekly payment program. (They don’t charge a fee for it like most banks). We are also paying additional blocks of money towards the mortgage each month once we see how much we have left over after all the bills are paid. The critical part of this is that our bills only account for less than 50% of our take home pay. That leaves us with a sizeable chunk of cash to put in savings and towards the mortgage each month.

The other part of the equation for us is that we own (no mortgage) the lake house that we built a couple years ago. We have no debt against that and, even in this market, estimate that we could sell it for about $150K. My goal is to pay the mortgage down far enough that we would always have the option of selling our second home so that we own this one outright. Our primary house is much larger and is located close to the city where all the jobs are so we wouldn’t want to sell the house we are in and move out to the lake, although it’s always an option and would make us mortgage/debt free instantly.

Anyway, go check out Nickel’s posts on being debt free and how he did it. It’s well worth reading!

With the changing regulations on credit cards, banks are giving their card fees and rates a makeover. The latest bank to do that is First Premier Bank, which caters to the subprime market.

Previously the bank charged a whopping $256 in first year fees for a credit line of just $250. Incredible.

Now, due to changing regulations, they are capping their fees at the maximum allowed 25% of the credit line value but jacking the interest rate up to 79.9%. That would be $20 in interest per month on a $300 balance. Wow! This card will only be attractive the people with nowhere else to turn.

http://seattletimes.nwsource.com/html/businesstechnology/2010532431_apussubprimecreditcard.html

It didn’t take long for me to remember why I hate banks and love credit unions. In October, we finally bought my wife a car. She had been driving her Honda Accord for nearly 10 years and we decided now was the time to take advantage of great deals on cars. After doing a lot of research, we purchased a Honda CRV in October. While we had the cash to pay for it at the time, I decided to take out a small loan on the car in order to keep a comfortable nest egg in the bank.

Our original intent was to use our credit union for the short term loan. In the end, I got talked in to a better interest rate with Chase. I really didn’t think that much of it at the time because I was intending to pay the principal down quickly. Taking the loan just gave me a bit more flexibility. Strike one for me.

Yesterday I created my online account with Chase so that I could easily make additional principal payments. They were very clear on the payment slips that they sent me that I needed to check a box if I wanted any of the amount above the normal payment to go towards the principal. Otherwise they would apply the additional funds toward future monthly payments. The only problem with this is that I send all my payments via Billpay so I can’t check the box. The only way I could make additional principal payments would be to mail in a separate check. That seemed rather ridiculous in the age of the Internet so I logged on to Chase and figured I’d just transfer a payment electronically.

Once I had mapped my credit union account to Chase I went to the payment page and clicked on “pay additional principal”. As I was filling in the amount I noticed that they added an “immediate payment fee” of $10. Are you kidding me? I was not about to pay $10 for the privilege of paying down the principal. Frankly, I was disgusted. Still not wanting to burn up a large chunk of our emergency fund, I picked up the phone and called my credit union to explain the situation. They were happy to help and we created a new loan over the phone to pay off Chase. As a bonus, their interest rate has come down and is cheaper than the loan from Chase.

The main reason I’m happy to switch this over to my credit union is that I can make all the extra payments I want for absolutely no charge and it’s as simple as transferring money online in my, already established, Internet banking account. NEVER AGAIN will I let myself use a commercial bank.

As I’ve said more than a few times on this blog, have you considered a credit union? CNNMoney has an article on their site today that points out some of the benefits to switching to a credit union if you are unhappy with some of the changes that banks are making to their credit cards. As regulations tighten on banks and financial institutions, they are coming up with new ways to keep extracting money from you for the privilege of using their card. One of the latest trends is that if you are late on a payment, they will take away some of your credit card rewards. The only way you can get them back is to pay a late fee and a $29 charge besides. Pathetic.

I was happy to see that the co-branded Amex card that I use from Costco isn’t one of the cards that has this new policy. I’m guessing Costco wasn’t a fan of sticking it to their members like that. If I’m wrong, please let me know.

Anyway, the article goes on to point out that credit card fees at credit unions are much lower than traditional banks. Yet another great reason to switch.

On thing that I wasn’t aware of is that credit unions use collateral from other loans you have with them for your credit cards as well. That means that if you have a mortgage with the credit union and a credit card, they can use your home as collateral for the credit card. That isn’t the case with most banks. Since we never carry a balance on our credit cards, this isn’t really an issue for us.

Here’s a link to the article:
Credit unions best revenge for credit card holders

As the holiday season begins, I find myself feeling very thankful for a number of things. First off, I’m very, very thankful for my wonderful wife and amazing daughter. I’m also thankful that we have a roof over our heads, food on our table, and jobs to keep us humming along. I think this season feels much more real in terms of truly understanding what we all should be thankful for.

As we look past Thanksgiving, it’s shaping up to be another Christmas season that is squarely focused on retail sales and how much stuff people buy. For us, it will be another season of trying to minimize the focus on “stuff” while we try to enjoy our families and friends. Of course, we’ll have our weak points and spend a bit more than we should as we get swept up in the frenzy but I think we’ll do okay.

In order to try to set ourselves up for success this season, my wife, daughter and I sat down and listed all the people that we plan to buy presents for and then listed the dollar amount we want to stick to for each. By doing this we will have a clear budget to work from which should help us control our spending and keep our bank account in good shape. As usual, we will not be using ANY credit to buy gifts. We will charge the presents on our Costco American Express but will pay the balance off at the end of the month so that we don’t pay any interest charges and still get to take advantage of the cash back that they offer.

Will we be participating in the after Thanksgiving sales? While I’ve seen a few deals that are rather tempting, I won’t be getting up early to go stand in line anywhere. One example of a tempting deal is LCD tv’s. The prices on Black Friday are rather shocking. We are still using the same old 32″ tube TV that came with our house. Frankly, I’m kind of hoping it will die soon so that we can justify finally getting a new flat screen tv. I guess it’s a good thing that the tv has continued to work because prices have come down so much, we’ve saved a ton of money by not buying one until the last possible moment. So, unless the tv decides to blow up in the next day or so, we’ll probably keep our focus on buying just the gifts that are on our list.

Anyway, I hope that you have a Happy Thanksgiving and don’t get too sucked in to the Black Friday feeding frenzy.

I’ve been lightly following Nicolas Cage’s money problems over the last few months. It’s always a little bit surprising to see someone who has clearly made many millions over his lifetime deal with such large financial problems that he’s forced to sell many of his assets.

When you look at the assets that he has acquired, it starts to become pretty clear why he’s in financial difficulty. Here are just a few of the things that Nicolas Cage has purchased:

Two castles
15 palatial homes
A number of yachts and Rolls Royces

I can only imagine how much he has spent furnishing all those houses and paying the maintenance costs on so many assets. It’s easy to see how the money could run out. If he could have just limited himself to one castle, 7 or 8 homes and scaled back on the total number of boats and cars, maybe he wouldn’t be having to sell some of these assets during an economic downturn where he is faced with getting far less than he paid for them.

Anyway, here’s an article that talks a bit more about his situation:
http://money.cnn.com/2009/11/17/pf/Nicolas_Cage_lawsuit_manager.cnnw/index.htm

I stumbled on to Mint’s infographic about all the pitfalls of credit cards. I especially like how they compare it to falling down a very deep ravine until you hit fire at the bottom.

If you haven’t seen it, it’s worth checking out:
http://www.mint.com/blog/finance-core/the-descent-into-credit-card-debt/

Sorry for the lack of posts over the last week or so. I just got back from a business trip in Southern California. I spent a week down there working 11 hour days locked up in a conference room. The days were long but rewarding. As it happened, the conference room we were using all week was the executive board room. I’m far from an executive so it was interesting to see how things go there. The seats were incredibly comfortable. Plump and leather would be a good way to describe them. There was a break room with a refrigerator crammed full of soda, waters etc. They had their own professional grade coffee machines and every kind of tea on the planet.

On top of the nice conference room, I happened to be staying in the Huntington Beach area. My hotel was directly across the street from the beach and was very nice. Luckily my company had negotiated a ridiculously cheap rate. My only regret was that I didn’t have more time to enjoy the area. Every morning there was a mass of surfers swimming out in to the surf to catch the amazing waves that crashed against the shore 24 hours a day. No wonder this is such a popular surfing destination. At night the beach was full of people enjoying bonfires all along the beach. I sat out on my balcony with a cocktail trying to relax after the long days and kept finding myself wondering what all these people did for a living……… (Had they just worked all day too?)

I did manage to get out a bit in the evenings. On one night, a friend of mine and I drove down to Newport Beach to drool at some of the high end car dealerships there. We’re both car nuts so it was a fun trip to make. I couldn’t help but notice how wealthy the area seemed to be. I think that BMW’s were considered the economy car around there. I was absolutely amazed at how many there were. I can’t even count how many Bentleys, Mercedes and even exotic cars like Ferraris, Aston Martins and others there were. Either everyone down there is rich, or there is a TON of debt in that town. My friend and I were talking about how incredibly wealthy it seemed to be there and he said, “There must be a ton of millionaires around here”. I thought about it for a second and said, “Yeah, either that or there are a ton of debtonaires around here”. My guess is that it’s a bit of both.

On Tuesday night the main street was crammed with booths for a street party. Again, I wondered, “What do all of these people do for a living?” I mean, rent down there has to be incredibly high. Modest houses were upwards of $1M. I suppose if you drive far enough inland the prices probably come down enough that middle class families can afford them. If you live in Southern California near the water, I’d be very interested to get your input on the local economies there. It could be that I just happened to be in one of the wealthier areas of Southern California during that week.

I will say that if I had a choice and could afford it, I would live there. The waves were mesmerizing and the climate is exactly what I like. Unfortunately I don’t think I’ll ever be able to afford that lifestyle. As aggressive as we are being at saving, I don’t think we’ll ever amass enough money to live in that area.

There is an interesting article in the New York Times this morning about the recent moves to control the exorbitant fees that credit card companies charge their customers. While this is probably the right thing to do it does have some ramifications for someone like me. I’m what’s termed a Deadbeat. I use my credit card but I ALWAYS pay the balance off at the end of the month to avoid interest charges. I have never paid interest on a credit card in all the years I’ve owned them. Needless to say, I’m not a credit card company’s favorite type of customer. They’d prefer that I pay the minimum due on my balance each month and it would be just fine with them if I was late making a payment once in awhile so that they can hit me with crazy fees.

Well, now that their ability to tax their favorite customers is coming under significant scrutiny, it appears that people like me are in the credit card company’s sights. A couple of the changes I might expect are reduced grace periods for purchases, or no grace period at all. I can tell you that if they start charging me interest from the date of purchase, I’ll cease using the card and stick to a debit card. Another potential change is for the credit card companies and banks to start charging annual fees. That’s another thing that I have always refused to pay and if they institute that, I’ll most likely cancel the card and explore other options.

Anyway, it looks like changes are in the works. When you receive any new mailings from your bank or credit card companies, I’d highly recommend you get out the magnifying glass and look over any term changes.

Interesting article that highlights the risks that many of the credit card companies are facing. Their default rate is skyrocketing and they are having to retrench and stop lending additional money to try to preserve capital.

People have been talking about the next wave of defaults being in credit cards. Apparently Advanta is one of the first to start drastic measures. Other companies have been lowering limits and canceling some customers but I think Advanta might be the first to quit lending to all their cardholders.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_FhoI2A4ZsM