Infrequent update. . . .

If you're wondering where I've been in the last six months, I picked up another job, which has just about stretched me to the limit. I'm working a LOT but am also making a nice dent in my student loan debt, though I've still got quite a ways to go. Here's where I was the last time I checked in with you all:

Debt Reduction Progress
Second Mortgage Debt: $31,400::::$26,257 84%
Student Loan Debt: $61,762::::$56,387 91%
Primary Mortgage Debt: $167,500::::$158,016 94%

And here's where I'm at now (focusing primarily on student loan debt):
Second Mortgage Debt: $31,400::::$25,888 82%
Student Loan Debt: $61,762::::$51,881 84%
Primary Mortgage Debt: $167,500::::$156,757 94%

Little by little, I'm getting there; and since I picked up a new job in late spring/early summer, hopefully my student loan debt will decrease even quicker over the next year. About 20% of my payments are going to service interest only right now, so that's a bit frustrating, but that number will also decrease as my balance goes down.

I have no idea when I'll have a chance to update again, but will try at least every couple of months. . . .

I hope you're all continuing to survive the recession (that supposedly ended two years ago)!

And then there's this. . . .

For pete's sake, can we get some good news over here?????

Frugal doubt. . . .

I sort of knew this was coming. Inevitably at some point after I've made a decision I start to question myself. In this case, I'm questioning whether I should pay off my second mortgage first, or wait on that and pay towards my student loan instead.

I keep thinking that I may be throwing good money after bad by paying down my second mortgage. After all, if (and this is a big IF) the housing market ever recovers (or just stops resulting in decreasing value) then I may be able to sell my house without creating equity by paying off my second mortgage debt. Right? Here's what I read in a recent US News article about who will continue to struggle in 2011:

Homeowners. Americans have lost about $9 trillion worth of household wealth since 2007, largely because of falling home values. The rout isn't over, unfortunately. Most forecasters think home values will decline another 5 to 10 percent in 2011, as high unemployment causes more foreclosures and a glut of homes pushes prices down. The good news, if there is any, is that the housing market may finally hit bottom in 2011, with home values stabilizing after five years of declines. That doesn't mean home prices will shoot up any time soon. But once buyers believe that prices have stopped falling, they'll be more inclined to buy, the first step back toward a healthy housing market. Stabilizing home values will also help owners do better financial planning, since they'll have a firm idea what their home is worth.

Sigh.

Meanwhile, I could be working on that student loan, almost half of which may be paid off by the generous gift of a family member. Meaning that I could, potentially, have my student loan paid off by mid-2012. At which time I may be able to sell my house and just break even. Right?

Or is this just a case of 'six of one, half-dozen of the other'?

Student loan shenanigans. . . .

A few weeks ago, I mentioned that there might be a change in my student loan balance due to an inheritance (of sorts) that a close relative received. Actually, the 'close relative' is my father. Many (many) years ago when I was making some bad decisions in high school, my dad said, quote: "you get into college, and we'll find a way to pay for it". What I didn't realize at the time was that this meant students loans - for me.

After my first graduate degree was finished, my dad commented that when he received an expected inheritance, he would help me with my student loan balance (which was around $50,000 at that time). Over the years since then, I've not counted on that happening, for various reasons. One of those reasons is that I consider these loans to be 'mine', and therefore my responsibility to pay off.

However, just recently, my dad started the conversation again about how he could help me with my student loan balance. The scheme he's come up with has its merits and its downsides. Basically, he will transfer some stock to me equal to about half the balance of my current student loans. Then it will be my decision whether to sell that stock immediately (taking a capital gains tax hit), or to hold the stock with the assumption that the shares will 'split' as they've done in the past (this is stock from a major U.S. company) and will eventually - in who knows how many years - be worth much more.

The merits of this plan are that at a minimum, I'll have about $25,000 to pay down my student loan balance if I'm willing to sell the stock immediately and take the tax hit. The downside? Knowing whether to sell right away or wait and see what happens with this stock. If I wait for the stock to split (and there's no guarantee that this will happen soon, though it looks like a possibility given the direction the stock is heading) and ultimately gain value again, I could have more of my balance paid off than if I were to sell right away.

What a conundrum! Looks like I've got some thinking (and learning) to do! In the meantime, I'm going to continue working on my second mortgage debt while paying at least the interest (but probably a little more than that) on my student loan balance.

Tax savings? Not so much. . . .

I'm obsessed with my second mortgage these days (as you might have guessed if you've read the past few blog entries. . . .). A couple of weeks ago, I discovered that I had only paid about $1,500 in principle on my high interest (8.9%) second mortgage in the last four years! Last week I decided to torture myself further by adding up all of the interest that I've sent to my second mortgage holder; money that I'll never see again.

During the past four years, I've paid CitiMortgage over $10,000 in interest! Granted, I would not be quite so upset about this if my house were actually gaining equity - unfortunately, it isn't, which is just adding to my feeling that each month for the past four years I've been flushing money down the toilet.

"But wait", I thought, "what about that tax deduction that is saving me so much money on my taxes each year? Isn't THAT a benefit to home ownership? Certainly, it's on every real estate agent's blog as being one of the best reasons to purchase a home".

"THIS will make me feel better," I thought to myself. So I booted up my 2009 tax return, and learned that I saved a whopping $1,700 last year as a result of my mortgage interest payments.

And guess what? Since I paid $2700 to CitiMortgage last year in interest payments, only about 20% of my total tax deduction was a result of my second mortgage payments. Which, by my math, means that of the $1700 I "saved" on my taxes, about $330 of it was due to my second mortgage interest. I paid $2700 in (mostly) interest in order to save $330? Sigh. Doesn't really seem worth it, does it?

Again, if my home were gaining equity (aside from the artificial equity I'm creating by throwing money at my principle balance) I wouldn't be quite so perturbed by the falseness of this ridiculous tax deduction argument. I guess the silver lining is that realizing this will help me in two ways as I go forward: first, I will think twice before purchasing another home based even partially on the argument that it will "save" me money on my taxes; and second, it makes me even more committed to getting myself out from under my second mortgage at this point (and eventually, out from under my first mortgage as well!)

Much as I love my cozy house, it's just not sustainable given my income and future goals. I would rather rent an apartment for $500 less than my mortgage payments and pay that additional $150 or so per month in taxes.

Satisfaction. . . .

In November, I sent a grand total of $1,452 to my second mortgage holder, which is $1,197 more than I usually pay each month. There's definitely some satisfaction in watching my balance decrease, since up until now I've been primarily paying interest-only (I wasn't aware that this was akin to an interest-only loan when I signed the papers, by the way, though if I'd been a smarter consumer I would have learned that beforehand).

What amazes me is that in the four years that I've had this loan, I've managed to pay it down by just around $1,500. I'm flabbergasted by this.

October, 2006 starting balance: $31,400
November 2008 balance: $30,877.76
November 2010 balance: $29,881.18*

* Note: this doesn't reflect all the payments that I made in November, since some of my paychecks came late in the month.

Know what's even crazier? My November 2010 balance reflects an additional $400 in principle payments that month! So, essentially, the balance of my second mortgage has only decreased by about $1100 in four years of making regular payments!

With financing like this, it's no wonder some American homeowners are in such deep doo-doo. Loans like this remind me of indentured servitude, in which a peasant was obligated to a wealthy landowner (or other wealthy individual) until he died, because the value of his work on the land (which he didn't own) was never enough to cover the amount of his debt to the aforementioned landowner.

Anyway, this is just a rather long-winded way of saying that the satisfaction of finally watching the balance of this evil loan shrink is hard to describe. Perhaps it's akin to watching the pounds on the scale vanish with weight loss, or, conversely, watching the balance of a savings account grow exponentially. In short, it's FANTASTIC!!

Frugal mortgage. . . .

So, according to CNN, 55,000 people have already taken advantage of Obama's home loan modification plan.

Judging by how long it's taking to get my own "no cost" refinance paperwork completed, I'm not surprised. I wrote a few weeks ago about this, and so far I've received one bit of mail from the servicer, which included several errors. Turns out, the paperwork that they wanted from me didn't even apply to my situation.

Originally, my mortgage broker told me that I'd get the paperwork in "seven to ten days". Well three weeks later, I'm being told to wait a couple more weeks at least. Although I don't think my refinance is connected with the government loan modification program, I'm sure the loan servicer is inundated with all sorts of refinance requests at this point. That would explain the delays and the errors in my own case.

I'm getting impatient, since every day that goes by is a day that I'm still paying 6.9% on my mortgage. Luckily, I'm not in any danger of defaulting on my loan or losing my house, so I can afford to wait a bit longer, but that roughly $170 monthly savings is dancing over my head as I go to sleep at night. Feels like Christmas Eve!

A frugal refinance. . . .

With the low interest rates, I've been contemplating jumping in and grabbing a refinance on my first mortgage at least (which is currently at 6.59%). My problem has been that I hope to sell my house and move to a less expensive place in a year or so, and I don't want to pay the cost of refinancing if I won't recoup that. Also, the value of my home is now lower than it was when I purchased, and if I'm lucky it's worth about as much as I owe on it.

Anyway, I recently took a day off from work and printed out all of my financial information---bank statements, tax return, pay stubs, etc. I took this in to the bank which holds my first loan, and began the process of talking to the mortgage loan officer about possibly refinancing my loan. My ideal would be to wrap my second mortgage into the first, since I pay an astounding 8.9% on that one (and it's a balloon loan, meaning in 12 years or so, I'll have the pay the entire balance all at once).

The woman I spoke with had a stack of loan applications on her desk, but promised to get back to me within 24 hours. Five days later, I finally got her on the phone. She said that the bank had a new program that was no cost (no points, no fees, no NOTHING) and which guaranteed at least a point reduction in my interest rate---and I was approved for 5.37%. This is higher than the current rates hovering around 4.5%, but it's still substantially lower than the 6.59% I'm currently paying. She couldn't tell me whether my second mortgage would be rolled into one big one (my second is with a different bank, unfortunately). I'll find that out this week, when the paperwork arrives. The mortgage officer predicted that even by just 'modifying' the first loan, I'll save $200 per month!

After hanging up the phone I burst into tears, I was so relieved. I'd had no idea that my mortgage(s) were creating so much inner strife. I've been doing well with saving my money and planning for the future, and although my budget is tight and I'm working two jobs out of necessity, I feel much more secure (and lucky) than many people do right now. So I was a bit surprised at my reaction, to say the least!

Of course my pessimistic side is thinking that this is just too good to be true, and that when the paperwork arrives there'll be some hitch that the loan officer failed to mention in her very brief conversation with me. Then again, this might be just the thing that will allow me to breathe a little easier each month when my income falls next year. Heck, I might even be able to rent out my house without too much trouble and find a small, cheap apartment for myself, thereby saving more money and living closer to work (uh oh, there's my optimism rearing its shining head above the pessimism).

I'll let you all know how it works out!

America's 'Cheapest' Family. . .

While I was visiting family for the Christmas holiday, I had a chance to peruse a People magazine, which profiled the Economides family, billed as 'America's Cheapest Family'.

Although I couldn't find the story on People's online site, I did find this MSN video in which Ann Curry interviews the family about their frugal ways. It appears that this sudden onslaught of publicity is associated with the sale of the Economides' family's new book, entitled America's Cheapest Family Gets You Right on the Money.

Here's the video, which is quite interesting:

Visit msnbc.com for Breaking News, World News, and News about the Economy

It appears that this family doesn't mess around in the saving money department! Apparently, this family of SEVEN paid off a mortgage early on $35,000 a year (less than I make now, with only ONE mouth to feed). Since I'm starting the new year with a goal of shopping at thrift stores and buying primarily used goods, this was an intriguing look at this type of lifestyle and how it can benefit the bottom line.

Buy versus rent?

Lately, I've been considering whether I should either sell my house or rent it out, so that I can rent an apartment 'closer-in' as they say in Portland. 'Closer-in' means someplace much closer to downtown, to the river, to shops and coffee houses, and restaurants. To me, closer-in means being able to walk to the grocery store, getting to work on public transportation in 15 minutes rather than 45, and being much closer to friends with whom I'd like to socialize more frequently. This article from the Washington Post is typical of the reading I've been doing lately; and it was written in 2006, before the housing market really went bust!

Since selling a home is nearly impossible these days (even in Portland, which hasn't suffered from the craziness that other cities have), I've thought about renting out my house (at about a $350 dollar loss---meaning the rent I would get would probably not cover all of my mortgage). Then I would need to find an apartment to rent in the $700-$800 range (at the most), so my total rent plus $350 mortgage coverage would still represent a savings to me. This sounded like a great idea. Until I ran the numbers to determine my tax savings with a primary home mortgage versus the tax savings I'd receive by renting my house out.

What I discovered is that by renting, I would lose about $8,000 a year in itemized deductions. This is because I would have to offset the roughly $17,000 in deductions with my 'rental income' (which I'm estimating would be about $1200 for my house in my location). This would result in my paying more taxes. On the other hand, websites such as this one actually tell me that renting is smarter than owning right now anyway, even with the tax deductions taken into account!

The only way this makes any sense at all is if I purchase an extremely cheap condo (again, nearly impossible in the areas in which I'd like to live) so I can retain the primary home mortgage interest deduction AND add the rental deduction I'd get by having tenants in my current home.

Complicated? Yes. And me with my limited math skills---I'm not even sure I'm calculating any of this correctly (I used Schedule A and Schedule E on the IRS website to estimate all of this).

So what's a girl to do? It appears that it may be better for me to stay in my little house (which I do love, if not the location) for a while longer, until it really makes sense for me to either sell and downsize, or rent and buy a smaller, cheaper place.

Winning the war on debt. . . .

I am now less than $3,000 away from paying off my credit cards (again!) and becoming consumer-debt free. There have only been a couple of times in the last twenty years when I’ve been anywhere close, and I can almost taste the freedom. Then it’s on to the student loans and mortgages, but that’s another post for another day. . . .

After years of pulling out the credit cards to pay for clothing, gas, entertainment, car repairs, and travel, I’ve lived primarily on cash for the past five months. Although I’ve been ‘here’ before---meaning, I’ve vowed previously to deal with my debt---this time feels different. I truly believe that this time I’ll be successful. Why is that?

There are several factors, which, when combined, are helping me to finally face and conquer my debt ---and this time I know I will come out on top. Here’s why:

Discovering the blogosphere: debt has always been my ‘dirty little secret’, something to be hidden and tended to anxiously, while pretending to the world that my income was greater than my outgo. Last year, I discovered blogs---and learned that there are hundreds, probably thousands of people just like me, all of them struggling to banish debt from their lives. In writing my own blog, I feel like I have joined a community that supports and understands me and my ‘secret’. Not only have I been offered heartfelt encouragement from complete strangers, I have learned a great deal about the nitty gritty of saving money, increasing income, and getting out of debt.

Hiding my credit card: Of the many blogs that I peruse, and the many books that I’ve read on the subject of personal finance, debt reduction, and frugal living, one idea appears in about half of them. That is the notion that credit cards---in the hands of people like me---are a dangerous tool, which should be ripped from the wallet and destroyed. Having nursed my credit like a babe at the bottle, I could never wrap my brain around this. I decided on a half-measure: I would remove my credit card from my wallet and leave it at home, far from my reaching fingers. Well, I must be getting old, because I literally can’t remember where I put it! This has kept me from making quite a few purchases which---at that moment in time---I thought I HAD to have, whether it was a new pair of boots, a raincoat (of which I have plenty), an expensive haircut, or any number of unnecessary items. Perhaps I’ll never find my credit card; now that I have an (albeit tiny) emergency fund, I’m not as worried as I would have been five months ago.

Rethinking my attitude about ‘stuff’: I have been blessed to find a second job at which I can work from home, a couple of hours each evening. I do computer research in the field of environmental health---I read all sorts of articles about pollution, global warming, and toxins in our food and consumer goods. Depressing? Yes. However, learning about the role humans have played and continue to play in the degradation of the earth has made me much more aware of everything that I bring into my life. I pay attention to the packaging of my food and other items; I shun the offer of the ubiquitous plastic bag at the checkout counter, to walk my tiny purchase 100 yards to my car; I consider each purchase not only in terms of whether I want it, but whether I need it, and more importantly, what will happen to it when I’m finished with it? Will it go to a landfill? Is it biodegradable? Will it end up swirling in the Texas-sized vortex of plastic in the North Pacific Ocean? This has helped me to whittle down my purchases substantially, and conversely increased the amount of money I have available to make increased debt payments and increase savings.

In spite of my debt and the long hours at work and school, I feel incredibly lucky to have finally realized that I can get off the ‘earn and spend’ rollercoaster. That I have the power to change the way I live my life and how I spend my money. In September I’ll have paid off my credit card completely----after that I’ll begin the next phase of my journey toward debt freedom---and I’m looking forward to the challenge!

Frugal economy. . . . .

CNN has an ongoing series that profiles American families and how they're reacting to our slowing economy (i.e., the recession). It's called 'America's Money: In their own words' Today's profile caught my eye, because it's written by a man who is working a second job, to "pay the bills", just as I am.

I really wish these profiles were a little longer and more in-depth, because I'd love to know several things about this person: for example, just how much (or little) does a Vice President make? Is he truly living a "lower middle class" existence? Does the wife work? Do they have overwhelming student loans or other debt? A giant house? Is he driving a gas guzzler, since his gas bill is $170 a week (mine is $30 a month)?

I'm trying hard not to automatically judge this person and make assumptions about how his family is living. I look at my own situation (also working two jobs) and realize that everything is relative, after all. I have access to great public transportation (hence the lower gas bill) and make use of it. I have a wonderful public library where I can stock up on books, read magazines, and study in a warm and inviting atmosphere. I live in a tiny house, although with an admittedly too-large mortgage compared to my income. My car is old, but efficient and reliable. I have access to great health benefits, retirement plans, and tuition remission through my employment. Yes, I'm working two jobs, but I feel like I'm squarely middle-class.

It's interesting to read about how others are handling their own financial struggles, if only to help me realize that I'm not doing all that badly. . .

Vice president of information technology, 32, Denver, Colo.

We purchased a home last year and I'm proud to see my children live in a decent neighborhood close to a good public school and have a backyard to play in.

However, since moving, unexpected expenses and rising costs have created a situation of struggle. I do have a fixed-rate mortgage, but everything else is getting so expensive. Last week I spent $170 on gas alone. I've taken on a second job, and I know as long as our economy hangs in there and doesn't collapse, we'll be okay.

My biggest frustration is I work very hard to maintain a lower middle-class income and lifestyle. We don't go on vacations, or rent movies. We just hang out and do free or cheap stuff. But I still work a second job and I miss out on school events and struggle to feel okay explaining this to my son.

April zero-based budget. . . . .

I've found that a zero-based budget is working fairly well for me, although it does require some tweaking throughout the month as unexpected expenses arise. I also need to think about my 'fun money' allocation, as it seems that I use this money for items that I wouldn't normally consider fun (like the notebooks I'm going to buy today for my classes). As usual, I'll be updating this throughout the month.



Here are the links to my February and March zero based budgets, for comparison.

How I squandered my financial fresh start. . . .

New here? First read The Early Years, and then The Middle Years. . . .

Once upon a time, almost two years ago, I was debt-free (except for my student loan). I sold my house in California (just a wee house, in a rural part of the state---so my ‘take’ was less than $50,000 after three years of ownership). With the proceeds, I paid off my car, my credit cards, and my home equity loan, leaving me with about $15,000.

I took a giant breath and moved to Portland, Oregon, to start a new life and a new job (at a lower salary---but hey, I was debt free, remember?). Somehow, I now find myself once again a slave to credit card debt, saddled with a mortgage that is probably too large for my salary, and with over $50,000 remaining on my student loan. How did this happen?

I was so unused to having money in a savings account---an actual cushion! It felt so great, I was loathe to spend any of the money on piddly, every day stuff. So I used my trusty credit card when I visited Target, Home Depot, and Bed, Bath & Beyond, knowing that I had the money to pay it off every month----which I didn’t. Pay it off, that is.

I then used much of my remaining ‘house money’ to purchase a house in Portland---now, granted, the home I live in is even smaller and cozier than my California house, and cost less than the sale price of my California home----but it cost over $60,000 more than my first house originally cost, and with me at a lower salary than I was then, the mortgage payments now seem almost overwhelming. And of course, you know what happens when you move into a new house or apartment, especially if you’re an ‘owner’! There are needs, after all! More trips to Target, Home Depot, and Bed, Bath & Beyond----adding to my creeping credit card debt.

Each month, as I continued to live as if I hadn’t just bought a more expensive house on a lower salary, I would take a little here and there out of my savings account, to cover dinner out with friends, or the electric bill that came due at the end of the month, or the auto insurance premium that I hadn’t thought about until the day it arrived in the mail. And so it went. Until my savings account was so meager I began getting nervous. Which was a good thing, because that anxiety caused me to re-evaluate how I was living, and most importantly, how I was spending.

I think the combination of ‘starting fresh’ two years ago, a new outlook on life---free of credit card and auto loan debt, after all---and actual money in my savings account served to create a false sense of financial security. I bit off more than I can chew---almost. I am, after all, ‘making it’, as they say. I am paying my mortgages and other bills each month on time, and I’m even finding ways to pay off my credit cards---for the last time.

I now realize that I squandered what could have been my ‘financial fresh start’. I can kick myself for letting this happen, or I can learn from it---I choose to learn.

Credit card payoff. . . getting closer!

While sick at home yesterday, I took the opportunity to complete my tax returns, and realized that I would be receiving a slightly higher refund that I anticipated! Once the visions of new wedge sandals stopped floating above my head, I started getting excited about putting a larger chunk of this cash (my own money, after all!) toward my debt repayment.

This inspired me to list my remaining credit card debt, which can (hopefully) be seen in the spreadsheet below. . . .



I hope to have all credit debt paid off by October of this year, after which I'll start padding my emergency fund (currently at $1,000) and then work on my student loans ($50,000---ouch!) and my mortgages. By the way, at this time two years ago, I had NO credit card debt----I promise to write soon about how I squandered my financial fresh start!

I'm excited to rework this spreadsheet soon, to show the large refund amounts I'll be throwing at my debt, hopefully within the next two weeks!

How big is too big?

I ride the local MAX (our light rail system) back and forth to work, and I am so entertained by some of the conversations I overhear from time to time. Some of them make me laugh, and others make me think.

For example, this evening as I was on my ride home, I overheard a man talking about his "giant" house. Apparently, he and his wife own a 4500 square foot house----for the two of them. They only use 50% of the rooms, and the master bedroom takes up the entire second floor of the house. They have a three-car garage, and the man stated that he didn't really like the town they lived in; it was too "country".

There were so many questions I wanted to ask (but couldn't, as that would have tagged me as an eavesdropper): Why did they buy such a big house? Were they going to have children, and thought they would potentially use all of that space? Were they going to be caring for aging parents soon? Why did you invest in such a large home, in a town you didn't like? How do they justify the money spent on electricity, maintenance, insurance, and other costs of heating/cooling/protecting the house?

I'm trying not to be judgmental of this man and his wife. Maybe they had really good reasons for buying the McMansion. Maybe they bought, and realized it was way too much house for them. Maybe they can afford it, and don't mind heating and cooling a 4500 square foot house when they only use 2250 square feet of space (by the way, a 2250 square foot house is still over twice as big as my own little abode).

I'm so grateful for my cozy little house----it's expensive relative to my income, and I may have to sell it and downsize sooner or later, but for now it's the perfect nest!

Emergency Fund Dilemma. . . .

So, yesterday I received a statement in the mail from my mortgage holder (well, one of ‘em, anyway) indicating that my escrow account is predicted to fall short by $363. I can either pay the amount now (which would actually decrease my monthly payment amount by about $20), or I can pay it over the course of the next year, increasing my monthly payment by about $10.

I’m already stretched pretty thin from month to month, but the only way I can pay $363 right now is to take it out of my Emergency Fund (currently at $1,000). That would mean that next month I would pay less on my credit card debt --- basically just the minimums --- in order to work on getting my EF up to $1,000 again. What to do, what to do?

The idea of lowering my monthly mortgage payment, even if by $20, is very, very attractive. I would love to pay down my credit debt, too, and worry about losing my steam in paying extra every month. Is it important that I’m currently paying 4.99% on one credit card (balance just over $3,400) and 0% on another (to be paid off completely with tax refund!) versus 6.54% on my mortgage?

Now, I’m no math whiz (hence, the astounding amount of debt compared to my measly salary) but it seems like a better deal to pay the $363 now rather than over the course of the next year.