HELP!I'm pouring my heart out here, need advice!*Updated 6/12/07*

[minnie1928]

I have opened up to my Dad about this problem (mom and dad divorced when I was 6). He has agreed to hold our cc's for us instead of closing the accounts. We will be closing all but two or three. We have had these few cc's over eight years. We have to go through him to access these cc's and he will decide if it is a true enough "emergency" to have to utilize the cards. My dad is very frugal and only has one cc for holding ressies. I think this will be the best way for us. He was very shocked to learn about our situation but he is being very supportive and is "on board" with helping to whip us into shape!

I think this is a great idea! Not only do you have a safe place for your cards, but you also have someone to open up to. The fact that your dad is very frugal can't hurt either!

With regard to the whole FICO conversation, I think it goes without saying that you shouldn't be using the cards. However, if you have the willpower (or dad power ) to not use them, I think it would be best to leave them open. If it is too much of a temptation, then definately close them. I've just recently become KEENLY aware of how important FICO is when trying to do things other than getting a loan, that's why I threw my 2 cents in.

Good luck!

 

[nowellsl]

I honestly don't think the OP's FICO score is something to worry about now either, I just feel like why hurt it unless you have to? Whatever she has to do to make sure they don't charge anymore - that's what she should do!! I think giving them to her Dad is a great idea - he can also provide additional moral support now that he knows the situation.

To the OP - congratulations on telling your Dad by the way - that must have been soooo hard! It really has convinced me that you are going to do great! The hardest part is admitting it out loud. Even harder than posting on this board!!

 

[my4kids]

Wow - I can't even begin to comment - I just can't believe when people don't get the whole "credit " thing....it is not money coming to you. It is a way to convienently pay for things if YOU ALREADY HAVE THE MONEY IN THE BANK TO PAY WITH ONE CHECK LATER!!!!!!!!!!!!! If you don't have money you can't buy it! I don't really think there is a way to make you understand at this point....if you were in so much debt, why on earth did you plan trips? - We have never been in debt (becasue we don't spend) but have never gone to Disney either....we are going this month because we sold a property that we made a pretty penny on and had a little to splurge....I just can't even imagine your frame of mind...

I could sit here and tell you all the things and the houses that I want. All the trips I would like to take....I don't think of it, because I do not have cash to pay for it. Therefore, I sleep at night.

 

[nowellsl]

Wow - I can't even begin to comment - I just can't believe when people don't get the whole "credit " thing....it is not money coming to you. It is a way to convienently pay for things if YOU ALREADY HAVE THE MONEY IN THE BANK TO PAY WITH ONE CHECK LATER!!!!!!!!!!!!! If you don't have money you can't buy it! I don't really think there is a way to make you understand at this point....if you were in so much debt, why on earth did you plan trips? - We have never been in debt (becasue we don't spend) but have never gone to Disney either....we are going this month because we sold a property that we made a pretty penny on and had a little to splurge....I just can't even imagine your frame of mind...

I could sit here and tell you all the things and the houses that I want. All the trips I would like to take....I don't think of it, because I do not have cash to pay for it. Therefore, I sleep at night.

She gets it! That's why she asked for help.

 

[MAGICX2]

Wow - I can't even begin to comment - I just can't believe when people don't get the whole "credit " thing....it is not money coming to you. It is a way to convienently pay for things if YOU ALREADY HAVE THE MONEY IN THE BANK TO PAY WITH ONE CHECK LATER!!!!!!!!!!!!! If you don't have money you can't buy it! I don't really think there is a way to make you understand at this point....if you were in so much debt, why on earth did you plan trips? - We have never been in debt (becasue we don't spend) but have never gone to Disney either....we are going this month because we sold a property that we made a pretty penny on and had a little to splurge....I just can't even imagine your frame of mind...

I could sit here and tell you all the things and the houses that I want. All the trips I would like to take....I don't think of it, because I do not have cash to pay for it. Therefore, I sleep at night.

Have you read this whole thread?! This is the first time I have spoken out against a post. I am sorry but you don't seem to get what I have been giong through/doing for the past three weeks. I did get it, and I am getting it under control. Sorry, just had to retaliate at this one.

 

[WatchinCaptKangaroo]

You are doing great!!!!

Just think, in 3 years your credit card debt will be GONE! You will have $600 (or was it $800?) a month extra in your budget! May I suggest that you take that extra money (after your credit card debt is gone) and put it towards that signature loan? $600/mo x 12 mos = $7200 a year. I forget how much you said it was but that chunk of change should help knock it down. After both those are gone you should have over $1k a month left!

And when you have that $1k a month left it's time to make a new budget, allowing for additional savings (for college and retirement) and extra fun money.

In regards to your phone bill, get rid of extras. People survived for years without caller id, call waiting, voicemail (buy an answering machine), 3-way calling (if you really need it it's like 75 cents per use but how often do you really use it?), *69 etc... Find a cheap long distance plan (5cents a minute or a flat rate plan through the phone company) and you should be paying no more than $20 a month for a landline.

Keep up the good work! YA!

 

[MAGICX2]

You are doing great!!!!

Just think, in 3 years your credit card debt will be GONE! You will have $600 (or was it $800?) a month extra in your budget! May I suggest that you take that extra money (after your credit card debt is gone) and put it towards that signature loan? $600/mo x 12 mos = $7200 a year. I forget how much you said it was but that chunk of change should help knock it down. After both those are gone you should have over $1k a month left!

And when you have that $1k a month left it's time to make a new budget, allowing for additional savings (for college and retirement) and extra fun money.

In regards to your phone bill, get rid of extras. People survived for years without caller id, call waiting, voicemail (buy an answering machine), 3-way calling (if you really need it it's like 75 cents per use but how often do you really use it?), *69 etc... Find a cheap long distance plan (5cents a minute or a flat rate plan through the phone company) and you should be paying no more than $20 a month for a landline.

Keep up the good work! YA!

Thank you! We do not have any extras on our phone. Just plain old phone and answering machine. I used to work as an operator while going through college and I learned these extras are where they make the big bucks. It gets on my nerves anyway. "hold on I got another call" NO WAY! We have a local/hometown phone company and we have always used them. I guess I just thought I had to. I thought they were the only ones who could give me a dial tone because they were the only phone company IN our town. No I realize anyone can give me phone service. I can be nieve on so many different levels! Thanks to all. I have tried really hard to take everyone's opinion with grace. It helps to hear the good and the bad. But that one a few posts back just ruffled my feathers! I had to say something to that. Forgive me!

 

[crisi]

"A tax credit is no reason to prolong your mortgage payments! Think of it this way....if you were a professional gambler, your gamgling losses would be tax-deductible. But does that mean a gambler wants to lose money? No way!"

They go on...

"Still not convinced? Consider the math. Let's say you're paying $1,000 a month, $700 goes to interest and $300 goes to principle. You would save $200 on your taxes. So you want to keep paying $1,000 to the bank so that you can save $200? Of course not. Math like that will drive you to the poorhouse in a hurry."

Well, they are right - if you just spend the difference, but that isn't the proposal for people saying you should keep your mortgage. Their math goes like this:

Take your paid off house (or the money you would be using to pay off your house, but the numbers are easier to understand if you house is paid off) and mortgage it. Below the PMI number. Say $200,000. Your payments are $1500 and you'll pay 11,464 in interest the first year (a little less) at 5.732% (current rate at my bank).

Take that $200,000 the check just gave you and put it into a CD at 4.26%. Earn $8500 a year.

Take that $11,464 and write it off on your taxes at 36%, that saves you $4126 on your tax bill.

End result, $1100 a year net that you have that you wouldn't for the cost of $1500 a month in cash flow. Better if you choose to stomach some risk or actively manage your money - this is the almost no risk option. Course this option carries a tax bite on that $1100 - there are better choices to further reduce your taxes.

Now, this is NOT a scheme for spenders or anyone with a tight cash flow. But its an age old way for the rich to get richer.


By the way, Magicx2, I think you are doing a great job!

 

[dvcgirl]

Wow - I can't even begin to comment - I just can't believe when people don't get the whole "credit " thing....it is not money coming to you. It is a way to convienently pay for things if YOU ALREADY HAVE THE MONEY IN THE BANK TO PAY WITH ONE CHECK LATER!!!!!!!!!!!!! If you don't have money you can't buy it! I don't really think there is a way to make you understand at this point....if you were in so much debt, why on earth did you plan trips? - We have never been in debt (becasue we don't spend) but have never gone to Disney either....we are going this month because we sold a property that we made a pretty penny on and had a little to splurge....I just can't even imagine your frame of mind...

I could sit here and tell you all the things and the houses that I want. All the trips I would like to take....I don't think of it, because I do not have cash to pay for it. Therefore, I sleep at night.

Well, the OP has taken lots and lots of criticism, most of it constructive, and I do believe that she's "getting it" (unlike others in the past). No, I don't know her, but anyone who is willing to air their personal finances in public like she has done deserves a pat on the back. And it's not like she's alone in her dilemma. 80 Million...that's *Million* Americans owe money on a credit card right now. The average amount that they owe? Two months of their income.
So the next time you're walking down Main Street USA....a little over every third person is carrying revolving CC debt.

And another huge group is pulling money out of their homes at an alarming rate to pay off this debt. Everyone is feeling mighty wealthy these days with all the equity that they have been told they've amassed in their homes. Many people think that their homes are just going to keep going up-up-up...so why not take out some equity? Because they don't always go up-up-up. And even if they do...very often they appreciate slowly.

Today while I was performing a search on our county property appraiser's website to see what our tax bill is going to be next year I also noticed that I could see the sale price for my home over it's life. I live in Orlando Florida and the house that we purchased last year was built in 1990. We are the fourth owner. It was purchased in April of 1990 for $265,000. It was sold on New Years Eve of 1992 for *$260,000*...so it actually lost value. Sold again in August of 1998...5.5 years later for $265,000! It hadn't appreciated one penny from the original price eight years earlier. And then we came in 2004 and paid $370,000 for it, which was the going rate in this neighborhood by then. But there was a long haul there, nearly a decade where this house barely went up in value. I believe that we're in for another stretch just like that..or very close to that.

Today, a little over a year later we could sell it for $200,000 more...conservatively, which makes literally no sense. None. We keep hearing that there's a huge housing shortage...and that's why we're seeing this incredible rise in price levels. I don't know about you...but do you see millions of extra people running around homeless these days? I don't. These numbers are going up so high because of very risky lending practices by the banking industry feeding the frenzy and inciting panic among those on the sidelines..."better buy now before it's too late!!!" And there are lots of "investors" who are buying high and may end up in trouble down the road because of it.

 

[mrsbornkuntry]

Magicx2, I've been reading/following this thread, I don't have any advice to offer as I'm more reading to learn, but I wanted to say that I think you're doing a great job. I'm really impressed at how you've taken the bull by the horns to get out of debt. You're obviously very serious about your situation and you should be proud of the changes you've made so far, change is never easy.

 

[MickeyMickey]

Well, they are right - if you just spend the difference, but that isn't the proposal for people saying you should keep your mortgage. Their math goes like this:

Take your paid off house (or the money you would be using to pay off your house, but the numbers are easier to understand if you house is paid off) and mortgage it. Below the PMI number. Say $200,000. Your payments are $1500 and you'll pay 11,464 in interest the first year (a little less) at 5.732% (current rate at my bank).

Take that $200,000 the check just gave you and put it into a CD at 4.26%. Earn $8500 a year.

Take that $11,464 and write it off on your taxes at 36%, that saves you $4126 on your tax bill.

End result, $1100 a year net that you have that you wouldn't for the cost of $1500 a month in cash flow. Better if you choose to stomach some risk or actively manage your money - this is the almost no risk option. Course this option carries a tax bite on that $1100 - there are better choices to further reduce your taxes.






Totally untrue, you would have to pay tax on the 8,500 interest about $3000 using your % resulting in loss of cash flow of about $2000.

 

[minnie1928]

I have tried really hard to take everyone's opinion with grace. It helps to hear the good and the bad. But that one a few posts back just ruffled my feathers! I had to say something to that. Forgive me!

I wanted to say something, but was at a loss for words! You said it perfectly! You've done amazing things in 3 weeks and should be very proud of what you have accomplished and the new direction that you are headed in.

ps-how's your DD doing?

 

[dvcgirl]

Well, they are right - if you just spend the difference, but that isn't the proposal for people saying you should keep your mortgage. Their math goes like this:

Take your paid off house (or the money you would be using to pay off your house, but the numbers are easier to understand if you house is paid off) and mortgage it. Below the PMI number. Say $200,000. Your payments are $1500 and you'll pay 11,464 in interest the first year (a little less) at 5.732% (current rate at my bank).

Take that $200,000 the check just gave you and put it into a CD at 4.26%. Earn $8500 a year.

Take that $11,464 and write it off on your taxes at 36%, that saves you $4126 on your tax bill.

End result, $1100 a year net that you have that you wouldn't for the cost of $1500 a month in cash flow. Better if you choose to stomach some risk or actively manage your money - this is the almost no risk option. Course this option carries a tax bite on that $1100 - there are better choices to further reduce your taxes.

Now, this is NOT a scheme for spenders or anyone with a tight cash flow. But its an age old way for the rich to get richer.


By the way, Magicx2, I think you are doing a great job!

Yes, I know this argument as well Crisi and I have a few friends who have mortgages when they can pay off their homes if they chose to do so. Some have lost money by being much more agressive with the money they could have used to pay off their mortgages. Some have done really well. But I can't think of any (I'll have to ask DH if he can) remember if any of them went with the conservative approach you mentioned.

One thing though, you're going to have to pay capital gains on that $8500. And also, CD rates fluctuate.

Having said that, we invest what would have been our mortgage payment on a monthly basis into a few index funds that have performed well for us. This kind of dollar cost averaging approach reduces our market risk. It's worked well for us over the past five years.

I don't know...I guess overall there's something tanglible about really owning your own home. It's ours. Lots of people say.."yeah, I own a home over in so and so "...but most don't. Most own some of their home and the bank owns the rest. We love the feeling that no matter what...nobody can take that away from us (well, unless we were sued for millions or something). And we love that if we had a really tough time, that we can get buy on about 25% of our combined salaries. Why? Because we have no mortgage.

But I respect your opinion and know that method of investing....just chose a different road I guess.

 

[staceyfe]

It's "All Your Worth....The Ultimate Lifetime Money Plan" by Elizabeth Warren and Amelia Warren Tyagi.

Reserved this at the library. Thanks for letting us know about it.

Magicx2--looks like you've been hard at work. Congratulations on taking control of your finances. I too am a mammographer (and breast u/s tech). It's great we're in a field that is always in need of people.

 

[CarolA]

According to Suze Orman (some people can't stand her, but I like her) your debt to credit ratio counts for 30% of your FICO score. If you close down your available credit it totally blows your ratio.
She says never close a credit card account. If the OP closed all her accounts and borrows $25,000 her credit utilization would be 100%. You don't think that would affect her FICO score? (Just curious)

I don't agree with Suze here.

I have cards with literally thousands of dollars in credit limits. Closing one only seems to make me MORE attractive to lendors LOL!

I think a lot depends, but in addition to your FICO score mortagage lenders look at how much trouble you could get in. So having TONS of open credit lines makes some lenders nervous.

Lots of the reporting agencies have calculators. Run your numbers and see. If like me, you have large credit lines I have discovered NO impact on my FICO when I close a card (or open a new one for that matter!)

 

[disneysteve]

So having TONS of open credit lines makes some lenders nervous.

What comes into play here is your credit HISTORY. Do you have a track record of utilizing most of your available credit or not? That's why I mentioned the 30% rule earlier.

If you have a $5,000 credit line and routinely, month after month, charge all or most of that $5,000 that looks worse than if you have a $20,000 credit line and month after month charge $5,000. Yes, with the larger line you have the potential to get into trouble but you've demonstrated that you are not likely to do so. The person with the $5,000 line, however, has shown that they are living on the edge using all of their available credit even though they aren't spending any more than the person with the $20,000 line.

My credit card limits total somewhere close to $100,000 and my credit score is over 800 so apparently nobody is worried that I'm going to go on a spending spree and max out my cards.

 

[disneysteve]

I have a few friends who have mortgages when they can pay off their homes if they chose to do so.

I would be one of those people. We have more than enough in savings to pay off our mortgage if we wanted to, but why would we want to? We would lose out on the growth of our investments over the years. Plus, a home is not a liquid investment. Yes, you can get money out if needed, but it takes some time and incurs some cost to do so. The market may have the occasional down year but over the long run we'll make far, far more money by keeping our assets invested in stocks than if we used the money to pay off our mortgage.

Now what I don't understand is all the people who have substantial savings and still carry credit card debt. There was a segment on one of the evening news shows about this a while back. People were trying to explain why they kept their money in the bank earning 3 or 4% interest while carrying a credit card balance at 18%. The reporter just couldn't seem to get these folks to understand how ridiculous that was.

 

[disneysteve]

CD rates fluctuate.

Traditional CDs have a set interest rate determined at the time you purchase them. The rate does not fluctuate during the term of the CD.

There are some fancy CD products that tie payments to the market performance but those are not the ones people are typically referring to when using the term CD.

 

[MrsPete]

I don't know...I guess overall there's something tanglible about really owning your own home. It's ours. Lots of people say.."yeah, I own a home over in so and so "...but most don't. Most own some of their home and the bank owns the rest. We love the feeling that no matter what...nobody can take that away from us (well, unless we were sued for millions or something). And we love that if we had a really tough time, that we can get buy on about 25% of our combined salaries. Why? Because we have no mortgage.

I feel the same way -- there's an intangible feeling that comes with knowing that every square inch of your home is YOURS. In theory, I might be able to earn more if I were paying the mortgage at, perhaps, five percent while investing at 12%. The reality is that when the stock market takes a down turn, my retirement account and stocks lose money -- but no bricks ever fall off my house! Also, watching investments takes constant work; you can either pay someone to do it (which eats into your profits) or you can do it yourself (a subject which doesn't interest me much). But once the house is paid for, it's DONE. It's a forever investment that -- if you've chosen well -- will continue to both serve you in a physical way and increase in value.

We paid off our house about two years ago, and I just cannot tell you how liberating it feels. We never had a big mortgage in the first place, but knowing that this place is MINE is very, very nice.

 

[dvcgirl]

Traditional CDs have a set interest rate determined at the time you purchase them. The rate does not fluctuate during the term of the CD.

There are some fancy CD products that tie payments to the market performance but those are not the ones people are typically referring to when using the term CD.

Yeah, you're right...my bad. I'm guess I'm thinking of fluctuation because we keep our emergency funds in a rotation through CDs. And the rates are not always the same. But you're right...it's because they are different products, with different durations. And they're shorter term CDs in general...