Moving Money

This week, Steve and I paid off our real estate debt! Bow chicka wow wow! This is a major victory in our goal to pay down debt. In order to take down this debt we had to move some money around. It took some craft and patience, but believe me it was totally worth it.

I’m several hundred miles away from my desk, so I  don’t have the exact numbers. Please forgive my estimates as I attempt to explain this money moving business in a way that isn’t confusing. This may not go smoothly because Moanna is watching some crazy kids’ show that keeps distracting me…

At the beginning of October, I received an offer from one of my credit cards for a 0% interest rate on balance transfers and bank account deposits (as in depositing money from the credit card directly into my checking account) until May 2011 (it may have actually been June 2011). After May 2011, the APR will be at 10%. This is the second time a credit card has extended me a 0% offer in the past four months. This must mean that my credit score is improving!

This card has a limit of $7,300.00 and at the time had a balance of $3,000.00 with an APR of 9.99%.

Our real estate debt was about $7,000.00 at 15% (ish). It wasn’t scheduled to be paid off until 2017 if we continued making minimum payments. YIKES!

We had $3,000.00 in the bank we could afford to pay down debt with.

So…

We took the $3,000.00 from the bank to pay off the $3,000.00 (at 10% APR) balance on the credit card.

When that payment cleared, we transferred $7,000.00 (at 0% APR) from the credit card into the bank account. There was a 4% one time charge to move the money.

Once the $7,000.00 was available in the bank account, I called up the real estate debt and paid that $7,000.00 (at 15%APR) off! YAY! YAY! YAY!

That may be a little confusing. So, I’ll reiterate. By paying off the 3k on the credit card we wiped out the 10%APR. That way when we did the balance transfer from the credit card to our bank account, we were able to get the full amount we needed to pay off the real estate day and it would all be at 0%. Does that make sense?

I know that this stunt means that we have actually acquired more credit card debt, but by moving this money around we have knocked $3000.00 off of our total debt! This movement also means that ALL of our credit card debt is now interest free until May 2011! This is going to save us a lot of money, and will allow us to knock out our debt much quicker. And, with our credit cards sitting at 0% for the next six months, we can focus on paying off the car which is at 12%(ish). As usual, we came across a financial victory in a way that might make financial advisors squirm in their pants. Would you expect anything less at this point? However, it is our financial creativity that has allowed us to be successful in kicking our debt’s butt!

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Please note that I am not giving you financial advice. This is simply what has worked for us, and I am sharing our success stories (and our stories of defeat). Please consult a financial advisor or lawyer when making financial decisions.

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Half Down, Half To Go

In a lot of your eyes, this will seem like a financial NO-NO, capital NO, capital NO. You may very well be right, especially if you are from the school of thought that you should never ever for no reason what-so-ever touch your retirement or any form of savings for that matter. However, I did. I committed retirement sin.

I began maxing out my 401k after the one year waiting period that my company requires before they will match your contributions up to 6%. I enrolled and never thought much else about it. I don’t even think I checked my 401k after I picked out what funds I wanted my money to be placed in. Periodically I would get statements in the mail telling me how I was doing, and sometimes I would get stockholder reports from one of the funds my money was in. Other than that, I didn’t think much about. I didn’t even look at that line on my paychecks where it showed the deduction.

A couple of weeks after leaving my company, I received mailed from my employer telling me that I had to take action within thirty days (maybe it was sixty – I can’t remember). I could withdraw the money and take a hard tax hit, or I could rollover my 401k to the IRA of my choice. Withdrawing came with a lot of warnings about the taxes I would have to pay and how much money over the next fifty years I could potentially earn. There were disclosures and disclosures for the disclosures. I read through the novel a few times, looking the dollar signs and warnings.

I had made up my mind, but I wanted to see what Steve thought, so I passed the letter over and asked for his opinion. He took one look at that stack of papers and goes, “I’m not reading all of that. What does it say?” I summed up the options and warnings for him. He came to the same decision that had, but much much quicker.

“We don’t have time to research all of the zillions of IRA’s out there.$500 dollars and some change that we could earn over the next 50 years if we roll the money over isn’t is not worth it. We don’t even have enough in there for the tax hit to be that big of a deal.”

Thank the stars, we are on the same page, but what do we do with the money once it comes? I could buy a serious camera with that kind of money. I could buy a camera and the new clothes that I am in desperate need of with that chunk of change. But, I know better than either of those. Either of those decisions would make me the perfect picture of a financial screw up, and I don’t want to be that stereotypical in this financial move. The very first time I looked at the papers I knew I wanted to apply every last cent to debt.

Steve agreed.

I submitted my request and waited for the check to come. In the less than a week, the check and a letter telling me what a huge mistake I made for not rolling over the money was waiting for me in the mailbox. The urge to shop returned for a moment, but then I remembered you. I didn’t want to have to tell you guys that I had fallen into a financial sand-trap (according to some of you not rolling the money over was the sand-trap). What would you think of me if I shopped and bought a camera with it? I can’t even think about that; it’s too scary.

We were about to take the check to the bank and deposit it, and Steve got cold feet. “Are you sure we should apply this to debt? We depleted our bank accounts pretty hard with this move. If we use this money for rent and the other bills, then my next paycheck can go back into our safety account.” I considered it for a moment. It did make sense, but I really and truly felt that we would be OK if we put the money straight to debt and never thought of it again. Perhaps we need to feel the burn and not have “extra money” while we pay down debt and build the safety account. Steve resisted for a few more minutes, and then agreed. Side note, if we for some reason can’t pay our bills this month or next month (I highly doubt that will happen), Steve will never let me live it down.

We deposited the money, and as soon as it posted to my account, I logged onto my credit card and made the payment. Every single penny went to the card.

You want to know the numbers? Of course you do, it’s the best part. Well, for me it’s the best part.

My 401k had $3641.72. I can’t find the paper right now. It may have been more than that, but it was less than $4000.00. After the tax hits of 20% and a 10%  penalty for being under the age of retirement (not sure the exact age), I was left with $2,801.32. Taxes hurt don’t they?

The card that I am after right now had a balance of $5,669.26 and an APR of about 14%. After applying my 401k check the balance dropped to $2867.94. That’s right! I cut the balance of that card down by darn near half!

**Victory Dance**

What to hear more numbers?

If we continued to make only the minimum payment of $129.00 on that card, it would take us 26 years to pay off, and it would cost us $16,457. 25. If we increased our monthly payments to $198.24, it would take us 3 years to pay off and cost us $7,136.64. You and I may do math differently, but in both of these case scenarios, the tax hits and the loss in potential income over the next 50 years has nothing on how much money we are saving in debt interest.

This card will be paid off by the end of the year. That’s our plan. Once this card is paid off, the rest of our credit card debts are interest free the next nine months to a year so it will take us not time to knock them out. If things go as they should, we should be able to pay off all of our credit card debt by the end of the year. However, if life continues to happen and that’s not possible, we will be OK if only we manage to knock out this card.

**Victory Dance**

I know some of you are rolling your eyes and considering never reading my blog again because of the shameful 401k move I made, and that’s OK. Once our debts are paid off, we will focus on retirement and longterm savings and make you proud.