Frugal debt payment?

The last place I want frugality to play a part in my life is in my debt payment. However, lately I've been struggling with the idea of decreasing the amount of money I send to my credit card each month in order to beef up my emergency fund. I wouldn't normally do this, but with the possibility of a labor strike looming in the next six months, I really want to have a bit more padding in that EF account.

I've been going back and forth on this issue, unwilling to totally commit to the idea of paying just the minimum on my credit card---even if temporarily. The satisfaction of watching the balance shrink each month is just too compelling! I also just found an online calculator that illustrates just how long it will take to repay a credit card when paying just the minimum. Here's what the calculator told me:

"If you make only the minimum monthly payment suggested by your credit card statement, by the time you pay off your $2,899.00 balance, you will have made 141 payments (that's 11.75 years!) and you will have paid $656.64 in interest charges!

Plus, if you were investing the average monthly interest charge -- instead of sending it to the credit card company -- at only a 7% return, you could have earned roughly $1,025.08 during the same 11.75-year period. That represents a total cost of $1,681.72!!"

This particular calculator is unique in that it actually exposes the opportunity cost of paying that interest charge each month, rather than investing it. However, what it doesn't (and truthfully, can't) address are the people who do something beneficial with the money they would have sent to debt repayment. In my case, that extra money is going into a savings account earning 3%, which can be used later should I need it. Granted, I pay 4.99% on my credit card balance, so this is something of a losing proposition. But the emotional payback may be worth it. I hope I don't have to go on strike next fall. But if I do, I'll feel much more comfortable having money in the bank to pay bills while I'm on the picket line.

In the end, my gut tells me to continue adding money to my emergency fund. However, to assuage the side of myself that gets a kick out of watching the credit card balance shrink, I'll send more than the minimum to American Express---maybe I'll even go 50/50, as a frugal compromise. I haven't yet created my June zero-based budget, so we'll see how things shake out then. If you were me, what would you do?

Frugal calculators. . .

I'm horrible at math, but I love running numbers using online (and my home-grown Excel) calculators.

The SmartMoney website has a couple of calculators, which I'm using to 'test' my own Excel worksheets, which are helping me figure out when I'll be free of my credit card debt. My Excel calculator tells me that if I pay $550 a month (plus $1,000 in May, after I've received my 'rebate') I'll be consumer-debt free by mid-September of this year! In that time, I'll pay $32.22 in interest (at a 4.99% rate), according to the Excel worksheet.

Meanwhile, the SmartMoney calculator, included in an article regarding Digging Out of Debt, indicates that my credit card will be paid off in five months (by August), and that I'll pay $37 in interest during that time.

So, there is a slight difference between my own worksheet and the fancy one on the SmartMoney website, but they're close enough that I know I can trust my home-grown version. That won't stop me from playing around with the numbers online at other sites I might find, though!

Are you keeping up with inflation?

I’ve been reading the newspapers voraciously during my commute to work, and have been stunned by the inflation numbers I’m seeing. When food and energy costs included, consumers saw a whopping increase of 4.1% in 2007, compared to a 2.5% increase in 2006. No wonder I’ve been eating beans and rice so regularly and keeping the thermostat at a chilly 58 degrees!

Since I’ve not had a raise in a year and a half (and to be honest, took a hefty pay cut when I moved to Oregon from California in 2006 anyway), I started wondering whether my income has kept up with inflation at all since I finished my master’s degree in 1998.

I recently found an inflation calculator on the Bureau of Labor Statistics website, which tells me that from the time I took my first post-graduate school job until now, I’m making about $500 more than I was ten years ago, when inflation is taken into account! Of course, this doesn’t include the money I bring in from my second job, which will increase my gross income by about $6,000 this year. I left that out because I don’t think citizens should have to take a second job make up for the effects of inflation.

By the way, The Baglady has a great post about the CPI (Consumer Price Index) and how it does (or doesn't) relate to our everyday costs.

However, you feel about the CPI, try out the calculator here; you may be pleasantly surprised! Or, like me, you may end up questioning the employment choices you’ve made over the years. . . . . .