I have heard that most New Year’s resolutions are long forgotten by mid-February so I thought I would take a look and see how I am doing on my 2 main goals for 2013.
Goal Number 1: Lose Weight
I thought I would start with the simplest and most straight forward of the 2 goals, losing weight. I want to lose 15 pounds by May to get me to about 215 in time for softball season. I want to still be able to make it down the line quickly and not hurt my knees so much so getting to 215 is a start.
On the day that I hit the heaviest I have ever been, I weighed in at 230.4 pounds. Since that day, I have managed to weigh in at even or down each week. Yesterday, I was 224.8 for a total 5.6 pound weight loss in a little over 6 weeks. A pound per week should be quite sustainable. Also, I have not lost any strength although my upper body workout has been less than stellar these past 2 weeks due to muscle spasms in my upper back. It should be better in the next week or two.
Goal Number 2: Lose Debt
This is a little more complicated as technically my liabilities have increased over the past month, but that is because the PLUS loans that are paid out for fall and spring semesters go into repayment starting in February. So that total has been added to the overall mix. But the debts that I have wanted to focus on (namely consumer debt) has been decreasing. In January, I managed to knock about $6000 off the total.
Now I started a new blog to more closely follow and share my progress. It is called Shredding Debt, which is exactly what I am looking forward to doing to all my credit cards when I get them paid off. Shred them for good! Be sure to stop by and check out the blog. The design and logo is the work of Andrea at Nuts and Bolts Media. I think she did a fabulous job for a reasonable cost. All I have to do is log in and start writing.
February will not end up as good. This is because I am hoarding cash for a possible business purchase or investment. I have been meeting with bankers and a consultant to see what can be worked out. I am keeping the cash in case I need to put up some equity into the deal to make it happen. Once the picture is clearer, I can resume my efforts.
Nevertheless, there will be some debt payoff simply from principal repayments. At least I am able to track my progress closely. I have been updating my spreadsheet monthly since October of 2012 working on getting debt paid off and freeing up some monthly cash flow.
Finally, here are the carnivals that featured my blogs in the past few weeks:
Since I am having to liquidate my retirement portfolio to pay for some tax debt, I want to have something financial that I can focus on and consider a project. So I am spending the next 3 years really focused on maximizing monthly cash flow and paying off debt. If I can pay off just the debts that I have listed in my spreadsheet, I can cut about 30% out of my monthly budget and free up cash for other purposes. Besides, paying off debt is a great way to improve my net worth without having to pay taxes on the gains.
Refinancing the Rental Property
I met with a banker yesterday to look at doing a refinance on 4 of my rental houses. I have anywhere from 20-29% equity in the properties with 20 years 10 months to 22 years 11 months left on a 30 year fixed rate mortgage. The interest rates range from 6.375% to 7%.
Even though I am unable to get the best deal due to my credit score (I have a lot of debt relative to the credit lines), it does seem worth it and is consistent with my goal of decreasing expenses and improving cash flow in order to pay off as much debt as possible in the next 36 months. This includes rolling some closing costs into the mortgage. Of course, I will have to see the final deal but the initial numbers looked reasonable.
Assuming everything continues as expected, I would only be saving from $60-70 per month, but multiplied across several houses, the savings will add up and allow me to use the money for paying off higher interest rate debt. I will also be able to eliminate PMI on the one property on which I only put 10% down.
Decreasing the Term
The best part of the deal, though, is that I will not only save a bit of money each month, but I will be saving anywhere from 10 months to 2 years and 11 months on the mortgages since they will all be 20 year loans with a fixed interest rate. This will add up to some additional savings on the back end.
When I add it all up, it looks like I will end up saving $132,000 over the next 20 years which works out to be a decent return on about $10,000 in total closing costs. I will report actual numbers after the closing.
This is just one of the steps that will help me pay off a lot of debt over the next 36 months and free up some cash flow that can be put to better use besides lining the pockets of the bankers.
Here are the carnivals that had articles from my blogs in them this past week:
Last Friday, I spent about 90 minutes on the phone with the United States Internal Revenue Service, much of the time on hold. I really didn’t expect that it would take that long seeing as the tax season is just getting started, and I doubt that there could be that many questions yet. Part of the problem is the fact that I am a “special situation”, although I think they might have changed names for that division.
You see, I owe some back taxes. And I really don’t mean some. It is a long story, and one that I am not quite ready to share. Let’s just say that some poor decisions on my part and the financial crisis of 2008 combined to lead to the fact that I owe enough for 2010 to qualify as a special situation. So in order to keep the IRS at bay, I have about 2 months to come up with just over $1000 per day. That will get my balance to the point where I would no longer be so special.
Problem Solving Skills
I like to tackle problems with solutions and come up with several options. In this case, I devised a plan A, as well as a plan B, C, and D. I wasn’t exactly expecting the short time frame, but was happy to have some time nonetheless. Plan A was to use the Lending Club and Prosper to come up with $60,00. I could easily put together the remainder in order to qualify for a payment plan. Well wouldn’t you know that the Lending Club lends to 42 states, but Indiana is one of the eight.
So I went to Prosper figuring a combination of plan A and plan B could get the job done. The process was fairly easy and quick, and I learned my credit score was 737. I am sure that isn’t the best, but I do have a high level of debt of which much is mortgage debt. It turns out that 737 is not high enough to qualify for the $25,000 maximum, but I could get $15,000 instead. I decided to go with it in case there are problems with some of the other plans that I have.
If you want, you can check out my Prosper listing. It is already 4% funded which I think is cool. Plus, I will have enough material for another post in a few weeks when I can review the entire process.
Moving on to Implement Plan B
Actually, plan D is probably going to move into the second spot. My wife suggested it, but I really wanted to avoid it which is why I was really hoping for plan A to work. I am sure that it will work without a hitch, and would be a win-win for both of us. The problem is swallowing my pride and going to ask my mom if I can borrow some money.
You see, my mom got an inheritance from her aunt almost 2 years ago. It has been sitting in a savings account earning less than 1% interest. We sat down to review all of her finances in November 2010 when my dad got suddenly severe with Alzheimer’s following shoulder surgery. He was in the nursing home for almost 2 months. I learned a lot about financial planning for medical costs at that time. Again more posts someday.
Anyway, she knows that some day when my dad (who is back at home) passes, she will need some added income for her budget since she will lose his pension. She needs more income from money just sitting around, and I could use a loan. Paying a reasonable 10% interest rate amortized over 5 years would accomplish both purposes. I am sure that she will help me out. The problem lies on me having to ask.
I am a very independent person, rarely asking anyone for help. It is a characteristic that has helped me get far and yet simultaneously holds me back. I am working to figure out how to balance those two extremes and using my drive to keep pushing while asking for help when necessary in order to create win-win type situations.
So I plan to put together my personal financial statement and a sample budget for my mom and sit down in the next few weeks to explain my dilemma. It is not something to which I am looking forward, and it will be very painful for me. But ultimately it will be the easiest and quickest solution given the time frame.
Plans C and D on Back Burner
That means I will be putting plans C and D on the back burner. Plan C involved using some personal collateral and going out to get a bank loan. I figured that I could probably come up with $35,000 in this manner and get the rest when taking some money from the 529 accounts (only earnings are taxed not the original deposits) and the Health Savings Account.
Having to sell a kidney is on the back burner as well (LOL)!
My problem is the fact that I have been a life long saver and underestimated the amount of liquidity needed to raise 6 kids. Next week, I will actually have 5 teenagers at the same time for several months. I have more than enough in my retirement accounts where I have been saving for over a decade and in real estate equity with rental houses to knock out my tax liability for 2010 and 2011. I started implementing two of the three branches of my retirement plan without paying close enough attention to the third.
Now it is effectively impossible to get at those funds. Obviously, I was a little naive thinking that it would be easier to access that money when needed. The good thing is that I do tend to learn from my mistakes and by making so many will have plenty of wisdom as I come over the crest of that mid-life hill.
So there you have another piece of my complex life to mull over. Advice? Don’t strain your liquidity by putting everything into retirement accounts and real estate because one day, credit may be cut off. Also, don’t let financial issues drag you down. I think I have kept a much better attitude with this problem than others I have dealt with in the past. There are much more important things in life so I will be keeping an upbeat attitude and let you all know how it turns out. Finally, if you want to borrow from the Lending Club, move out of Indiana.
If you want to loan to me via Prosper or just be nosy, feel free. Also feel free to comment or share your tax stories. I already got the lecture from the IRS dude, so you can spare me that.
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