My Debt Roundup - December 2009

I was kind of weary reporting this month’s debt reduction by just $251. My monthly debt reduction has reduced exponentially from $1,751 in the October, $524 last month to $251 this month. In last few weeks, I had to take care of couple of essential items that set me back a few hundred dollars. I didn’t spend more than $100 on non- essential eating out last month or hardly bought anything. My other expense was spending a few hundred dollars on groceries.

I am changing jobs next month and the transition may be even tough on my debt reduction. However, hopefully the higher income from my new job will help me pay off my debt sooner.

Holidays and Gifts

Holidays are tough times for saving. Not only you spend money on gifts but you celebrate with loved ones by going out to eat or do something (most of which cost some money). I have a big family and I would love to get everyone something nice. Am I stretching my budget too thin by buying them all expensive gifts?

While writing last sentence, I realized that something “nice” does not have to be something “expensive” (however, many nice things are indeed expensive). This year, I need to overhaul of my gift giving method. First, I have to go with mindset of getting something “nice”, which I will define later, instead of something “expensive” or around exact value to my allocated budget. By something “nice”, I meant that I have to give what people really “want” rather than what I want for them or what I think they need. So this year, I am giving something that my loved ones really want. Isn’t gifting a wonderful opportunity to give that yogurt maker to someone who wants it but otherwise would never buy it himself?

Money and Eating Out

I love food and enjoy eating out in nice restaurants with friends. Recently, I analyzed my past two years expenses to find reasons that got me into nearly $30,000 in debt (see post how I got myself in debt). I realized that I was spending too much with my credit cards for eat in nice restaurants. A decent meal and drinks worth $30-60 does not seem much but they slowly add up. Eating just two decent meals like that each week (Friday and Saturday nights)  adds up to $5,200 a year (2 x 52 weeks x $ 50). However, I  don't want to give up eating out completely - it's one of the joys of my life. What can I do?

It has been scientifically proven, known as tragedy of the commons, that people in group misuse the common asset even if in a long term they end up paying more. If we equally share the check in a restaurant, usually everyone in the group will order more, thus increasing the price of meal. Also, in a large groups, there will always be someone who orders the expensive meal. Sharing cost equally with credit cards is easy, you ask server to split cost equally. My recommendation is not to use credit card and pay for what you eat with cash. While paying don't forget to add taxes, tip and cost for shared items such as appetizers.  Using cash, instead of a credit card, would be helpful when putting down the exact change. Paying by cash also also makes you realize the actual cost of the meal, which is often distorted in your head if you use the plastic. Sometimes people feel socially awkward when it comes time to share cost of the meal. It's not difficult to politely mention, this is what I owe and pay your fair share. To be polite, rather always pay a dollar or more extra, if needed. Don't jeopardize relationship for a few dollars. Recently, I have been paying my share of exactly what I eat in cash and it works great. I don't order extra and am more conservative while spending money on restaurants.

Photo: Meal in Columbia Restaurant, the oldest Spanish restaurant in the United States, Ybor City, Tampa, Florida.

My Debt Roundup - November 2009

This month, I managed to lower my debt by mere $524 to $23,890. With this pace, my earlier estimate of being debtfree by December 2010 is moved back 2 and half years to the summer of 2013. This new estimate also assumes that I keep the same spending habits and my net income doesn't change drastically. So, what did I do wrong this month? First, I went for a major grocery shopping at the local Costco (see what to buy and what not to buy at Costco) and other local store breaking my more than a month and half long sabbatical from grocery shopping. I also bought a dresser to organize my clothes. In addition to that, I went out to eat 3 or 4 times and went out to two birthday parties.

This month's low debt repayment teaches me that it's very easy to stray away from a disciplined financial path. In my mind, I didn't buy anything major or made any stupid financial moves. Still my debt payment was a third of what my last two payments. Being debtfree process seems somewhat like dieting, you need the dedication all the time. You may not binge eat or eat unhealthy at fast food joints, but snacking here and there adds up and ultimately ruins your diet.

Related Posts

• My Debt Roundup - October 2009
• My Debt Roundup - September 2009

Feeling broke is good

Last month, I did two things that I haven't done for a while. I paid off one my credit cards (Yeah!) and by doing so put my bank balance to nearly zero. Before, even with a huge debt, I left certain amount in my bank account as a safety net. The basic rational for this emergency fund (or balance) was to have enough cash on hand for emergencies. Financial experts recommend emergency fund to avoid more credit card debt or payday loan. However, by leaving a certain amount in your bank, you don't feel broke and consequently lose a sense of urgency to repay your debts. 

This month, having a few dollars in my bank account reminded me of my financial situation at times when I wanted to splurge for a latte or buy that DSLR camera. I did have certain credit limit left on my bank account for real emergencies. But by looking at my bank account, I did not want to use it for things I don't desperately need. In my view, setting up emergency fund without paying your debt is bad in two aspects. First, you are paying extra interest in your debt and more importantly, not feeling broke decreases your drive to be financially responsible. Emergency fund is great idea (and highly recommended) for people who have debts payed off and are in saving mode but for with big debt, it may be counter productive (It was for me).

Eating What I have

As I alluded in my eating what we got post, I have not shop for any groceries for more than a month and half. More than saving money, I wanted to prevent myself from wasting groceries because I was barely preparing and eating any raw grocery and instead choosing ready-to-eat microwavable dinners.

During last 45 days, I was relatively successful at partially emptying my pantry and freezer. Well! I cheated a bit and bought milk, fruits, and beers once. So what did I eat during last month when I didn't shop for grocery? Here is a partial list of top 10 items;

1. Frozen vegetables - big packs of frozen broccoli, green peas and mixed vegetables were resting in my freezer for more than 2 months. I either microwaved (optionally adding butter/cheese), used them in soups or stir fried them.
2. Frozen chicken and meats - one of my favorite way to cook chicken breast was to cooking it over pan after breading it with Italian bread crumbs. Individually freezing breaded chicken in Ziploc bag makes it a great homemade frozen TV dinner later. You can eat homemade chicken dinner by itself, with marinara sauce and mozzarella (chicken parmesan) or with marsala sauce and mushroom (chicken marsala).
3. Frozen berries and fruits - my favorite way to consume berries is to blend it with milk or a scoop of vanilla ice cream and scoop of granola cereal for awesome very berry smoothie.
4. Dried and canned beans - we all know that canned beans are cheap, easy and fast. In comparison, dried beans (and lentils) are cheaper, healthier and most customizable albeit they need longer time to prepare. Primarily, you are looking for convenience versus customization. Canned beans may not be necessarily healthy; always check its sodium content. To prepare dried beans, rinse and discard any grits with cold water. Dried bean expand to 2-3 times its volume. Thus, soak them in water three times their volume overnight. Drain and cook with more water or chicken/vegetable stock. Alternatively, you can expedite soaking process by boiling them with three times their volume of water. After boiling for a few minutes, remove from heat, and let stand for an hour.
5. Pasta - marinara sauce, pasta (penne) and ground turkey. (optionally sprinkle parmasean cheese)
6. Rice - my favorite is plain basmati rice.
7. Homemade breads and cookies - I baked series of my first breads and cookies from scratch from flours I bought a few months ago.
8. Cereals and oatmeal - sometime I use yogurt with cereal and dash of cinnamon or berries with oatmeal.
9. Eggs - poached, boiled, scrambled or as elaborate omelets.
10. Potatoes - mashed, baked or stir fried. (microwave cut potatoes to expedite the cooking)  

What to buy at Costco & What to avoid at Costco?

In a new TV show Modern Family’s “Come Fly with Me” episode, character of Cameron describes himself as “I'm like Costco. I'm big and I'm fancy and I dare you to not like me.” It indeed describes essence of Costco. At first, Costco can be overwhelming and maybe inferred as a wasteful example of American consumerism. However, after shopping at Costco, you can see its value.

If you are planning a party or have a big family, you can shop nearly everything at Costco. For a regular-size family, daily shopping at Costco needs some basic strategies. Here are my suggestions for what you should buy at Costco and what you should not buy at Costco.

Must buy at Costco

1. Computers and Consumer Electronics – Although Costco downgraded its return policy to 90 days for TV, computers, cameras, MP3 players, and cellular phones, its warranty and service is still better than any other vendors. I highly recommend buying high price electronics through Coscto not just for its reasonable price but for the peace of mind. For example, my Vizio TV's  HDMI port broke down after a year and Costco's warranty covered the cost of a replacement TV. Compare that to a LCD monitor from NewEgg.com, which had one dead pixel out of box, and I was horrified to learn that I need to pay 15% fee to return a defective item. However, another LCD monitor bought from Costco showed similar problem after 2 months and was promptly returned.
2. Frozen Food – Get your frozen veggies, fruits and meat, even butter at Costco. It's frozen foods are affordable and good in quality. The best thing is that frozen foods don't get ruined quickly.
3. Ready-to-Eat food – Instead of takeout, try Costco's rotisserie chicken (which is bigger than average size) and pizza (big and lots of toppings).
4. Seafood and good cuts of meat – Good quality surf and turf are affordable at Costco. Even it's same price as the general grocery store, I would recommend buying them at Costco for its superior quality and freshness.
5. Non-perishable food – Buy generic food items such as rice, dried fruits, sugar etc at Costco. If you can limit yourself to the particular brand items, Costco has limited selection for cereals, coffee, canned food, chips etc.
6. Daily Basics – Milk, eggs, cheeses (good selection at great price), paper towels, toilet paper, etc., are cheapest at Costco.

Avoid at Costco

1. DVDs and Books – Amazon.com or other online store would have wider selection, better pricing, and have option to buy used.
2. Salads and other quickly perishable foods – Don't buy salad at Costco unless you have big family, planning a party or extremely dedicated in eating salad every meal (you may then consider a diagnosis for eating disorder). Having said that, sometime salads and other quickly perishable items are so cheap in Costco that you will be saving money even you throw out unused portions.
3. Sodas and Beers – Sodas are usually cheaper at a local grocery store or even at a gas station. As far as beers, they are not significantly cheaper at Costco. Moreover, you should only get them if you don't mind drinking a same beer 36 times in a row. However, Costco usually have a decent wine selection (in states that allow it).
4. Clothes – You can't try clothes at Costco. You can return but most people are less likely to return unless clothes are really bad.
5. Apple products – Apple's warranty is good. I say this even I had problem with their warranty (see my post on Apple's warranty). In addition to that, Apple offers free shipping and some other deals (such as student deals) with their products. I suggest go to Apple Store, use the display model before buying it. Also, needless to say research and think over.

I would love to hear about what you recommend buying at Costco and what you suggest avoiding at Costco.

(Potentially) Free WiFi Internet

I get my internet from a local cable company at $46.10 per month (see my post on why I cut my cable). The net surfing is good and  internet calls/voice chats are acceptable. However, at supposedly 15 mbs data transfer rate, my Hulu video at 480p (high resolution) is still choppy. I live in in somewhat urban setting in an apartment complex with access to many unsecured WiFi connection. I have always playing with an idea of just using the free internet to save few bucks. Howeber, in order to get any decent WiFi signal, I need to go near one of my windows and sit in relatively motionless state. Like any normal person, I hate going to window and sitting motionless with my laptop to check my email.

I received Hfield's WiFire as a gift. Hfield's Wi-Fire use its proprietary directional antenna and sensitive receiver to find and enhance weak WiFi signals. With WiFire plugged in your USB,  you can use many free legitimate internet provided by your city, piggy back on at someone's generosity (or ignorance) or share internet with your neighbors. The saving will be at least few hundred dollars per year. The Hfield equipment cost around $59 is comparable to your one month of internet fee. I am indeed flirting with an idea of cutting off my cable internet as well.



Image: Screen capture of Hfield's website.

My Debt Roundup - October 2009

Another month when I decreased my monthly debt; by $1,751. Now my current debt is $24,414. The major reduction came when I paid off one of my credit cards with the balance of $1,816 ("Yes I can"). Even paying off one of the credit cards with a minor balance felt liberating and quite encouraging. Hope! I can endure same attitude while paying off my other big plastics.

In bar diagram above, I  simulated a simple estimation of how long it will take me to pay off my debt. Assuming no major change in expense or income, it will take me at least 16 more months to pay off my debt at this rate. For me an ambitious yet realistic goal would be to be debt free by the end of year 2010. I have already drastically cut costs for my daily expenses, so only thing I could do now is to get additional income. Any suggestions?


Related Posts:

• Debt Roundup - September 2009
• Debt Roundup - July 2009

How I got myself in Debt?

If you already dont't know, a few months back, I found myslef sinking in a big debt (see prologue). Thanks to online records and excel, the presented pie graph shows back-of-the-envelope accounting of my expenses for the last two years. Although I didn’t start debtfree two years ago, I saw my debt slowly ballooning in my monthly credit card statements to near $30, 000.

My major expense for last two years was housing at 40%. According to National realtor’s association, the average housing expense is 28-35% of income for year 2006-2008 in the United States. My expenses are reasonable considering I am a single and live in an urban setting.

My second major expense was restaurants and bar at 20%, about a half of my housing expense. No-brainer here, I definitely need to cut down my gourmet habit. Since I consider dining out as my entertainment needs (see my post on Need vs. Want), I don’t want to completely forgo it. However, I need to limit it within my entertainment budget. One of my third major expense was interest payment, which can be definitely reduce to zero without sacrificing any emotional needs. Among my fourth expense was electronics at 6%. I upgraded couple of electronics in last two years and I admit to splurging unnecessarily. I recognize that I need to be vigilant about my electronics budget and limit it in terms of productivity rather than for its coolness factor.

After doing this simple accounting of my expenses, I have evidence-based knowledge of my major expenses and clue to root cause of my debt. In traditional twelve-step program, isn't recognizing root of your problem is one of the first steps?

States with Lowest and Highest Debt

According to financial scorecard published by CFED, the honor of having lowest credit card debt goes to Iowa, where average credit card debt is around $2,100. Iowa is followed closely by Mississippi, North Dakota, and South Dakota with the credit card debt just one or two hundred dollars more on average. Alaska has the highest credit card debt of $4,755 on average. The next states with the highest debt are Arizona and Nevada with around $3500 of credit card debt. The difference between highest credit card debt collector, Alaska, and second highest debt collector Arizona is more than $1000 (or roughly one quarter). The credit card debt included all debt from credit cards, private label cards and lines of credit. The detail ranking of credit card debt is given here.

The next category of debt, installment debt, paid in fixed monthly installments until the total amount is paid off such as vehicle loans and student loans. Mortgage debt was not included in the calculation. Wyoming tops the list of state with highest median installment debt around 18,000 closely followed by Alaska (again), and District of Columbia. Michigan has lowest amount of installment debt at around 12,000 followed by Wisconsin and Kentucky around $13,000. The installment debt ranking of state can be found here.

Surprisingly Alaska has lowest consumer bankruptcy filing with 1 in 1000 closely followed by Hawaii, and District of Columbia, Vermont, Wyoming, and South Dakota. The highest bankruptcy filing is in Tennessee where more than 6 in 1000 people file bankruptcy. It is followed by Alabama and Georgia with 5 in 1000 people fling for bankruptcy. 


Image. American Eagle Platinum Uncirculated $100 Coin (Source U.S. Mint)

Financial Scorecard of the United States

CFED publishes assets and opportunity scorecard with comprehensive outlook at wealth, poverty and the financial security in the 50 states and the District of Columbia at http://scorecard.cfed.org. CFED (formally Corporation for Enterprise Development), is a think and action tank dealing with economic development of communities across the United States with goal of expanding economic opportunity.

   

The scorecard presents the results in five main economic issues; Financial Assets & Income, Businesses & Jobs, Housing & Homeownership, Health Care Education, Community Investment & Accountability Policies. Each category has between nine and fifteen different outcome measures data.

   

All states are ranked in every measure with most desirable outcome ranked 1st and the least desirable is ranked 51st. A separate summary for each individual state can also be viewed with an overall scorecard. For example, District of Columbia gets a B from CFED. The detail report can be found here. 

I hope to hear from you on how your state is ranked and do you see the numbers accurately reflects the economic outlook on your main street.

  

Image: Screen captured from CFED's website.

Impulsive Behavior Linked to Poor Financial Decisions

Impulsive behavior such as infidelity, smoking, and obesity is found to be connected with poor financial choice. The study was conducted by Dr Stian Reimers of Department of Psychology, University College London and is published in upcoming December 2009 issue of Personality and Individual Differences http://dx.doi.org/10.1016/j.paid.2009.07.026.

More than 42,000 survey participants from U.K. were asked if they preferred £45 after three days or £70 after three months (i.e., 267% APR), and asked various question related to impulsive behavior as part of BBC survey http://www.bbc.co.uk/sexid . The analysis concluded that there was a strong preference for immediate lower financial gratification (£45) over long-term higher financial reward (£70) with self-reported impulsive behaviors. The immediate financial gratification at cost of higher financial reward can be interpreted as lower saving and/or tendency for high debt. There was also a clear preference for higher future payment with increase of income and age. Early sexual activity, infidelity, smoking, drug use, and higher BMI (obesity) also indicated preference for sooner financial gratification. These findings suggest that bad financial choices such as debt accumulation and lower savings are just another form of impulsive behavior.

The Adobe Acrobat reprint of article can be found at http://else.econ.ucl.ac.uk/papers/uploaded/344.pdf,

Photo. My very impulsive choice of dessert after a full meal. 

Print Newspaper Subscription is Dead - Unprofitable & Not Environmentally Friendly

The print subscription of the New York Times cost $14.80 per week or $769.60 per year. Why would I pay nearly $800 for something that I can legally get for free online? Printing multiple unread pages of paper with ink and driving throughout the neighborhood to distribute it everyday cannot be environmentally friendly (even you recycle). I hate to say this but print newspaper subscription is dead. I don’t know anyone under 30 who has regular (weekend subscription not counted) newspaper subscription for a whole year (trial offers not counted). If you still have newspaper subscription, you should cancel it. The production and distribution cost of newspaper can be slashed by using online delivery with smart targeted ads. Yes, I don’t mind newspapers collecting information on me in exchange of information on the world. The reader’s preference for types articles, local information, and content of article can generate pretty profitable ads. On top of that the newspapers still can happily charge for archives etc.

    

PS. I believe in paying writers/journalist well. However, they need to get alternative source of income from their fame. For example, a long term writers can get partial-paid leave of absence (sabbatical) to work on a book (of course with shared profits with the newpaper). 

Quicken and Mint

Note:

This review was written last weekend prior to announcement that Mint.com would be acquired by Intuit (Quicken) .
  

I have been aware of Quicken through its software and briefly used it in 2001. Recently I used Quicken Online to reveal guts of my finances and to get accurate figure on how deep my rabbit hole (debt) went.
   

I signed up for Mint.com right after I signed up for Quicken Online. I found both of them very similar and useful. Identical categories for “Trend”, “Transaction”, and “Planning” (“Goal”) exist in both. Mint also has additional categories for “Investment”, and “Ways to Save” (aka targeted advertisement). It is difficult to compare the two because both have similar navigation and tools and only subtle differences. Some tools are more user friendly in one versus another. For example, Quicken lets you select date range and Mint displays APR of your card prominently.  Mint's design is slightly more user friendly and it also sends more pertinent email reminders. On the other hand, Quicken Online offers a possibility of easily upgrading to a more powerful software package. My suggestion is to use both since they are free.

Debt and Procrastination

How many times have you paid extra money because you procrastinated paying your bills or forgot to cancel a service on time? Procrastination in essence is deferring the work for future time. Whereas, debt by definition accumulates more interest and penalty fee with the further deferment. Thus, procrastination is very unprofitable for you.

  

Here are few ways to beat procrastination for better financial health.

• Immediate Action. If certain items take less than 5 minutes to do, you should just do it. Since it’s not worth the time to schedule, it will either be nagging you or you will forget it. So, for minor items go ahead and do it, nobody is too busy to not have 5 minutes.
• Automate. Setup automatic payments for all your bills. It takes usually few minutes to setup the payment and information you need is usually in your personal check. Automatically deposit of all your income (if possible) or develop a habit of depositing it on a same day (there are 24 hour ATMs).
• Review. Every first Saturday morning of the month review your accounts for 1 to 2 hours. Make sure to setup automatic reminder in application such as phone, email to remind you of review. The review should include; paying extra payment on your debt than you scheduled, calling customer service to renegotiate term, fee or interest, canceling any unnecessary subscription.

Unscientific Inquiry on Accuracy of Credit Karma's Credit Score

Credit Karma (Creditkarma.com) provides a free no-hassle credit score without the usual 30 days free bait followed by extravagant automatic enrollment. Instead, it recuperates its costs with targeted advertising offers based on your credit history.

   

I don’t oppose automated targeted ads. We are already bombarded with many of them unknowingly and often they provide better matching offers. I checked my Credit Karma's scores a month ago but had an uneasy reservation when I learned that Credit karma provides its own “proprietary credit score” on scale of 300 to 850 (same scale as FICO Score of Equifax).

   

All of us who have done a credit score check from all 3 credit bureaus know that the credit scores differ by a few points. Credit scores are slightly different because each provider uses somewhat different algorithms. However, all credit scores are calculated from payment history (~35% weight), credit utilization (i.e. how much balance you have on card, ~30%), length of credit history (~10%), types of credit, and recent inquiry (high multiple credit inquiries are negative, ~10%).

 

In order to find the accuracy of credit scores, I briefly subscribed a trial offer (and canceled same day) and pulled credit scores from all 3 credit bureaus. In comparison to my Credit Karma scores, credit score differ as follows (difference in parenthesis); Transunion (0 points), Experian (+17),and Equifax or FICO (+7). The low difference in Transunion score maybe because Credit karma utilizes Transunion's service to calculated its scores. As a safe guard I also asked my cousin M to check his scores. He found his Experian score was 12 points lower than Credit Karma’s score.

   

In conclusion to my little unscientific experiment, Credit Karma’s credit scores are reliable. It gives free tools. There is no need for not signing up for the service since it’s free. I would love to hear about your own Credit Karma's experiment.

Photo. CreditKarma.com Screen Shot

Using What You Got... Foodwise

Every time I go grocery shopping, I buy two philosophically different foods. One is easy ready-to-eat (at most requiring reheating by microwave) and other raw food such as canned, frozen, and fresh ingredients that needs some preparation. The ready-to-eat food is meant to be for near emergency when I don't feel like cooking and raw food is meant for every other occasion.

  

As week rolls by, I forget about raw food that needs any more preparation than trip to microwave. As a result, the fresh vegetables get thrown out, canned food remain piling up in pantry and frozen vegetables move to back of the freezer, while easy microwavable delights keep disappearing. The ready-to-eat food is easy and at best has a tolerable flavor but usually has a high fat and/or salt content. The raw food would be perhaps prepared in a healthy way (I can’t see adding 2 sticks of butter and eating it myself), more customizable to my taste buds and cheaper. However, procrastination takes its toll and I keep on buying easy microwavable delights at an outrageous price (gotta pay for a shinny box).

    

So what should I do to eat healthy in low budget? I have decided to not buy any grocery for at least a month or whenever my pantry and freezer is empty. I promise to update you if I can survive using what I got.

Photo. Farmer's Market at Arlington, VA

My Debt Roundup - September 2009

In 49 days, I have decreased my debt by $1,454 from $27,619 (July 22) to $26,165 today (Sept 9). It means that I am paying more than $30 each day towards my debt payment. So, where am I cutting cost? One thing; I am religiously bringing lunch from home. A nice side effect of this is another bodily loss - loss of 5 pounds or so.

PS. I know that I calculated my debt in 49 days. A more obvious approach would to do it monthly. Herein, I promise to show off my progress or share my failure at the beginning of every month by showing my current debt after I have paid my rent, which is my largest monthly expense.

Federal Trade Commission (FTC) Guide on Debt for Consumer

Federal Trade Commission (FTC) Facts for consumer on Debt

http://www.ftc.gov/bcp/menus/consumer/credit/debt.shtm

  

Get free government booklets (Acrobat PDF or HTML) with information for consumer on debt. Examples on topic include; consumer right on credit, acceptable debt collection practice, information on filing bankruptcy, consumer alert, and other helpful personal finance topic  related to debt.

Photo. FTC Website's Screen Shot

Good debt vs. Bad debt (Does good debt exist?)

A few years back two nameless friends were contemplating either to buy a condo or a flat screen TV. The housing supporter suggested buying a condo instead of renting. Other friend, instead wanted to get a flat screen TV to watch Sunday football at home (high definition rocks). The housing friend explained that there are “good debts” and “bad debts”. Even CNNMoney’s Money 101 Lesson (recommended) has a chapter on “good debt” and “bad debt”.CNN Monney defines good debt as anything “you need but can't afford to pay for up front without wiping out cash reserves or liquidating all your investments.” and bad debt as something “you don't need and can't afford.”

  

Three years later and after collapse of housing bubble, the friend who bought the house is in substantial debt and the friend who bought reasonable 32 inch LCD TV has saved more than $1000 dollar in bar tab.

   

So there is no good debt or bad debt. All debt are potentially bad and all investments are potentially rewarding (note: with risk).

  

Thus, I would redefine the two categories into “investment debt” and “avoidable debt”. The “investment debt” are unavoidable within pragmatic terms, taken after exhausting all the reasonable alternatives and after thorough risk assessment. This “investment debt” are investment on higher education, reasonable house for raising a family, loan for reliable and affordable vehicles to commute to work (in lack of good public transportation) etc.  And there are those “avoidable debts” which are incurred for reasons that can be avoided, or have practical alternatives or which can be abstained from. This “avoidable debt” include; credit card debt for expensive vacation, loan for designer wear and layaway for the flat screen 60 inch LED TV (you can really live with 32 inch LCD!). 

Does Applecare really care?

I bought an additional year Applecare warranty for my iphone a few weeks after its first birthday on second week of September 2008. Well! Apple guaranteed to protect my iphone for “an additional year” for low price (being sarcastic here!) of  $72.97 (excluding accidental or intentional damage). For nearly a year, I didn’t really use Applecare. Now, when I wanted to get my headphone replaced before my Applecare expires, the Apple says my warranty has already expired. So what happened? I realize Applecare considers 1 additional year starting right after your initial warranty finishes NOT the day you buy the warranty.
  

Let me make it clear, let’s say if your Apple product’s warranty ends on September 1, 2009 and you buy Applecare for 1 additional year on January 1, 2010.  When will the warranty expire? September 1 2010, NOT January 1, 2011. I consider that to be a deceptive practice at best even if it is legal (power of almighty fine print).
  

So, what did I do? I called Apple and politely yet firmly voiced my complaint and disbelief at this deceptive Applecare practice. After 45 minutes of complaining, they decide to give me a headphone. Apple customer service was good and polite, but is Applecare worthy of its price? 

  

Photo. Near The Market Common, Clarendon, Arlington VA

Bring in the Bing Cashback

I am not suggesting anyone to go on a shopping spree. However, if you really need to (really!) buy,  Bing Cashback may be something you would like to try.

Search any product on  Bing.com . Follow instruction (trust me you will see lot of Bing cashback logos), buy item after open your Bing cashback account.

Once you have at least $5, you can request your cash back from Bing about 60 days after purchase (time varies by store) via PayPal, direct deposit to your bank account, or mailed check (Disclaimer - that's what I read).

PS. I have not used Bing Cashback yet (because I haven’t  bought anything recently). Please post comment if you have used it. 

Managing Debt Without a "Debt Management" Plan

Debt management plan involves you depositing money with an organization, which pays off your unsecured debt such as credit cards. Debt management plan, at best, manages your existing debt, but usually at the cost of ruining your credit history. Foremost, I don't like debt management plans because I don't want to pay for anything that I can get for free.

Many me(s) with debt go to a debt management plan, primarily due to lack of payment discipline. If you decide to do so, please check beforehand Federal Trade Commission's information on debt management plan.

Here is alternate free debt management plan in 7 steps.

1. Call and ask your bank(s) to lower the interest rate(s). If a customer service agent is not helpful, call again couple of times. Trust me, quite a few bank will at least knock of few percentages.

2. Open a separate bank account in a different bank.

3. Choose credit cards (or other debt) you want to pay with this system.

4. Direct deposit a portion of your income enough for a minimum payment+$x for each debt.
(Amount of $x depends on how fast you want to get out of debt. High interest and/or low balance debt should have higher $x. My suggestion is make $x maximum and readjust $x once you pay off one account completely.)

5. Automatically set monthly payments.

6. Destroy the ATM card, credit card, check or any other method that will allow easy access to the money in new bank account and old credit card accounts.

7. Adjust and check your new debt management plan every first sunday.

PS. If you still want to pay someone, I accept paypal.

Really Free Credit Reports and Credit Score

Annualcreditreport.com
United States government Fair and Accurate Credit Transactions Act (FACTA) mandated website providing free credit reports (not scores) from three major credit reporting agencies. Note, the website is operated by the reporting agencies, which often offer visitors other paid services or 30-day trial offers during the free reporting. If you do not want them, [politely] decline the offers.
Me: Credit reports checks out fine (i.e., no surprises, just old debts)

CreditKarma.com
With targeted advertising, Credit Karma (review) provides free proprietary credit scores (not credit reports, not FICO scores) and credit management tools. Its credit score are based on reports from TransUnion. The scores are on a scale of 300 to 850, same scale as FICO, but exact score are expected to slightly differ. The factors included in makeup of the credit score remains similar but weighing algorithm is different.
Me: As expected, high revolving balance (debt) is indicated as culprit in lowering my credit score to average 723 to otherwise stellar credit history.

Additional Cautionary Tale:
Getting free credit reports or score will need you to verify your identity through social security number or other details. However, they will never ask you for your credit card number. If they do, they are likely duping you into enrolling one of their credit management offers that remains free for few days.

Save Money by Being Green

Biggest argument against environmental friendliness is that it’s more expensive. Here are a few simple green things that can save you a few greens in return;

• get paperless bill and pay electronically (setup email reminder)
• use CFL bulbs (or better LED bulbs)
• recycle grocery bags as garbage bags (reuse plastic)
• avoid disposable plates and silverwares
• turn off power strip with unused appliances (TV, cable box, DVD, printer, computer)
• use rechargeable batteries
• get GPS, don’t waste gas or printed pages to find a place
• plan your grocery (or any other) car trip to save gas
• get vegetable garden started (start with easy plant/herb)
• [send me more tips and I will add here]

See more tips and green products from Consumer Reports’ greenerchoices.org.

Why I (you) don't need my (your) cable?

Why don't I need my cable? Let’s do simple cable math.

One year cost of cheapest cable for me is 803.20 (63.60×12+40 setup fee) without any taxes. According to Nielsen Company, average American watches 1812 hours TV per year, which is about 4.94 hours per day (that’s a lot!). If you watch TV 5 hours everyday, then you are paying $800 for 1812 hours, which comes down to just under 50 cents per hour. Unlike average Nielsen viewers, I watch 2 hours of TV per day by myself, which makes my cost $1 per hour.

Nielsen Company also indicated, about ¼ of viewing take place during primetime.Most of prime time is available free time-shifted viewing on networks website or on hulu.com. Most of primetime shows are on free over-the-air stations such as ABC, CBS, NBC, FOX, MyNetworkTV, PBS, or The CW. In the same way, you can argue that, more than one person can watch the cable too. But really, how many households of more than 5 or 6 people do you know? Usually digital broadcast from station has additional digital channels with minor programming like weather, local events etc. See list of over-the-air television network .

To save a cost without sacrificing quality of your TV entertainment, you may need to spend a little upfront. What I suggest is;

• Get a digital TV (which is under $400 for 32 inch now), if you already haven’t done so. All digital TV have RGB port for connecting computer to TV.
  
• Get an antenna ($10-25)
  
• If you don’t have laptop and wish to watch time-shifted TV on screen, get an extra computer/laptop ($400). Note, don’t upgrade old computer because hi-def video needs a lot of CPU. If you are debt free get computer with decent graphic card, wireless, HDMI output and TV input capability. Free alternative for TV is Hulu and less expensive alternate for other entertainment includes Netflix’s ROKU (subscription required).
  
• Connect your computer to TV.

Look for other blogger such as, Mike Elgan’s experience on online TV is much better and Marguerite Reardon’s alternate ways to eliminate $100 cable bill. Save or pay your existing debt. I expect to pay more than $1000 this year toward my debt payment by cutting my cable.

Declutter Your Way Out of Debt

Since last few years ago, I started reducing paper clutter in my life. Finally, I have near-paperless home with the exception to few important documents.

Yet I have many small items that are lying around. Some of them were never used, while most of them were used once but way past their usability in my life. The items included a heart rate monitor sports watch (I thought I would run marathon), analog TV card, old GPS, and a network hub.

All was good and forgotten, neatly packed in an unmarked brown box. When I moved to the new apartment, I realized the box contributed nothing but one additional hassle. Either I had to throw it out, or better sell it, which I did, reducing my debt by $163.53.

This is how to declutter and cash out.

First of all, you need to be emotionally ready to part with my items. If it is not being used or will be used soon, it will soon contribute towards your back pain while organizing or moving next time.

After that, you have to accept that few things appreciate in value. Most likely, you won't get even half of what you paid. For example, I bought GPS for $349 one and half years ago, but just received $64 after its sale.

Third, "Stop Procrastinating". Schedule a time with yourself (better write it down). Get all products and list online. Sometime you may need a digital camera to take picture.

My recommendation for selling venues;

• Amazon.com seller account is easiest to list. All you need is get Amazon seller account (need credit card and bank info to open), go to the product page of your item, click "Sell your item", describe honestly in a few words about condition. Price competitively. If an item didn't sell within a week, I lowered my prices. Amazon takes 6-15% commission and $0.99 fee. The listing is free. Amazon is best for selling standard items such as electronics with UPC.
  
  
• EBay.com is my second choice for selling items with UPC. EBay is best for selling small used parts or other small shippable items. The worst thing about eBay is that it charges for the listing fee regardless of sale. Also, listing unusual items would need a digital camera and you need PayPal account to process the payment. Since eBay charges listing fee (insertion fee) and PayPal also charges commission, you are paying commission twice when using eBay.
  
  
• Craigslist is good for selling bulky items such as old TV and furniture locally. Last year I sold analog TV-VCR combo for $50. Make sure to post photo(s). If an item does not sell within a week, lower your prices.

Quicken Online & How Deep the Rabbit Hole Goes?

How much debt do you have and how much do you spend? Unless you are one of those super-excel-dudes who organize their finance on excel sheets and update it frequently, you wouldn't know how much you spend or how much debt you have. And if you are that super excel-dude, then you probably are in perfect financial position.

Before joining Quicken Online, I believed that I had a vague idea about how much debt I have and how I much spend. My guesstimation was good at only underestimating both my debts and expenditures.

In Quicken Online, for free, you can import online records of all your scattered financial accounts (bank, credit cards) in few minutes. You can get all kind of reports on your spending, debt, and do some primitive budgeting. Granted, I am not buying a full version (sorry Quicken), it is still useful because it shows you all your finances in a nutshell. No guesstimation and no underestimation of how deep the rabbit hole goes. MY rabbit hole goes - $ 27,619 deep. How deep does your hole go?

Wal-Mart Cushions and Lesson in Need vs. Want

I just moved to a new apartment. I don't have couch because I calculated cost of moving my old couch was at least $100 (truck rental, insurance etc). I don’t watch TV sitting on couch (I am bed TV person) and I rarely entertain people in my apartment. Instead, I have mattress and matching carpet (gift from my parents).

During my last visit to Wal-Mart, I saw these wonderful Mainstays accent cushion (see photo) which I think will go perfectly with my décor giving my living room eastern longue vibe. However they cost $40 for 4. Do I really need it? No. But, technically, I don’t even need my boxers. Do I want it? Yes. But, I want so many things in life such as fire proof safe for external hard drive (which was sitting in next shelve).

I realized that need vs. want thing didn’t make sense. I asked myself instead, how (and how often) is it going to enhance quality of my life? My answer was probably never because I don’t expect any visitors in my apartment or myself get any pleasure by admiring my own décor (it's a need for others) . I don't even know if they are decorative pillows or accent cushions. I decided not to buy them.

For few minutes, there was sense of regret and loss for not buying those wonderful cushion that match my color palette. I started to rationalize the possible purchase with I am already saving money trap. However, after half an hour, when I reflected back, I felt really good on my self control. The satisfaction I got from my self control was greater than any pleasure I would have got by admiring my living room’s décor.

So, the question, I need to ask is – How (and how often) this is going to enhance quality of my life? And as a reminder mental satisfaction is a need that many people ignore but we should to ask ourselves is it only thing that satisfies my mental need?

Prologue

After a failed long term relationship, excessive weight gain, and many other issues, I got depressed. Even being a decently educated in finance, I still coped with my depression by spending money or by doing things that needed me to spend. Before breaking up, I was just getting my finance in order from my living expenses during college. My 
ex was careful with money, we rarely spent money on anything and we began sharing any cost, as our relationship grew older. After the breakup, I changed my wardrobe (because I did shed off few relationship babyfat) and also felt I needed it to “get out there”. I finally indulged in anything I wanted. I made excuse of dining pretty dates when in fact I was looking for friendship and also indulging my own foodie senses. I went out a lot too. Since I lived in downtown Washington DC it was not limited to just once a week but multiple times a week. During that time, I spent a lot, tried new things, met lot of people and made some good friends. But did I really need to spend and get myself into 27,619 dollars in debt to bounce back and get my life together?
 

What I want to do in this blog is share my mini personal experiment to do many things that I want, still enjoy my life and keep meaningful friendship while still saving money to be without debt.

What is debt?

Basically, debt is someone else's (usually faceless bank) claim to my future* with lot of extra strings attached.

*Here I said future not future earnings because having debt incapacitates us on making any changes. Such as, "oh! I can't quit my miserable job and go back to school because I have my car payments to make".