Maxed Out!

I just finished watching Maxed Out – a documentary about predatory credit card lending. Or, as Jay Antani from stated on the review site I linked to: ” a Dante-esque descent into a distinctly American form of Hell.”

If you haven’t seen it, I’d recommend you check it out from your local library. It was interesting, although I think I enjoyed “Super Size Me” a bit more, at least from an entertainment standpoint.

As with any documentary, I’m careful to keep in mind that the film is not an unbiased source. And there were portions of the movie that were obviously edited to provide the greatest emotional and logical response. But I think the importance of a film like this lies deeper.

“Maxed Out” really focused on the credit card companies and how the government has failed to protect the consumers adequately from irreputable lending practices.

But what they only hinted at was the other half of the problem – we have become accustomed to getting what we want when we want it. We don’t want to wait, and we don’t want to consider whether or not it’s a smart purchase. It’s so easy to just drive down to the local Walmart and get whatever we want. If it’s not at Walmart, it’s on the internet. And if we don’t have cash? No problem. Just charge it!

When we get to the root of consumerism, it’s this exact mentality that destroys our financial freedom – not the credit card companies. They are definitely a problem, and there is no doubt in my mind that predatory lending practices take advantage of consumers. But when we start to look at our own behavior, it’s easy to see that the desire to have things – to store up for ourselves – is what very often puts people in a position to start thinking of credit as an acceptable means to acquire. Obviously, there are also people who had no choice but to finance necessities – medical care, car repairs, etc. But what I really want to concentrate on is the “Acquisition Mentality” so many of us have. What can we do to combat it?

I don’t know when I started thinking as if I deserved and should have every little thing. That if I am bored, an acceptable way to pass the time is to go to the mall and shop. I don’t think it was my childhood, because we simply couldn’t live like that. But somewhere between my teen years and today, I started to believe that it wasn’t a big deal to use credit for every little thing I didn’t have cash for – and that’s exactly what the credit card companies want you to think.

It’s been hard to change that mentality. I can finally say that shopping for entertainment, especially at the mall – holds little allure for me. And I believe that change came when I started really thinking about my wants and needs. Do I need it? Or do I want it?

When it comes right down to it, I need very little. I need food. I need water. Shelter, and clothing. Heat during the winter. If I have these things, I’ll survive. There are other things that are needs, but just barely – I’ll survive without them, but they really do make life more pleasant – toilet paper, shampoo, hot water. A computer with internet access. These are my priorities if I have to make a choice.

And there are lots of things I want – junk food, or a new outfit. A new car, or curtains for the dining room. Those come last.

But the funny thing is that when I start to think about each item I want to get and try to decide whether it’s a want or a need, more and more I find myself deciding I don’t even want to buy the things we don’t need – for the most part anyway. I want to wait until we have more money in the savings, or we pay off a credit card. I’d rather make do with what I have. I don’t want to buy on credit anymore. I want to own it free and clear. I don’t want to be “Maxed Out” because I’ve bought things I think I need when really I need to get out from under the thumb of other, richer people and corporations.

To close, I wanted to share something that happened in a conversation between me and a new friend of mine. I really respect her and her husband – they don’t do things conventionally, and their choices often go back to a poem I quoted in my very first post:

Use it up,
Wear it out,
Make it do,
Or do without.

My friend came up to me after church on Sunday and showed me a rash on her hand. She was wondering if I knew what it was from. I didn’t, but I asked her if it itched, and if she had tried hydrocortizone cream for the itching. She said, yes, it did itch, and she had tried using a baby wipe on it to see if the alcohol would kill the itch. She didn’t want to have to buy a tube of hydrocortizone.

What would I have done? I would have driven to Walmart just to pick up a little tube of cream! What a difference! And yet, she found a solution that worked just as well (even if it did dry out her hands a bit) and didn’t have to pay a bit extra or make an extra trip.

Now, if I could just always think more creatively!

And how does it relate to the movie I watched tonight? Well, it really doesn’t. But it does have a lot to do with my thoughts after finishing the movie. Our debts inevitably come down to our own decisions about what we want and need. Sometimes it’s absolutely necessary. But so much of it is from buying things we don’t need! What gets me most when I think about this, is that often we think we do need those things!

It was a reminder to me that I need to think more and buy less!

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Just an Update – Where Have I Been?

It’s been a while since I’ve posted, and I apologize for that.  It’s been a tumultous couple of weeks, and I’ll explain quickly and get on with the good stuff!

I mentioned in a previous blog that I’m pregnant.  Let’s just say that I’ve been not feeling up to much until very recently.  I’m still trying to get the house back in order from those couple of weeks – and I’ve realized that women must have selective memory when it comes to being pregnant and in labor.  Otherwise, they would never willingly repeat the experience!  But I’m feeling a lot better now, as I near my second trimester, and I’m focusing my attention on a clean, de-cluttered house and a freer-from-debt household before Little One arrives at the end of September.

I’ve continued to try to declutter my house, using the Container Theory.  Several of my friends online have joined me, and it’s been fun to hear about the things they’ve been cleaning and stuff they’ve gotten rid of! As for me, I’ve managed today to remove and give away about 6 or 7 boxes of children’s clothing and more than that many garbage bags full.  (These were all clothes that were given to me that either were the wrong size or gender for my son!)  They went to a woman with twins who has many friends with children and a mom who is running a church rummage sale next week.

I’ve also gone through my books and removed the ones I won’t read again.  These went on half.com and paperbackswap.com.

And I finally went through the piles of papers on my desk.  Suffice it to say I’m amazed I managed to pay all our bills on time and avoid late fees!

I wish I could say I’ve done more in the last few weeks.  But it’s a start, right?

The only other thing worth updating is mentioning that our refinancing went through today – we signed the paperwork on Friday and Ohio law requires a 4 day waiting period in case we change our minds.  This means we’ll no longer owe our friend nearly $11,000 from our previous mortgage, and we’ll have about $8000 to put towards our new septic system.  The rest we’ll pay in cash.  As usual, I hate feeling like I’m adding debt, but this was a planned expense.

Pretty boring, I know.  But I didn’t want to take almost two weeks off without letting you know why!

The Desk of My Dreams – and the Bane of My Wallet

I found the perfect desk at Sam’s Club.  It’s a secretary desk – and it’s an organized person’s dream – lots of drawers, even a built in file cabinet.  Perfect for my needs.  But it’s $400!

But let me give you some background – part of our business equipment is a large corner desk.  Each “wing” measures about 5 feet, so this desk is huge!  It’s also basically a table.  It has a flat top and no drawers.  It is perfect as a shipping area  up in our office.  But as we sell our product and get rid of the business, we aren’t going to need it.  It’s too big.  Too useless!  The office will become a bedroom again, and we needed something small that would hide our bills, my laptop, and our files in plain sight in the living area.  Brian and I discussed it, and we decided that selling the current office furniture and buying something to fit our needs would be a much wiser idea.

And so when we went to Sam’s Club to pick up cat litter and cat food, this desk stood out to us.  But we weren’t planning on buying a new desk until we were done with the old one – we needed to sell it to afford the new one!  At the same time, furniture at Sam’s seems to be seasonal.  Right now there is one in stock at our Sam’s.   We don’t want to charge it.  That’s not a good idea.  So we came up with a plan.

We could use the extra money in our paycheck and some from ebay.  And we’ll do that to make up the difference.  But we’ve got a huge black filing cabinet sitting empty upstairs.  It’s being used to put random items on.  We also have a few store displays to sell.  And I’ve been storing some soap base from my stint with making soap – which was very, very fun, but now I have enough soap to last me the rest of my life, and half of the soap base still left.  We also have some baby clothes I’ve been meaning to sell.  So we’ll sell all these things that have really just been cluttering up our lives (remember the Container Theory?  The office is the exact opposite of what this theory proposes, but selling the stuff will help a lot!)  And with the money, we’ll buy something that will simplify our office into one little corner of the room.  That feels a whole lot better than going into more debt!

A little extra money never hurts

This month, we find ourselves in a much better financial position. Our Ebay sales have been great and we’re moving a lot of product. This means that we’ve been able to pay all our credit card minimums and more just from that money. Previously, paying the minimums and a few hundred extra on our personal Citibank card was all we could manage, and it took almost the entire second paycheck we get each month. So for us, liquidating our business inventory and equipment has been a really wise move for us. It also means we’ll pay off the cards that much sooner.

Because our paycheck didn’t have to go completely towards bills, my husband and I splurged a little bit. Last Saturday we spent $100 to pay for a babysitter and a nice meal at a Hibachi restaurant – something we haven’t done in literally years. And since we haven’t had a night out alone in almost a year, it was well worth the unnecessary expense. Could we have done it cheaper? Probably. Would we have? Well, let’s just say I think the money was well spent!

The extra money coming in was also perfectly timed with the arrival of our bi-annual car insurance premiums, so that $330 will come painlessly out of the paycheck – painlessly in the fact that we don’t have to figure out how to come up with it! (And yes, our rates are very low. We got that rate – about $330 a year per car – due to not only our clean driving records, but a good credit score and the fact that we have our Homeowner’s insurance with the same company. Plus we live rurally, so rates are generally lower.)

We’ve been thinking about how to best take advantage of the fact that through our business, our credit cards are basically paying themselves. And we’ve decided that for the next couple of months, we’re going to put as much of that extra paycheck towards our emergency fund as possible, and build that up. We’re also increasing our grocery budget to $150 a month, especially because pregnancy has made me very hungry all the time. 🙂 To be honest, I’ve been working with a “don’t spend anything” or $100 budget for so long, I’m a bit overwhelmed by how much extra money I have this month to use for groceries!

To be honest, that is where there is a problem.  I’m realizing that the urge to spend – when I have the money – is still there.  I’ve improved – a lot – but it still worries me.  Today I’ve found myself thinking it would be fun to go shopping.  But the thing is, I don’t need anything.  If I go to the store today, without an immediate need, it is very likely I will find something I “need.”

I do have one suggestion that works for this – it helps to make a list of things you will need in the near future – light bulbs,  towels, etc – things you need but you keep putting off.  When you get that urge to shop and give in, go shop for the things you will need, rather than shopping just to browse.  That way you waste less money (only the fact that you might not buy on sale will cost you) and you buy a need rather than an impulse item.

The only thing I can think of is yarn for a baby blanket.  But I need to put that off until I know whether I should get pink or blue!

Container Theory

Everytime I look in a home decorating magazine, I am amazed at how beautiful the homes are.  It’s hard not to be envious of the beautiful spaces! Perfect lines, gorgeous colors, not one flaw in sight – and in the past few years I’ve noticed that the homes have also transformed from sterile showroom spaces to personal spaces – a person’s books, collections, and pictures have made their way to the cover of “Better Homes & Gardens” within the neatly designed rooms.

It took someone else pointing it out for me to realize the truth – a big reason that these homes are so beautiful  is because they are clean and uncluttered.  Kids toys are neatly put away or not even in the room and books are lined on the bookshelf instead of just being thrown up there.   Sure, the paint job is nice, and the furniture looks incredibly comfortable, but the fact that you can see the floor is a major issue, too.

This was  an especially significant revelation for me because we live in a society of clutter.  We mistake the acquisition of things to be a step on the path toward the “American Dream.” More clothes, more toys, more books, more games.  But those things soon leave us with drawers so full of clothing they wrinkle and garages so full of junk we can’t put our cars in there – I’m guilty of the cluttered garage!   We have to buy more organizational bins, shelves, and accessories to attempt to make sense of it all.  Some Americans rent storage units to store all this stuff – or even buy a bigger house!

This is crazy.  Not only do we not need all this stuff, but we couldn’t find it if we did need it!

So my challenge to you, dear readers, is that if you are tired of trying to find new places to put things – tired of your home looking more like the “before” photos on HGTV’s “Mission: Organization” – to try living by Anne Heerdt’s “Container Theory.”  The basic idea is that material things have limits – money only goes so far, objects can only take up so much spaces, food can only give so much energy, and your “container” – or home – has it’s limits, too.

It’s time to get rid of the excess stuff.  You will find that your home will feel more peaceful, you will be able to find what you need quickly, and you won’t miss all that extra clutter!

This can be really overwhelming, but Heerdt suggests something in her article that I do when I’m feeling overwhelmed by a project – I break it down into smaller, manageable parts.  When the house looks like a tornado has made it’s way through the living area, I focus on cleaning one area at a time.  If I don’t, it feels so overwhelming that I continue to put it off until the situation becomes desperate.

In the same way, even if all you do today is go through one drawer or one box, you should be pleased with your accomplishment.  Organization is much more taxing on the mind than cleaning!

I do want to make a distinction here:  many people see organizing as simply moving the things they have around so they look neater.  That’s not what we’re talking about here – our organization has more to do with streamlining and simplifying life and getting rid of the excess stuff that drags us down mentally and physically.

Step-by-step: 

1.  Choose an area to organize – a cupboard in your kitchen, or a drawer in your bedroom, for instance.  I would recommend you do an easy area first!

2. If possible, remove everything from the cupboard or drawer.  Wipe it down with a damp cloth (You might as well multi-task and clean while it’s empty!)

3. Neatly put back anything that you use on a regular basis.

4. Anything that’s left outside the cupboard needs to be sorted – get rid of anything you don’t need or that is a duplicate of something you already have.  If you use it enough to justify keeping it, then do keep it, but try not to justify keeping things just because you can’t bear to get rid of it.  Place it neatly back in the drawer or cupboard.   If you can think of something else that would substitute for a rarely used item, then get rid of it.  The idea is that you are streamlining your life.  You are getting rid of the unnecessary stuff!

If you are really struggling with whether or not to keep something, put it in a box and stick it in an inconvenient closet or basement for a few months.  After that few months, anything that’s still in the box needs to be donated!

And if it doesn’t fit?  Don’t keep it!  Make do! You may not want to go to such extremes, but Heerdt mentions how they didn’t have room in her tiny kitchen for a coffee maker – so they just used the stove.  The quickly realized that the simplicity of warming coffee on the stove slowed their busy day and was a pleasurable way to go about the morning.

Not only that, but having a clean, organized house saves money – you can find what you need when you need it.  And when your house is organized and everything has a place, you are more likely to think about where you are going to put  new  items.  When your house is cluttered, it’s easy to just add new things to the piles.  So if your house is neat, it may actually stop you from buying things you really don’t need!

I’m going to start with my dresser drawers.  How about you?

Time to Refinance

Interest rates are really low right now – it’s not a secret. And refinancing can save home owners a lot of money!

Have you considered refinancing your mortgage? Now is a great time to do it, and it can require very little out of pocket money.

Of course, not everyone should refinance. We found it was to our advantage for three reasons:

1. We are currently on a 7/1 ARM with interest only payments. This was useful to us for the short term, when we faced two mortgage payments. Maybe not the smartest when it comes to counting nickels and dimes, but sometimes the best solution costs a little more. But the thought of only paying interest and having no idea where the market will be in 6 years is a scary thing!

2. That 7 year ARM has a 6.875% interest rate. When we locked in the rate back in June 2007, this was a decent rate. Not so anymore! Our good credit qualifies us for the best rate available right now.

3. We have two large required expenses we have to pay immediately that range in the tens of thousands of dollars – our upgraded septic system, and the amount we still owed on our North Carolina mortgage when we closed last Friday. When we refinance, we’ll be able borrow enough to cover these expenses against the equity in our home.

When should you refinance?

These aren’t hard and fast rules – like anything, you have to consider your own situation and how it will affect you.

1. If the current interest rate is more than 1% lower than your current interest rate. Today’s interest rate, according to Bankrate.com, is 5.5% This varies – even looking at banks in our area, I could go to one and get a 5.3% rate and another for a 5.8%! If you can refinance for a percentage point or more, the time it will take to recoup your closing costs will be fairly short – less than two years.

2. If you plan on living in the house for more than a couple years. When you refinance, you will have to pay closing costs on your new loan. In our case, if we go from paying 6.5% to 5.65%, without adding in the extra money we will be taking out for the septic and other mortgage, we’ll break even in about 22 months (we underestimated when we spoke to the gentleman who is doing our refinancing – our actual interest rate is 6.875%.) Since we don’t plan on moving anytime soon, and we’ll be trying to pay down our mortgage, this works to our benefit in the long run.

3. If you want to lower the term of your loan – if you have 20 years left on a 30 year fixed mortgage, it can save a lot of money to refinance into a 15 year fixed – not only will your term be shorter, but depending on the balance on the loan, you may find your payments would actually be smaller. And that doesn’t even account for the amount of money you would save on interest!

4. If you need to switch the type of loan you have. We don’t want to be stuck with a 7/1 ARM in 2014! If we only pay the amount on our statement each month, we’ll still have the same amount of principle 7 years from now. That doesn’t make good financial sense. So if you want to switch from an ARM to a fixed rate, refinancing will allow you to do this.

5. If you want to drop PMI on a home that has increased in value. Homeowners are required to buy PMI (Private Mortgage Insurance) if they are putting less than 20% down on a house. Premiums can be hundreds or thousands of dollars each year. By law, lenders are required to cancel the PMI once the mortgagee pays off 22% of the mortgage. However, if you have a house that has appreciated greatly you may benefit from refinancing – the house will be reappraised in the refinancing process and you may not have to pay PMI any longer.

An example:

Purchase Price in 2000: $100,000
Mortgaged amount: $100,000

Percentage of Home’s Value Mortgaged: 100%

Home’s Value in 2008: $125,000
Current Mortgage Balance: $90,000

Percentage of Home’s Value Mortgaged: 72%

A person who is still paying Private Mortgage Insurance in this scenario would save hundreds or even thousands a year by refinancing with the home’s new appraised value.

6. If you need to tap the equity in your home. In my opinion, this reason needs to be used really wisely. Good things to spend home equity on are things that improve your assets – home repairs, home improvements that raise the home’s value (like our septic system or a bedroom/bathroom addition) or to consolidate secured long term debts, like other mortgages. You shouldn’t use home equity to pay off your credit cards (30 years’ worth of interest is a lot more than 2 years’ worth, even if it is spread out) or to buy new clothes, electronics, or to go out to eat. I have seen people who have carefully and successfully used their home equity to live off of when both members of the family were laid off, but it’s a scary thing. Thankfully, they are currently employed and are on their way to paying off that debt!
It’s a lot to consider, but if you think refinancing would be beneficial to you, it’s very easy to go into any bank and get some more information, including the actual costs. We’ve had our appraisal and we are waiting for the settlement statement from our closing in North Carolina. As soon as we get those, we’ll be signing and filing the paperwork that will save us a lot of money in the long run!

January Progress Post (5 days late!)

Let’s see how we did in January:

Personal Credit Cards:

Citibank: Was: $1787.71
Now: $1212.73

We paid off $615.00 on this card this month – $165 of that was snowflaking, mostly from selling our product on Ebay. We also charged $40.02 on the card – all but $6.99 were interest charges.  $6.79 of that were for February’s interest charges, so that number has been inflated a tad.

Business Credit Cards:

Suntrust:
Transferred to our Business Citibank for a better interest rate and a much better bank.

Chase: Was: $6236.37
Now: $6138.80 (I paid $125, finance charges of $27.43 )

Citibank: Was: $4927.42
Now: $10,130.14 (This reflects the old Suntrust balance.  I was able to transfer my balance and go from a 14.29% interest rate to a 4.99% interest rate.  I made a payment of $100 to this card, and finance charges were $27.47 – reflecting the old balance.)

Total Credit Card Debt:
Original Debt:                 $18, 954.86
Last Month:                     $18,326.75
Current:                            $17,481.67
Monthly Difference:   $845.08
Total Paid Off:               $1473.19

Accessible Savings Account:
Current: $212.46

(We also have a saving account at our bank in North Carolina that has about $3000 in it.  That’s our current emergency fund – it came from a Certificate of Deposit that finally came due.)

I’m pleased!  This certainly offsets the heartache of the upside-down house loan!  I feel like we’ve been making progress, and it helps that we’ve been able to put extra towards our debt from liquidating our products on Ebay.  We’ve had to pay a lot of the fees and put money in our Stamps.com account for shipping, but we won’t have as many of those costs in the future.  I have another $120 in the process of transferring to our bank account to be put toward the personal Citibank, and another $80 already accumulated in our Paypal!

So all in all, I finally feel like we’re making progress on our credit card debt, if nothing else!  It feels wonderful!