It is very easy to get yourself into debt. Everywhere you look; companies are promoting credit cards of all colours, shapes and sizes. They tell you all about how good they are but do nothing about reminding you that they are going to cost you money. And a lot of it. It should be like smoking. Every credit card should carry a large warning on the front of it ‘CAN DAMAGE YOUR WEALTH’. Unless you are very good at avoiding these marketing techniques, then you likely have at least one credit card in your wallet. And it doesn’t stop there. It became fashionable to get a new credit card with zero interest on it, and then when your interest free period expired, transfer it to another card. Great idea you think! No! In reality what happens is you now have two credit cards in your wallet and it doesn’t take long for you to realise this and start using both of them. Disaster.
It gets to all of us. If we then for some reason find ourselves with reduced income and unable to manage the repayments, we can start to lose control and fall into the ever increasing spiral of debt. If you have found yourself in this predicament, and maybe found help via one of the debt-help charities, you know what it is like. You have had your fingers well and truly burned. But if all of your credit cards have been cut up, your cheque book shredded and your overdraft sent off to never-never land, what do you do when you have a temporary cash shortage?
No credit card for you. In fact no more credit. You have crossed the point of no-return and have to spend the next 10 years or so of your life paying back all that you owe. So what if you have a cash dilemma? Wonga offer an alternative to a payday loan. They can help you, even if your credit is poor as they do not carry out traditional credit checks. Of course they will look at your cash liquidity and your earnings etc., but as you are limited to borrowing less than £400 for no more than 28 days, you will likely find that you will be accepted. You will not be adding to your debts as you have to pay back the amount in full on a pre-agreed date. The company will then take the sum due out of your nominated bank account without you having to raise a finger. So, unless there are no funds in your account, your debt will be cleared in full. No putting off until tomorrow what you can pay back today. It’s a simple and straightforward way of coping when funds are short. The great thing is, even if you are tempted to do so, you cannot put off the payback time. It’s all about being responsible for your actions and accepting the fact that money is hard to come by.
I am kind of disappointed this morning since I found out yesterday that the refinance on the rental homes would not work. Apparently, my credit score is not good enough. Ever since 2008, it has been incredibly difficult to get credit so I will be focusing on getting out of debt instead.
Ultimately, it turns out that the net impact on the monthly cash flow won’t be all that different without the refinance. That is because I had to have 2 appraisals and one came in below the expected amount. As a result, I had set aside $10,000 to bring to closing in order to save about $650-$700 per month through decreased payments.
Now that the refinance won’t be going through, I will using that money to pay down a credit card balance in order to save over $2300 per year in interest. Once I get this card paid off which should be in the next few months, I will save almost $800 per month in cash flow which can be added back into the budget. So all is not lost with plan B.
Then once that card is paid off and I get a little more credit card debt eliminated, my credit score may very well be in a better place that I could refi the rental houses, decrease my interest rate and my term. I don’t anticipate rates moving up any time soon. I would think that I have a year or more to get a better interest rate.
If not and rates start to increase, that would mean that the economy is heating up which will only help my retirement account investments in the stock market. So I look at it as a win-win.
With this behind me for the time being, I can now focus on getting the business transaction complete and meeting my 2 goals for this year which are losing weight and paying off debt. In fact, I am about to launch a blog solely devoted to working my way out of debt which should bring some increased accountability and motivation to the equation.
I will let you know when it is up and running.
Here are the recent carnivals that have included articles from my blogs:
As you can surmise from the title, last week was atypical and unique. Early in the morning hours on the Saturday following Thanksgiving, my father passed away. He had been suffering from Alzheimer’s disease with some serious memory impairment for the past 2 years, but eventually got bad enough that my mom could no longer care for him at home. Physical decline accompanied his mental decline such that the last six weeks of his life, things went downhill fairly quickly. At least it wasn’t all drawn out.
If you have been reading the blog, you know that we went out and pre-paid for the funeral in order to spend down assets to help my dad qualify for medicaid while allowing my mom some money to live out the rest of her life. Her mother lived to 94, so she could have another 25 years left and is still in good health currently. Ultimately, he died before the application was even ready so it really didn’t matter, but it did open up the door for financial discussions.
Do I Have Enough Life Insurance?
Of course during these times, we always reflect and confront our own mortality so I have been looking at some of the financial aspects of my life and other aspects as well. I am pretty well convinced that I have enough life insurance. If something were to happen to me today, the amount of life insurance that I would receive would pay for the funeral, would pay off every liability (including my portion of a commercial building) plus leave enough left over that my wife could easily live for the rest of her life without working.
Passive income from the rental properties should be enough to live off without even touching the extra cash left over from life insurance. Of course assuming I survive today, my plan is to get some of that debt paid off which would make the numbers look even better. Which brings me to the next point.
I will give my parents kudos for not having any debt at all. My mom lives in a paid for condo, has two vehicles and has some cash set aside along with a death benefit that she will receive. Unfortunately, it is not all that much, but will help out. Her biggest issue is that she operated on the belief that retirement means saving what you can and living off the savings.
When we looked at her budget, it worked as long as my dad was alive. Now that he is gone and looses his pension and social security, her budget will be somewhere between $500-$1000 short per month. Looking at that kind of burn rate, she could probably make it for 15-17 years. I suppose we will need to reassess her budget at the beginning of the year after everything has settled down a bit.
But it still gets me to thinking that savings are not enough. I want some passive income.
Finding Passive Income
I am clearly not at the point where I can retire, but I also don’t want to spend the next 25 years working full-time either, especially if I might be in line for getting Alzheimer’s. I would like to be in a much better position in the next decade. That is going to involve eliminating a lot of debt. Once that is done, then I will be looking into purchasing assets that will throw off cash so I can meet expenses without having to work as hard.
Real estate and dividend stocks will be my main focus, but the first step will be to free up the cash by eliminating debt payments. I look at all the money I spend on mortgages, student loans, auto loans, credit lines, and credit cards and figure that I could be in such great shape if I wasn’t working so hard for others.
I will probably put together a little blog on debt so I can record my thoughts and keep myself accountable. Once I get it together, I will let you know, but I really want to get this debt thing under control in the next 5 years so I can start looking at slowing down. I am putting together a plan and will execute it accordingly.
Obviously, I have had plenty of other thoughts over the past week. I am glad that my dad didn’t have to suffer any longer than he did. It could have been worse. The service was nice. It was good to see all the people. And getting back to work was difficult. At least, it is a slower time of year.
Anyway, thanks for reading. Hope your December is not too crazy with the holidays. I am looking forward to another year coming up counting on the Mayans being totally wrong.
Here are the carnivals that included articles from my blogs in the past week or so: