The situation is this.  My wife and I have been living in our current home for almost 6 years.  While the interest rate on our mortgage isn’t astronomical (6.75%), it is still a few points higher than what we could get now if we refinanced it.  Also, we have a second mortgage that is at 9%, but is pretty small in comparison to the first mortgage.  With rates as low as they are, I though that it might bear looking into refinancing the loans.  I had an appointment with our loan officer and based on the data I came home with and some other fiddling I’ve done, here’s what I’ve come up with.

If we refinance, we should be able to get in at around 4.375%.  That’s a pretty good drop from the current rates.  Because of closing costs, I estimate that it will take about 2.6 years for the refinance to be a positive thing.  If we were to sell at any time before that, we’d be losing money if we refinance.  Of course, the catch is that we are planning (hoping really) on moving to something a little bit bigger in the next 2 years.  Which, if that happens, would mean that the refi would be a bad idea.

If you’re following closely, you’ll notice that there really isn’t a need for advice there.  Well, here’s the rub.  If we refinance, our overall payment would be reduced by over $100.  If I were to take that $100 and use it to pay down a credit card or any other bill, it would be a great help.  Also, if I use it to pay a credit card that has 12% interest, I’ll be saving that 12% on that $100 which makes the refi pay off quite a bit faster.  *I should note that I am not all that good with math so I don’t know how to figure in the savings on CC interest into the equation.  If you do, feel free to say so in the comments.

So, here’s your call for advice.  What would you do?  Would you not refi and just bear with it since you’re planning on moving in 2 years?  Or would you do the refi so that you could reduce the payment and use the extra to help pay stuff off?  Leave your advice in the comments below!

Mortgage Refinance Advice Requested is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Identifying Your Debt

There are three main types of debt that you can have, you may have just one or two or you may have all three but it is important to be able to tell them apart as each needs to be managed differently. To identify your debt, look at whether it is:

Mortgage debt. This is the debt you have gone into to buy your home or an investment and if you are in mortgage debt for an investment property, the interest on this debt is often tax deductible. Mortgage debt can also be a good kind of debt because often the amount you owe is less than what the home is worth and if you are in desperate need of clearing your debts you should be able to sell your home and make a profit from the equity which you can then use to repay other more crippling debts.

Installment debt. You may have installment debt in the form of a car loan or a personal loan and installment debt will be paid off over a set number of payments of a set amount.

Revolving debt. Revolving debt must be paid each month and the amount you don’t pay off is charged interest. As a result you can be making the minimum payment each month and take over 10 years or longer to repay the debt in full. Revolving debt also has a high interest rate and all of these factors combined can cause many people a lot of financial stress because revolving debt is hard to manage and often misunderstood.

Build a Step by Step Program to Reduce it

When you are trying to get out of debt you will come across any number of services, programs and systems which often encourage you to download, join up and ultimately pay for help in taking control of your debt. However here you will find seven simple steps which you can adapt to your debt and your situation for a free debt reduction solution.

• 1 Decide to be debt freeSounds simple doesn’t, that you can just decide one day that you are going to be debt free,however the first step really is as simple as that and while it may not be easy to admit that you need to take serious control over your finances, once you do the decision will feel liberating.
• 2 Make a record of existing debtBefore you can decide where you are going and how you’re going to get there you need to know where you are and you can do this with tools you already have, either a piece of paper or a spreadsheet program on the computer. Create a separate sheet of paper or worksheet on the computer for each of the three types of debt you have. Then as you list each type, record the minimum payment amount required, how much you need to pay to reduce the principal, the interest rate you are being charged and the balance you owe. Arrange each debt entry in the order of the amount you owe, with the lowest at the top ending in the highest. With your list collated make calculations of how much money you owe to your debts each month.
• 3 Make a budgetWhen you make a budget you need to be very honest and include everything you spend in a month from food, services, utilities and insurance to clothes, alcohol, smokes and coffee. Don’t worry if you forget some things or can’t quite remember how much you spend on lunch at work because that is where the next step comes in.
• 4 See how your budget worksNow that you have all of your expenses and income in black-and-white try sticking to your budget for a least three months to determine how accurate it is and find areas which need adjustment. Over the three-month period you will be able to develop an accurate and workable budget as long as you make sure not to use any form of credit to meet your budget requirements, and once you have your budget locked in you can start your debt reduction program in earnest.
• 5 Start paying off debtLooking at your list of debts, focus on the debt which has the least amount owing and use the funds from your budget which you now know are available and make a payment which is larger than the minimum payment required for that debt. Even if the minimum repayment required goes down as you reduce the debt do not reduce your payment, continue to pay off your debt with the money you have spare in your budget. When that debt is paid off you will have more funds available in your budget.
• 6 Celebrate your repayment successIt is very important to celebrate your successes as this is where many debt reduction programs fall down because they are focused on the end goal of being debt free, when really it is such a long process that you need some light a little closer than the one at the end of the tunnel. Make sure you celebrate with just a small treat which you can pay for in cash otherwise you will be undoing all of your hard work to this point.
• 7 Snowball your surplusOnce the smallest debt is repaid go back to your list and start back at step 5 to repay the second smallest debt, because now you will have the surplus amount from your budget plus the amount you were paying to the debt which is now repaid. What was once a small budget surplus is now snowballing into a larger and larger repayment amount, allowing your debt reduction program to gain momentum as you approach the larger debts. Another important part of the snowball surplus repayments is making sure to add any windfalls you get to your repayments, this means if you get a raise at work, a healthy tax return or cash in a birthday card make this one-off larger repayment as part of your snowball repayment amount to speed up your debt reduction program even more.

  The snowball system of this debt reduction program works because it does not allow you to go backwards so even though you may feel as though you are trundling slowly along, it is important to remain focused and believe in the system to put yourself in a better financial position.

Alban is a personal finance writer. He offers tips on how to manage personal finances, debt and how to choose the best low interest credit cards online

Steps of a Debt Reduction Program is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Now, before I go on to tell you what it is we are doing with that money, I need to say something.  For the last several years, we have spent nearly every spare dime we have on paying off debt.  We still have debt that needs to be paid off.  However.  Despite my hate for debt, I’ve come to realize that you cannot let other things slide in order to pay off that debt.  With that in mind, here’s how we’re spending our refund.

We’re getting a new kitchen.  The cupboards in our kitchen are original to the house (circa 1950) and have been painted so many times that they no longer close.  The drawers grind against their frame and the resulting paint dust and wood dust falls down from them onto anything in the cupboards below them.  We have to wash our pans before we can use them because of the dust.  The linoleum on the floor is peeling up.  The carpet is ancient, smelly, and stained.  If you took just the kitchen from our house, it would fit right in with many of the run down slum rentals in town.  We want to move up to a newer (read bigger) house soon, so we need to make this house sellable.  In my opinion, with the kitchen in this condition, it would not sell for what it is worth.  So, we went and bought all new cupboards, countertop, and flooring. Oh, and a dishwasher.  That’s a certifiable luxury, but it helps that we bought it all on sale.  All of the supplies came in at about $2300.  There’s still a few odds and ends that we’ll need to purchase, but we should be able to keep it at about $2700 or less.

This weekend, my father is coming to town to help me install it all.  With any luck, come Monday, it will be mostly finished and usable.

If the plan works, we’ll still have about $800 or so left over.  And with that, we’re buying a couch.  And maybe a loveseat.  Depends on the sale I suppose.   This could be classified as a luxury that we don’t need if it weren’t for the hole in the one cushion, the rips in the spring lining that allows everything to fall between the cushions and disappear into the couch, and the stitching that is coming out at all the seams.  The couches that we are replacing are in dire need of it.  We got them free and have used them for several years.  The couches we had before that were hand me downs and garage sale finds.  It’s time for something new.  And, yes, we could go to garage sales and find new used stuff, but we’ve been saying that for at least a year and haven’t done it, so we’re going to splurge a bit.

When we’re done with all of that, we’ll go back to trying to pay everything off.  My wife’s new business is growing well (that’s another post), and her income is leveling off some, so we can more properly budget for debt repayment.  We’re leaps and bounds from where we were when we got married, and with any luck, 2011 will be the last year we spend with any real debt aside from a mortgage.

What are you doing with your refund?

Tax Day: What We’re Doing With Our Refund is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Your spouse is not responsible.  Let’s assume for a minute that you don’t have a spouse that is running around buying up all the $700 pairs of shoes in town.  Stop blaming your spouse.  He/She is not responsible for the debt that your in, your blown budget, and your lack of an emergency fund.  Your spouse, however, is an excellent tool to use to overcome all of those problems.  Get on the same team as your spouse.  Your spouse can keep you accountable better than anyone else.  Discussing the finances with your spouse is a good thing.  Get them on your side.

The Credit Card companies are not responsible for your debt and the lack of paying it off.  They may hold the note on that debt and encourage you to use your “credit”, but ultimately, it is you that uses it.  And it’s you that chooses to sign the receipt.  And it’s you who chooses to continue to carry that plastic in your wallet. If  you can’t use credit cards responsibly as a tool, get rid of them.  No Excuses.  Everytime you sign the slip, you accept responsibility for the damage you’re doing.

You have taken responsibility for so many of the things in your life from feeding yourself (I assume) to cleaning yourself (assuming again) and even to dressing yourself (yep, assuming.).  Why, then, do you blame everyone else for your financial woes?  Would you blame them if you fed yourself cardboard?  If you tried to bathe with sewer water?  Or if you forgot to put your shoes on and walked on sharp stones?  No, you wouldn’t.  Stop trying to pass the blame for your monetary faults to someone/something else.  Your actions are directly responsible for where you are.  The moment you take responsibility for those actions and their results is the moment you are free of their bindings.  It’s the moment you can begin to feel free of them and can begin to correct them.  And once they are corrected and you have broken those old habits, you will be free to develop new habits that will set you free from that old life.

Take responsibility.  Change yourself for the better.

You Are Your Own Worst Enemy is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

In the process of paying off our debt and saving money, many of us will be faced with a moral or ethical dilemma.  Perhaps you bought a bunch of things at a department store and the teller didn’t notice that one of the items rang up for less than it was supposed to be.  Or maybe the teller only rang up one item when there were really two.  Many of us have been faced with just such a situation.  And many of us, in our struggle to reduce our spending and debt, probably didn’t say a thing.  I know I have.  And I felt guilty about it.  Morally, and ethically, we have a responsibility to pay the correct price for an item, and to pay for the correct amount of items.  Even though I admit to not doing anything, I do try to keep myself honest.  Ill gotten gains are gains you’re likely to lose.  Call it karma, or whatever you like, you’ll feel the reverberations of your acts.

Perhaps more-so than in paying off debt and saving money, ethical and moral dilemmas can arise after we’ve paid it all off.  Suddenly, we find ourselves with an abundance of spendable money that we can save or do what we want with.  It’s not earmarked for any debt, and we’ve already paid ourselves.  The situation has changed, but we still have a moral and ethical obligation to do what is right.  If you’re investing your money, do you invest in so-called “sin stocks”?  The stocks of cigarette and alcohol and other indiscretions.  Again, I know I have.  I am still a shareholder in the parent companies of both Marlboro and Camel.  I’ve owned others in the past.  Depending on how you feel about those companies, a ethical dilemma could come up.  As a generality, those companies have rather solid stock and usually pay dividends.  If you feel that those companies are responsible for cancer and death, can you ethically allow yourself to support them by becoming a share owner of that company?

As debtors, we all despise the credit card companies who charge double digit interest rates and hide fees around every corner.  Banks too.  As someone who can now invest money rather than paying those credit card companies and banks, deciding how we feel about those rates and fees can be another dilemma.  If you’re one of the lucky ones  whose state has allowed access to the peer-to-peer lending companies, you have the ability to invest in loans that carry rates that are very much the same as what a credit card company or bank would charge.  The table has turned.  If you were against it when you were paying the rates and fees, can you ethically charge them?  Morally, should you?

I think that many of us look too closely at the technical aspects of personal finance.  We study amortizations schedules and debt snowballs.  We talk endlessly about our retirement funds and the ways that we are going to build them up.  And, while it is there as an undercurrent, we sometimes fail to see the moral and ethical currents that run in the background.  And sometimes, we allow our technical expertise and know-how overcome our moral and ethical compasses in order to make our debt snowball roll a bit faster.

If you truly want to win at personal finance, you have to find your moral and ethical limits and remain steadfast in their direction.  We all fail to do that occasionally, but, as the old saying goes, you’ve got to get back up and try again.

Ethics and Morality in Personal Finance is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

The one dim spot was that you could only claim the forgiveness payment for three years and then you were done.  Today, however, I got a letter in the mail from the North Dakota University System (the administrators of the program) telling me that the ND Legislature extended the program in the 2009 session.  Yippee!  But wait!  There’s More!  Not only did they extend it so you could claim it for four years, but they upped it from $1000 to $1500!  WoooHooo!  Oh, and they changed the name of it as well.  Now it’s Science, Technology, Engineering and Mathematics Loan forgiveness program (S.T.E.M).  All I’ve got to do is fill out some paperwork and send it in on time (May to June) and, if approved, they’ll pay $1500 of my student loan off for me.  That’s another 5% of my original principle.  For a total of 15% of the principle overall.

I knew there was a reason I stayed in North Dakota!

P.S. if you live here too (tell me) and you think you might meet the requirements, you can get information on the program at www.ndus.edu ; (Or you can click the STEM link in the next sentence.) click on Student & Parent Information and then Financial Aid.  There’s a link there for the STEM program.

North Dakota STEM Loan Forgiveness is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

And here’s why.  Actually, the laundry list of reasons is a bit too long for me to go into detail, but let me discuss the most recent issue that is prompting this post.

I owe them money.  All told, it’s around $1300 that I owe them.  Not a big deal, and manageable.  Unless your Innovis.  Beginning in November of last year, I’ve had a budgeted agreement with them to pay them $45 a month.  I set it up on my bill pay to make sure that I won’t miss a payment and all is well and good, right?  Wrong.

Today, I got a phone call from their business department (read bill department) requesting a call back.  I called back and got a rep.  What she explained to me is that the policy of Innovis is to get at least 10% of the outstanding bill as a payment.  Fine, I told her, but I can’t pay that.  We only have so much money in the month and $45 is what we can afford to send to them.  I was then informed that unless they get the 10%, there is no way for them to guarantee that my bill will not get reviewed for collections.  What?!?

In a nutshell, they would rather sell my account to a collection agency and get 50% (or whatever an agency pays for debt) of the money they are owed instead of carrying the bill and receive all of it $45 at a time?  What kind of hair brained idea is that?  By being a good consumer and paying my bill on time and consistently, they are going to irreparably damage my credit report?  Some reward for doing the right thing.

I have half a mind to ask them to send it to collections now so I can begin negotiations with the collection agency to reduce the bill.  Unfortunately, I don’t know if that would affect my families ability to receive medical care there.  Not a big deal for me, I switched to a different medical facility a while ago, but Innovis has the only Pediatrician in town.

Innovis is the worst health facility I’ve ever dealt with.

And thanks for reading my rant.  I know I feel better.

Innovis Health Stinks is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

One thing that I’ve noticed is that as the payment goes away, the urge to buy another gets stronger.  It’s like I’m trained to have that payment.  And perhaps I am.  Maybe in all the years that I’ve been paying a payment on a car, it’s become ingrained in my psyche.  Or, perhaps, it is the urge to get something newer, fancier, and prettier.  Something that isn’t the same old car that I’ve been driving for the last 3 years.

But, in my (our) effort to eliminate debt, we can’t do that.  Let’s forget that we just can’t afford to take on another payment (even if it would be replacing one that is going away).  Our goal is to have a little debt as possible.  Buying a new(er) car would be a major set-back to that goal.  Not only would it add more debt, but it would also reduce our ability to payoff the debt that we have remaining.  And, at the moment, we need every penny we make to just get by.  (I’ll be going into more detail on that in a later post)

For now, I’m starting the countdown to car payment freedom.  What should I do to celebrate?

One Month to Car Payment Freedom is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Being debt responsible means taking responsibility for your debt and it’s payoff without making excuses or trying to find easy ways out through debt write-off, negotiation with creditors, or bankruptcy.  In a nutshell, if you signed on the dotted line, you must pay it off.

Why must you be debt responsible?  The most commonly referenced reason that you must be debt responsible is that, by signing the note, you were guaranteeing that the debt would be paid.  You also accepted the conditions of repayment.  Some of those conditions, such as interest rate, are somewhat negotiable even after you sign the note, but not the amount of the actual debt.  The most important reason for being debt responsible (to me atleast), is the moral requirement.  Morally, whether you look at it religiously or secularly, you have a responsiblity to repay the debt.   Again, it goes back to your acceptance of the debt and it’s conditions.  Morally, you have a responsibility to uphold your part of the bargain.

Luckily, for most of us, it’s extremely easy to be debt responsible.  We just have to pay our bills each month.  But what happens when an emergency strikes and you can no longer pay your bills?  That depends.  Can you really not pay your bills, or can you not pay your bills because you have to go out to Red Lobster next Thursday?  If you really, truly cannot pay your bills, you have what is one of the only exceptions to any of the above rules.  You are free to negotiate as much as possible to reduce your payments, delay your payments, and even reduce or eliminate your interest payments.  Only in the most extreme cases should you try and reduce the debt or eliminate the debt.

Being debt responsible isn’t always fun.  (Who am I trying to kid?  It’s never fun.)  But, it’s the right thing to do, not just morally, but for your personal finance as well.

Being Debt Responsible is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Let’s try a few examples.

I’ve been keeping my eye on LCD HD receiver televisions.  With the big switchover in Februrary and all the fear marketing going on about the loss of signals, my family may need a new television.  We don’t currently subscribe to a cable service, so we get our tv over the airwaves and will need a HD tv or a subscription to cable.  The tv’s that I’ve been looking at are in the $500 range.  Not a huge amount for tv’s nowadays, but quite a bit for my debt averse family.  Each time I look at them, I have to ask myself if having television is worth $500 to me.  We currently don’t have cable and we only receive one channel over the air.  And to be honest, it wouldn’t be a huge loss to us.  Except.  Except that I like to watch Football in the fall.  Except that my wife is addicted to COPS.  Except.  Except.  Except.  With each exception, the TV or cable subscription becomes more and more worth it to me.  I become more willing to spend the money to get the TV or Cable because of them.

Much like cable, there are some services that demand the question too.  In my hometown, there is only one full service gas station.  All the rest are self service.  The full service station charges $0.02/gallon more for their gas.  This is a non-question for me.  I don’t mind filling my tank up.  I only end up filling up about once a month, so it isn’t a big deal if I have to stand and pump gas for a few minutes.  However, with temperatures falling (it’s about 30 here today) I can certainly see why there might be some people who are asking themselves if the extra $0.02 per gallon is worth staying in the warmth of their car while someone else fills the tank.

The more my wife and I budget and track our money, the more often I find myself asking this question.  Is this service or that item worth the extra money?  Is the convienence worth paying more for or am I just being lazy?  More and more, I find that the answer is No.  In many cases, the convienence isn’t worth a little more slavery to debt.  Each penny that I spend on that convienence is another penny that I cannot use to pay down debt.  Maybe my answers will change when we get rid of our debt, but I think by then our lifestyles and attitudes will have changed significantly enough that the answer will often still be no.

How Much is It Worth to You? is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.