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Record Drop In Credit Card Usage

The Federal Reserve reported Tuesday that credit card usage & consumer borrowing (non-mortgage debt) has dropped at record levels.  Credit card spending fell at an annual rate of $7.8 billion, or 9.7%.  People are charging less and saving more.  That’s good news, right?

Lesson Learned?

In a vaccuum, decreased credit consumption is a victory in the battle against the bondage of debt.  Does that mean the Dave Ramsey’s and Suze Orman’s of the world have gotten through to the consumptive masses, and people are rejecting debt?  Hopefully, but studies show household debt decreases during times of recession and then, as creditors begin to make more credit lines available, consumers increase their credit card borrowing levels at the first sign that the economy is breaking out of a recession.

In fact, the reason the credit crunch is so huge during this recession, is because during the last recession (dot-com bust, 2001-2002), household debt actually grew because of low-interest rates and the break-out of credit card “teaser rates”.  So instead of a natural ebb & flow to credit availability, creditors have slashed credit card limits and increased minimum payments.  Basically, we’re now forced to double-correct our credit usage because our households kept on borrowing through our last recession!

Don’t Let History Repeat Itself

Use this double-correction recession to your advantage, and resist the urge to increase credit card spending when our economy begins to break out of this.  Practice delayed gratification by saving up to pay for things.  It is character-developing.  Use blog post and financial personalities to motivate yourself to get out of debt.  If you think you’re in too big a hole, consult some professionals about options prior to filing bankruptcy!  The point being, you need to eliminate past mistakes and work hard to put yourself into a position where financial mistakes won’t happen again.

Proverbs 22:7 (The Message) says “The poor are always ruled over by the rich, so don’t borrow and put yourself under their power.” Other versions say the borrower is servant, or slave to the lender.

With a deep recession and slashed credit limits, you have been forced to change your habits… for now.  What habits you default to when times are good again economically?

Are you subjected to the power of the rich?  Are you a servant?  Who owns you?

photo by Andres Rueda

Personal Finance consumer debt, credit card, dave ramsey, debt, suze orman

We paid off our car!

It is definitely tough economic times out there for everyone, so I wanted to share a bit of positive news on the home front.

While the Lovely Miss H has permanent employment, I have been working in project-based, temporary employment.  The bad news is that it is temporary.  The good news is I can work nearly as many hours as I want.  So the past few months I’ve worked a lot of hours.  I finally figured out how much we had spent compared to our February budget, and the surplus was enough to finish paying off my wife’s car, a 2004 Saab 9-3.  I just logged off of an internet chat with a bank representative confirming we had paid in full, and that the title will be mailed within 10 business days!

Consumer debt is gone

Just want to send a small thank you to Dave Ramsey and his debt snowball methodology.  Yes, there may be mathematical flaws within a particular snowball of debt, but the psychology of “quick wins” in reducing debt cannot be denied, particularly when you’re married and you need two people to consent to a financial plan!

After 26 months, through full employment & layoffs, over-spending & saving, emergencies & good times, our consumer debt is now gone.  We haven’t been the best at paying down our bills, but we remained true to the overall goals & financial principles.

So now you’re rich, right?

No, far from it!  We’ve got so much educational debt, that I think our student loans took out student loans.  A married couple both going through college and grad school without a financial plan will do that to you!

Our next step is to build up an Emergency Fund to a reasonable level.  My car has 185,000 miles on it, hers is over 100,000.  We both commute about 75 miles round-trip each day.  We will need those replaced at some point, so I’d like to be ready with enough money to pay cash for our vehicles.  Now that our vehicles are paid off though, it makes me want to drive my lovely 2000 Nissan Maxima until it dies.  Instead of impressing people with a nice car, I’ll be impressing myself with how long this car can stay around.  This shift in thinking is much easier on the pocketbook.

The Journey Continues

There are always hiccups, bumps, and bruises along the way, but we will enjoy this minor victory, and use it as motivation to keep focused on our long-term goals.

What about you?  Have you had any financial victories or setbacks lately?  Tell me where you are in your journey.

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photo by dreamweaver1619

Personal Finance baby emergency fund, Budget, Cars, consumer debt, dave ramsey, debt, emergency fund, snowball

It’s never too late to be who you might have been.

George Eliot – English novelist (1819 – 1880)

The New Year has come and gone.  The world keeps on moving.  Headlines depict stories of airplanes landing in the Hudson and presidential inaugurations, and they provide us with fuzzy memories of those resolutions we vowed to uphold oh so long ago.  What, if anything, can we do about it?  Here are some tips & thoughts on New Years Resolutions.

The Bad News

Resolutions alone do not work!

All a “resolution” does is merely promise to do something.  It is a declaration of intent; or a statement that you resolve to act upon something.   Especially when coupled with the New Year, resolutions are almost wishful thinking from the start if you examine a person’s attitudes — and I’m as guilty as the next guy!  Here’s some typical New Years resolutions (with their corresponding underlying motivation included):

• I really should quit smoking; I know it’s bad for my health.
• I need to lose some weight and eat healthier.
• I need to start working out.
• I gotta get a handle on these bills and start saving for retirement.
• I’d like to spend less time at work & more time with my family.

The Good News

You will succeed if you create a Plan to follow through with your resolution.

A resolution identifies your wishes.   A plan adds integrity to your words by providing a detailed course of action.  A good plan will keep you on track and give you a sense of purpose.

Tips for Setting Goals

Like others, I advocate setting S.M.A.R.T. goals, where your goals are:

• Specific — be particular about what exactly you want to accomplish
  
• Measurable — make it something that you can tangibly evaluate.  Give yourself check-points or building blocks that you can use as markers of success.
  
• Attainable — (see below)
  
• Realistic — similar to Attainable, make it something within reach.  If a goal is too lofty to begin with, you will quit because you don’t give yourself the psychological boost of accomplishment.
  
• Time-based — set a time by which you accomplish your goal; a goal with an open-ended time frame will put you back at “resolution” status.
  

However, I would alter the “A” to stand for Accountability.  When setting goals, accountability is key.  If you’re married, a spouse is the perfect accountability partner for your household finances.  Working out with a buddy is a great way to stick with your fitness goals.

My Financial Goals for 2009

In discussing this year’s overall financial outlook with The Lovely Miss H, we’ve come up with a few financial goals we hope to attain and we have a plan for success:

1.  Pay off H’s Car Loan

Back in 2006, we bought a 2004 Saab 9-3 on eBay (a post for another day!).  With an expected bonus, the remainder of this note will be paid off no later than February!  This is personally exciting to me, because this will be the final consumer debt remaining on our snowball.  Only student loans to go!

S.M.A.R.T. approved

2.  Pay off My Bar Study Loan

Balance-wise, it is a very small educational loan.  But we want to just pay it off to use the extra $50/month to add to our snowball!  Plan is to have done by February as well.

S.M.A.R.T. approved

3.  Establish a “tweener” Emergency Fund

If you are extremely focused and intent on paying off your debt in an 18-24 month period, Dave Ramsey recommends a “baby” Emergency Fund of $1,000 to protect you from falling off the wagon back into credit card debt.  Once this is paid off, you then fully fund your Emergency Fund with 3 to 6 months expenses.

Since our student loans are a little more long-term than the consumer debt we’re about to pay off, we want to establish a “tweener” Emergency Fund of $10,000 by July.  This would give us a little more cushion so we can begin to attack & pay down our student loans.

S.M.A.R.T. approved

4.  Pay off H’s Parent Plus Loan from College

A moderately-sized loan in our world, we took this loan back over from H’s parents after getting jobs.  We just thought it was the right thing to do.  We believe it is attainable to knock this out in the 2nd half of the year, and have it paid off by December.

S.M.A.R.T. approved

5.  Begin saving for future car

I drive a 2001 Nissan Maxima with 180,000 miles on it.  It’s been a decent car for me, but eventually we will need to replace it.  In order to avoid getting back into car payments, we need to start saving.  Unfortunately, this remains in the “resolution” department, because no specific time-frame has been put on this goal.  Just proves that even us cool kids on the Internet aren’t perfect either!

NOT S.M.A.R.T. approved

It’s Never Too Late!

The beauty of the New Year is that it makes a great marker on the calendar to begin anew.  But like the quote above says, it is never too late to get started!  If you have a Plan that puts integrity to your Resolution, any day is a great day to start!
What are your experiences with New Years Resolutions?

Personal Finance consumer debt, debt, emergency fund, goals, new year, resolution, S.M.A.R.T., student loan