2008 April | No Credit Needed

My Story

Archive for April, 2008

Debt Reduction Guide: Getting Started

April 25th, 2008

NCN

No Credit Needed Debt Reduction Guide

Section One: Getting Started

Tools: pen / paper / calculator / most recent bank statements / loan documents / credit card statements

Calculate Total Starting Balance:

List all of your debts – Create columns to list creditors, balances, due dates, minimum payments, and interest rates.
Add up all balances – This amount is your total starting balance.

Determine Debt Reduction Method:

Now that you have your total starting balance, you no longer have ‘debts’, you have your ‘debt’. In other words, your new goal is to get rid of your entire starting balance, not just a part of it. With that in mind, there are two debt reduction methods that work really well – and they both share the same basic principals – making minimum payments to all accounts and making extra payments to one account at a time.

If your goal is to pay the absolute lowest amount of interest, over the time that you are reducing your debt, list your debts by interest rates, starting with the highest interest rate first.
If your goal is to rapidly reduce the number of accounts that have balances, list your debts by balances, starting with the lowest balance first.

It has been my experience, after writing about debt reduction for more than three years, that the latter method seems to work best for most people, especially when they first get started. I used this method, commonly referred to as the ‘debt snowball’ and it worked very well for me.

Begin To Make Extra Payments:

Make minimum payments to all accounts on your list. Be sure that all payments arrive on time. Never miss a minimum payment, our you will have to pay penalties and late fees – and, your creditor may raise your interest rate.
Send an extra payment to the first account on your list. While you may choose to simply add this extra payment to your minimum payment, and write one check, I prefer to send two checks, one for the minimum payment and one marked ‘apply to principal’. If you use free online bill pay from your bank, sending two ‘checks’ should be a relatively simple thing to do.
Continue repeating steps 1 and 2 until you have paid off the fist account on your list.

Roll Payments Into Next Account:

And now we come to the most important step in the debt reduction process. Now that the first account on your list has been paid off – you have some ‘freed up money‘ – the minimum and the extra that you had been sending to the first account.

Continue to make minimum payments to all remaining accounts.
Send the ‘freed up money’ – the old minimum plus the old extra – that you had been sending to the first account – and send it to the second account on your list.
Continue repeating steps 1 and 2 until you have paid off the second account on your list, then repeat for the third account, the fourth account, etc. until you are completely debt free. Remember, once an account has been eliminated, take the total amount you had been sending to that account – the minimum plus the extra – and send that amount to the next account on the list.

By repeating this process – eliminating an account balance and rolling payments to the next account – you can and will rapidly reduce your debt. Remember, your goal is to eliminate your entire total starting balance.

Thank you for reading the No Credit Needed Debt Reduction Guide.

You have been reading Section One: Getting Started.

Please bookmark this page or subscribe to the No Credit Needed RSS Feed to insure that you receive all sections:

Section One: Getting Started

Section Two: Moving Beyond The Basics

Section Three: Preparing For Freedom

Section Four: Staying The Course

Section Five: Planning For The Future

Posted in Guide

7 Comments »

How My Fellow Money Blog Network Members Have Helped Save Me Money

April 23rd, 2008

NCN

As many of you know, No Credit Needed is a member of the Money Blog Network. I’m consistently impressed by my fellow members – and the content of their sites. I thought it would be cool to highlight a few of their posts, and how those posts have helped me save money and kept me informed.

A few months ago, I purchased a new-to-us automobile. I used a version of this letter , designed by Five Cent Nickel, in my email to the automobile dealership. I also followed the advice in this post, from Free Money Finance, for finding the real cost of the used automobile. By combining their advice, I was able to get a good deal and we now have a car that we love.

All Financial Matters always does a good job of breaking down complex topics into easy-to-understand posts. For instance, I had a choice of two different index funds – and I used the information here, about S&P 500 Index Funds, to make my choice. As a side note, JLP from All Financial Matters was recently interviewed by Mike Causey. Click over and check it out!

Get Rich Slowly is a treasure trove of valuable personal finance information – and one of my favorite posts is this one about escaping the paycheck-to-paycheck cycle. Personally, I believe that the most important financial decisions we make must be made before, not after, we receive our paychecks, when we sit down to create our monthly budgets.

A few years ago, Consumerism Commentary wrote this interesting post about choosing a new cell phone provider. While I’m stuck in my current contract, I did forward the post to a friend, and HE used it to get a great deal!

Having a new baby is great – and expensive. Thankfully, Wise Bread has some great DIY tips for new parents. Our baby girl is awesome and she’s sleeping five hours at a clip!

Mighty Bargain Hunter compiled this awesome list of money related forums and message boards. I love connecting with other people who are interested in personal finance and money management.

I hope you’ll take a minute or two to visit each of these sites.

Posted in Noted

3 Comments »

The $100-A-Day-Rule Prevents Impulse Buying

April 23rd, 2008

NCN

I like stuff – gadgets, gizmos, and thingamajigs. I also like saving money. So, I’ve created the $100-A-Day-Rule.

For every $100 that I want to spend on the purchase of a new product, I must wait one day before I make the purchase. This creates a self-imposed ‘cooling-off’ period.

If a new gadget costs $100, I have to wait one day until I can purchase the gadget.

If a new gizmo costs $400, I have to wait four days until I can purchase the gizmo.

If a new thingamajig costs $1400, I have to wait two weeks until I can purchase the thingamajig.

I tend to live ‘in-the-moment’, which is just a fancy way to say, I like to impulse buy. In the past, when I wanted something, I just went out and bought it. And, in the past, I’d be stuck with payments, long after the desire for the product had gone away. I once purchased a video game console – because a good buddy had one – and I don’t even like video games. I used my credit card, bought the console, played a few games of Madden, and then never touched it again. A $250 gaming console sat, unused, in my entertainment center, for three years.

Now, when I want something, I use the $100-A-Day-Rule. I spend time researching, looking for cheaper alternatives, and deciding if I really want the item.

Since implementing the $100-A-Day-Rule, I have seen a dramatic reduction in the number of things that I actually want to buy. In fact, in most cases, once I leave the store and get home, I forget why I ever wanted a particular item in the first place. But, if I do find that I still want a particular item, I have built-in system which allows me to take time to do some research and find the item at an affordable price.

At $100-a-day, it would take about 3 1/2 months to decide on whether or not to purchase a $10,000 automobile. 3 1/2 months is long time to ‘cool off’ from ‘new-car fever’. Imagine if every person, when they went to the lot to purchase a new car, were required to wait 3 1/2 months before they could make a purchase? Might we see some dramatic changes in shopping/buying habits?

Side note: As the numbers move higher and higher, the cooling-off period grows longer and longer. There is a point at which the length of time gets a bit ridiculous – shopping 2.5 years for a $200,000 home might drive anyone crazy. So, I’ve capped my cooling-off period at 6 months. If I want/need an expensive item, and I’ve shopped for it for six months, and if it’s in our budget, I go ahead and purchase it.

Here are a few recent examples of how using the $100-A-Day-Rule worked for me:

Wanted: $500 set of golf clubs. Waited: 5 days, purchased a different set for under $300.

Wanted: $1,400 lawn mower. Waited: 14 days, decided not to purchase but to look for alternatives.

Wanted: $1000 HDTV. Waited: 10 days, decided I needed more information, waited additional 2 months, purchased similar HDTV for under $900.

Wanted: $400 driver to match new clubs. Waited: 4 days, decided that my golf game does not merit the purchase of a $400 driver. Heck, my golf game does not merit the purchase of a $40 driver!

Want: A new laptop. Waiting: 10 days, and counting. I want/need a new laptop, so I am spending some time, looking for a good deal on a new laptop. I can’t decide if I want to spend $400 on a cheap model or $1500 on a better system, so I’m using the higher price as my guide and looking at all options.

Final notes: I have found that the MORE I want an item, the LONGER the cooling off period needs to be. I never want to be in the position where I am making a purchase, based on my emotions. So, if I really, really, really want something, I double the time that I have to wait, and then I make my purchase.

Edit: I want to thank JD over at Get Rich Slowly for sharing the story of Joshua, one of his readers, and how Joshua used this technique to avoid a an impulse purchase.

If you find this article to be helpful, please Stumble It and spread the word.

Posted in Frugality

46 Comments »

Getting Rid Of The Old Blue Chair – A Look Back At How I Used To Manage My Finances

April 21st, 2008

NCN

Nine years ago, I bought a blue chair-and-a-half. Yesterday, I hauled it away.

As I was driving down the road, returning from the ‘dump-trash’ (that’s what my daughter calls the local collection facility) – I started thinking about the old blue chair. My wife and I purchased it on a whim. We lived in a small, two bedroom apartment, and we were expecting our first child. We were, as we always were back then, broke. But, we had good credit.

We went to a local furniture store and we scanned their selection of chairs. Quickly, we picked out out the blue chair-and-a-half, because it matched our other furniture. We used the furniture store’s in-house financing – and we promised ourselves that we would ‘pay the whole thing off, next month’.

When the next month rolled around, we didn’t ‘pay the whole thing off’. In fact, we took eleven months to pay for the blue chair. That’s right. It took us nearly a year to pay for a chair.

I was recently digging through some old paperwork, and I stumbled across the financing documents for the blue chair. I was astonished to see just how much we paid for the chair – and that the interest rate had been 21.99%! I also noticed that they charged me a delivery fee – and yet I distinctly remember using my own truck to bring the chair home.

As you can see, back in those days, I wasn’t very money savvy. In fact, I was foolish. When I wanted something, I went out and got it, regardless of its price.

Now, we are thinking about getting a new chair, to replace the old blue one. For the time being, we have simply moved an old recliner from one spot in the den to another, and we are using it to fill the space where the old blue chair used to sit. Eventually, we’ll buy a new chair. But, we’ll shop around first – comparing prices and features. We’ll pay cash and the purchase will be included in our budget. And, we’ll do business with a local furniture store with whom we have an established, first-name relationship.

In other words, we’ll make an informed decision based on rational thought, instead of an impulse purchase based on irrational want.

It isn’t easy, thinking about the way things used to be. But, it is good to know how much we’ve changed. It’s amazing how much better life is, when you have a plan and you stick to it.

How have your money management skills changed, over the years? Do you still impulse shop? Are you living on a budget? Leave a comment and let us know how you are doing.

Posted in Budget

17 Comments »

Dissecting Our Deductibles – Renter’s Health Automobile Insurance

April 18th, 2008

NCN

Each month, our health insurance premium is deducted from my wife’s paycheck. Every year, I pay our annual renter’s insurance premium. And, once every six months, I pay our automobile insurance premium. The premium is the amount charged, by and insurance company, for actual coverage. But, not only do we pay insurance premiums, we are also, in the event that we actually need to use the insurance, must pay a portion of the expense, not covered by the insurance company, called the deductible.

Renter’s Insurance -

We live in a house provided by my employer, as part of my compensation. My employer carries coverage for any damage to the house itself, be we carry coverage for the contents of the house – our stuff. We have had our current policy for more than ten years. Our annual premium is less than $150. Our deductible, for most events, is $1000. I must say, for the price, our renter’s policy is a great deal. I would strongly suggest to anyone who is renting an apartment or living in a house that they do not own, that you get a renter’s insurance policy. Coverage will vary from policy to policy and company to company, so shop around and compare prices. In most cases, the higher the deductible, the lower the premium. One note – always keep enough money in your emergency fund to cover your deductible costs.

Health Insurance -

We have health insurance through my wife’s employer. Our annual family deductible is $2000, with a per person deductible of $1000. After we meet our deductible, our insurance company then pays 90% of our expenses. Again, it is important to us to keep enough money in our emergency fund to cover and deductibles. My wife just had our baby, so we’ve now met our annual family deductible. By the way, when we arrived at the hospital to have the baby, we had to pay our portion, up front. It was fun to see the look on the cashier’s face when I handed her a stack of hundreds.

Automobile Insurance -

Our automobile insurance covers our three, paid for automobiles. We choose to pay for ‘full coverage’. Our semi-annual premium is about $600. For less than $100 a month, we are able to fully insure our automobiles. I’ve been with my current insurance agent for more than 18 years. I have no doubt that I could ’shop around’ and find a lower premium, but I know my agent by name and he answers the phone when I call. My wife was in an accident several years ago, and within 15 minutes, our agent was taking care of our claim. We raised our deductible to $1000 three years ago, and this reduced our premiums more than 15%.

How our deductibles affect the amount of money we keep in our emergency fund -

If you total our renter’s insurance, health insurance, and automobile insurance deductibles – $1000 + $2000 + $1000 – you get $4000. For us, that’s our ‘rock bottom’ emergency fund amount. If we maintain a minimum of $4000 in our emergency fund, at all times, then we can be confident that we can pay all of our deductibles.

By the way, as I type this post, I’m holding baby number three! How cool is that? New babies STILL rock!

Posted in Insurance

3 Comments »