Debt Free Adventure!

Pay Off Debt – The Hybrid Debt Snowball Fight

Matt Jabs — Tue, 10 Nov 2009 09:54:53 +0000

My wife and I are entering week 6 of Dave Ramsey’s 13 week Financial Peace University course.

Though prior to attending FPU classes we had already built up a healthy anger toward our past deficits… joining FPU put us over the edge and helped equip us for the inevitable Debt Snowball Fight we would soon find ourselves smack dab in the middle of!

3 Things We’ve Solidified after 5 weeks of class:

We finally nailed down a solid budget – We were operating by a “loose budget” but it was not nearly as sustainable or accurate as what we have now. For those who have been trying for months to nail down their budget – don’t give up – it took us 10 months, but now we have one and we LOVE it.
We implemented the cash envelope system – We are using this in tandem with our Spending Journals and absolutely love it. I found unabashedly that understanding how well this curbs spending cannot be realized without practicing it first hand. We still record every purchase but only use our Spending journals to record debit card transactions, while all cash transactions are recorded on the outside of each individual cash envelope category. I will be writing about this in greater detail soon.
We officially started our debt snowball – Today’s featured topic. Dave Ramsey (”make personal finance personal”) suggests the “debt snowball” method of debt repayment over the “high interest first” method. Dave’s general debt repayment rule of thumb is good for people who want a set-it-and-forget-it plan – and for people who thrive on the emotional “big wins.” Personally, just having the plan in place is the emotional win for me. Don’t get me wrong! I will leap for joy as each debt is paid off. But boy do I love it when a financial plan comes together!

Accelerated Debt Repayment – It’s a Fight!

Photo courtesy of Princeton University Archives

Debt Snowball fights with those you owe can hurt if you don’t carefully plan your strategy. Using the proper accelerated repayment program will save you thousands and leave your creditors eating snow!

The Debt Snowball, Debt Avalanche, Debt Tsunami, and Debt Snowflake are all good repayment strategies… just make sure you pick the one that fits your situation and run with it! Debt repayment isn’t a game… it’s an all out war! Your creditors will bring their A-game to try and keep you in debt until you pass on to go be with the Lord. What are you gonna do about it?

Here is what works for us…

Our Debt Repayment Strategy

Despite the fact that I am drawn to a strict mathematical solution, it looks like I will end up employing a hybrid debt repayment strategy. A combination of the high interest strategy, and the amounts owed (debt snowball) strategy.

Of these three plans I choose - The Jabs Hybrid Solution:

The Debt Snowball Solution

The Highest Interst Rate Solution

The Jabs Hybrid Solution

Lending Club Loan – least owed

Lending Club Loan – highest

Lending Club Loan

His Student Loan

2nd Mortgage

Her Student Loan

His Student Loan

2nd Mortgage

1st Mortgage

Her Student Loan

1st Mortgage – most owed

Her Student Loan – lowest

1st Mortgage

How Much Money and Time I’ll Save

For those of you who do not know, Dave Ramsey – creator of the Financial Peace University course we are currently taking – advises FPU participants to pay off their debt according to The Debt Snowball plan (paying debts in order from smallest to largest.)

I calculated it out last night and found we will save $1,878.31 by paying off our 2nd mortgage before my student loan… even though it carries a larger balance. Not only will we save nearly $2k, we will also pay off the both loans two months earlier that we would by using The Debt Snowball plan.

Do What Works for You!

To help discover your best repayment plan of attack, use these two calculators:

What’s The Cost Debt Snowball calculator
Interest Grows Debt Snowball calculator

I didn’t pick my method of accelerated debt repayment because it is the best solution for everyone… I chose it because based on the mathematics, The Jabs Hybrid Solution of debt reduction works best for our situation. You need to do the same.

Layaway – Buying Clothes on a Budget

Matt Jabs — Mon, 09 Nov 2009 15:18:59 +0000

I’m bringing Layaway back!

That’s right… all the cool kids are using layaway again. If you didn’t hear, don’t feel bad – I’m glad to shed light on this oft forgotten friend of the frugal.

What is Layaway?

Layaway… is a way to purchase an item without paying the entire cost at once. However, rather than taking the item home and then repaying the debt on a regular schedule, the layaway customer does not receive the item until it is completely paid for. - Wikipedia

Layaway started during The Great Depression because folks simply didn’t have enough cash reserves to make most purchases. The programs stuck around for many decades before phasing out during the 1980’s. By the 1990’s merchants began offering store credit cards, charging interest, and making a killing. Once consumers bit, credit cards took over and most merchants viewed layaway programs as just another unnecessary cost and cut the cord.

With the advent of the 2008 financial crisis, many stores who did discontinue their layaway programs have begun jumping back on the bandwagon. Families are actively seeking out stores that do… especially around back-to-school or holiday shopping!

Why use Layaway?

By no means is this list meant to be exhaustive, but here are a few solid reasons to reconsider this old school frugal fashion custom.

Using layaway will teach you and your children the proper relationship between saving and purchasing – no money, no goodie.
Using layaway trains you to use “saved money” rather than credit cards thus avoiding having to pay interest for your purchases.
Using layaway will help you to ween yourself off the instant gratification boom that has plagued America for decades.
Using layaway gives you more time to properly contemplate your purchase to better determine whether or not you actually need it.
Using layaway helps you spend less since you have to pay for the purchase before you get to take it home.

My recent Layaway Love Story

The coat and receipt you see above are both from my own personal layaway experience… from yesterday.

November 2009 marks the adoption of The Jabs Family Envelope System. One category that never received any love before we started using cash envelopes was the clothing category. For the last 6 months or so, my wife has very patiently foregone any clothing purchases for the betterment of our family budget; and although I appreciate her sacrifice I realize not setting aside money for clothing is not sustainable in the long run. She works a professional job that requires nice clothes, and I am looking to simplify my wardrobe by getting rid of 80% of my existing supply and buffering/replacing it with extremely high quality, long lasting and durable replacements. We have also lost over 60 combined pounds over the course of the last year and are both to small for a lot of our existing wardrobe.

In light of these facts we decided it was important to create and designate money to… a Clothing Envelope.

I won’t lie, it is fun to have money set aside specifically for clothing each month. Since November is our first go at setting an amount, we went with $60 each. Now that I have a set amount, it is one of my goals in life to get the highest quality clothing, for the best possible price. I have been wanting a warm, durable, winter Carhartt jacket for years now but just never got around to buying one… so I decided to make it happen. After church yesterday we stopped off at Tractor Supply Company in search of the perfect Carhartt coat. It did not take me long to find it… but it cost more than I had in my envelope. What should I do?

Enter Layaway…

My purchase turned out to be about $85 for the coat and a removable hood. The coat is super high quality and can be worn in just about any cold weather situation. It will last me for years and years, has incredible reviews, and is extremely warm and functional.

Since the store I was at offers a layaway program, I decided to take advantage. I will use $40 from my November clothing envelope, and will purchase it next month with $45 additional from my December clothing envelope.

Which Stores Offer Layaway?

I cannot list each and every store, but here are a few who do or do not currently offer layaway:

Stores that do NOT… Walmart (stopped layaway program in 2006), J.C. Penney, and Target to name a few.
Stores that do… K-Mart (champion of layaway), Burlington Coat Factory, Sears, TSC, Toys R Us (for big ticket items), Best Buy (some locations), T.J. Maxx and Marshall’s (some locations.)

Will you become a layaway enthusiast?

Up until yesterday, I had not used layaway since the early 1990’s when my parents employed it to secure our school clothes… that is nearly 20 years! Although now-a-days I usually save my money before making a purchase, I was happy to discover the layaway programs of America’s retailers were still alive and well.

What about you? Will you be using layaway any time soon?

Is The $6,500 Homebuyer Tax Credit Retroactive for Existing Non-First Time Home Buyers?

Matt Jabs — Fri, 06 Nov 2009 21:44:23 +0000

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Many people want clarification on exactly who is eligible for the new $6,500 homebuyer tax credit. Read on to see whether or not you qualify.

Obama Signs Extension as Expected

As expected, President Barak Obama signed the $24 billion stimulus bill into law this morning. The measure deals primarily with extending and expanding the homebuyer tax credit along with unemployment benefits and business tax credits.

A question looming large on the minds of a lot of many people is whether the $6,500 homebuyer tax credit will be retroactive or not. Meaning, if you purchased your home before the inception of the tax credits, are you eligible for a credit?

Unless Congress has a sweeping change of heart, to the discouragement of many American home owners the answer is NO. As I mentioned in an article earlier, the wording in the bill goes like this, “shall apply to residences purchased after the date of the enactment of this Act.” According to the bill the credit is being expanded to include a $6,500 tax credit to non-first time home buyers who purchase between November 7th, 2009 and May 1st, 2010.

So Exactly WHO gets the $6,500 credit?

Non-first time home buyers who have lived in their previous residence for at least five out of the last eight years but are selling that home and buying a new home by May 1st, 2010. The new home must be used as a primary residence.

And Exactly WHO gets the $8,000 credit?

First time home buyers who purchase a home before May 1st, 2010. The new home must be used as a primary residence.

Please note that… any home owner who sells the newly purchased home or ceases to use it as a primary residence within three years of the purchase date must repay the credit. And in both situations the yearly income limits are $125,000 for individuals and $225,000 for couples.

Why Not Make the Homebuyer Tax Credit Retroactive?

When considered from the perspective of why the legislation was enacted in the first place, not extending the tax credit to existing home owners makes perfect sense. They originally extended the credits to new buyers with the purpose of stimulating the housing market. Simply passing the credit on to everyone who has purchased in the last five years would be disastrous and is quite unfeasible.

Will This Stimulate the Economy?

Ultimately the decision to extend these credits was made in order to further stimulate the housing market by encouraging existing home owners to sell their current residence and buy again. Will this have the effect they are hoping for? What do you think?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

$8000 Credit extended – $6500 Credit introduced

Matt Jabs — Fri, 06 Nov 2009 14:25:44 +0000

photo credit to Infrogmation

President Barak Obama is poised to sign a measure today that will extend and expand the first time home buyer tax credit, extent federal unemployment relief, and expand upon available business loss deductions.

The U.S. Senate anonymously approved the measure on Wednesday and the U.S. House of Representatives followed suit on Thursday to pass the extensions by a vote of 403-12.

Is it Retroactive?

**UPDATE** For clarification on exactly who is eligible, read: Is The $6,500 Homebuyer Tax Credit Retroactive for Existing Non-First Time Home Buyers?

First thing’s first… is this bill retroactive? A lot of people want to know!

As far as I can tell from the research I have done, the bill is NOT retroactive. The wording in the amended H.R.3548 goes like this, “shall apply to residences purchased after the date of the enactment of this Act.”

Bummer for a lot of preexisting home buyers who could have used it… including me.

What Credits Did the Measure Extend?

The original $8,000 credit given to first time home buyers will be extended for an additional 6 months with a new claim deadline of April 30th, 2010. The credit benefit deadline was previously set to expire on November 30 of this year. To claim the credit, use Form 5405 which you file with your original or amended tax return.
Unemployment benefits were extended an additional 14 weeks for those who have exhausted their federal aid or will do so by the end of the year. In states where the unemployment rate is at or above 8.5% the benefits were extended an additional 20 weeks. The federal aid kicks in after the initial 26 weeks of state benefits are exhausted.

Who Was the Credit Expanded to Include?

A $6,500 credit will be extended to include home buyers who have lived in their current home for at least five of the last eight years.
The measure also raises income limits for those claiming the credit to include individuals earning up to $125,000 a year and couples earning $225,000 a year. The previous limits were $75,000 and $150,000 respectively.
Please note that… any home owner who sells the home or ceases to use it as a primary residence within three years of purchase must repay the credit.
Any struggling business can now deduct losses for 2008 and 2009 from profits in five previous profitable years. It was originally two previous profitable years and was extended only to small businesses.

To Be Eligible for the home buyer credits… buyers in both groups have to have signed a purchase agreement by April 30, 2010, close on the home by June 30, and must use the home as a principal residence.

Should the Government Have Extended Benefits?

This will be the 4th extension of the original $787 billion stimulus law (enacted in quarter four of last year) passed by the federal government in the past 18 months and will stretch the federal aid from 79 weeks to a record 99 possible weeks! This amount of government intervention in unemployment aid is unprecedented in all past economic downturns, showing once again the severity of the current recession.

Although most taxpayers will take advantage of the extended credits, many are wondering where the government is getting the money from.

According to The New York Times,

Expanding the home buyers’ credit will cost about $11 billion, and the business loss deductions $10.4 billion. To pay for that, Congress further delayed a 2004 tax break for multinational corporations’ worldwide interest expenses that has never taken effect, “saving” $20.1 billion over the coming decade.

The $2.4 billion cost of the jobless benefits will be paid by extending into 2011 a surcharge on employers of $14 a worker that was enacted three decades ago as a temporary step.

What Do You Think?

Are you happy the tax credits have been extended? Are you worried about where the money is coming from? Are you both happy and worried?

Chime in now.

Monthly Debt Reduction & Savings Statement for Aug, Sept, & Oct 2009 – The Question Edition

Matt Jabs — Thu, 05 Nov 2009 09:29:02 +0000

photo credit to Marco Bellucci

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Each month I will be posting these Monthly Debt Reduction & Savings Statements. I do this so I can continually compare our debt amounts against Our Starting Debt Amounts from back in January, 2009 – when my wife & I began our Debt Free Adventure – and to summarize our progress toward debt free living. Like charts/graphs better? Look in the sidebar for those.

I skipped a few months updates… so here is our up-to-date Debt Reduction & Savings Statement for August, September, and October, 2009.

The deadline for our year end financial goals is fast approaching yet we’re not quite half way there. The question is…

Will we make it?

Although we are not on track to hit our year end goals due to a few HUGE unforeseen financial bingo’s… we continue to plod along still faithful that the Lord will provide. He may see fit to bless us with a way to reach the goals, or He may not. I know He can if it is in his plan, so either way, blessed be the name of the Lord!

Before I get into the goals and progress I wanted to briefly mention a few things:

we have entered into “gazelle intensity.” For those of you who are not Dave Ramsey geeks, that means that we are running away from our debt with the intensity that a gazelle runs away from a cheetah! In laymen terms we will halt saving and focus solely on debt repayment.
our hand written budget is finally rock solid, yet will always remain a living document. How to budget post forthcoming.
we are using a blended effort of spending journals and the envelope system to monitor spending and keep it within the budgeted amounts. How to on the envelope system also forthcoming.

And now… on to the progress!

Our Current Goals

Pay off our credit card debt by the end of 2009 (which started as $9,197 in January, 2009) Consolidated into Lending Club loan!
Pay off our auto loan by the end of 2009 (which started as $6,036 in January, 2009) Consolidated into Lending Club loan!
Pay off the remaining small amount on my wife’s credit card (was sitting at $632 in August, 2009) DONE!
Pay off our Lending Club loan by the end of 2009 (which consolidated our credit card and auto loan debt – started as $11,000 in August, 2009)
Save $6,000 toward an Emergency Fund by the end of 2009
Pay an extra $50 in principle payments on both our student loans so as to pay them off early. **Update** We have decided against doing this until our Lending Club and Emergency Fund goals are met.
Pay double principle payments each month on both our mortgages (we have a 75/25 loan) in an effort to pay them off in only 15 years as opposed to another 28. **Update** We are paying double principle on our 2nd mortgage, but not our first. We will not start doing so with our first mortgage until we pay off our high interest debt.

Our Current Debt Progress

A little recap in case this is the first MDRSS you have read, back in August we joined and borrowed from Lending Club to consolidate our high interest debt under a single payment at a lower rate. I only suggest that you do this if the rate you can get from Lending Club is lower than all the rates of the loans you are looking to consolidate. We were quite successful in that respect, and will save at least $500+ over the life of the loan by consolidating through Lending Club.

Credit Cards – GONE! The $632 we owed on my wife’s last card has been demolished! The previous balances were consolidated into the Lending Club loan.
Auto Loan – GONE! Consolidated into the Lending Club loan.
Lending Club – We have reduced this loan from $11,080 (principle + loan origination fee.) We now owe $8,965.88.
2nd Mortgage – We continued to pay double principle payments on our 2nd mortgage because it is only and extra $25. Yeah that’s right… when you have a 2nd 30 year mortgage, you pay virtually ALL interest for a lot of years before you knock down any noticeable intereset. If you are interested in getting mad at your debt, check out: How much Interest are YOU Paying? Get Mad at Debt!
Student Loans – We are still paying normal monthly payments only.
1st Mortgage – We are still paying the normal monthly payments here too, and will be until everything else paid off.

For the the months of August, September, and October of 2009, our high interest consumer debt was reduced by $2,666.36, from $11,632.24down to $8,965.88.

Our Current Savings Progress

Savings contributions once again remained consistent over the last 3 months thanks to continued use of the awesome ING Direct automatic savings plan. With that said, we have decided to lay aside the Balanced 75/25 Method of debt repayment/savings contributions and have halted contributions to our Emergency Fund for now, until we pay off our Lending Club loan. We decided that the amounts currently saved provide us ample security for our present situation and have turned on the “gazelle intensity“ method Dave Ramsey teaches. We also halted contributions to both our Auto and Vacation Funds until the Lending Club loan is gone. In case you’re wondering… I am normally a firm believer in contributing to my savings EVERY month no matter what, but I am trying it Dave’s way while attending his Financial Peace University. I will most likely be posting about the FPU class soon too.

Emergency Fund - Although we are halting contributions for now, over the past few months we were able to boost our EF by $1,056.23 from $1,290.12 up to a balance to $2,346.35.
Auto Fund & Vacation Fund – both increased by $151.08 putting them both at a total of $376.93.
Side Hustle Fund – my side hustles earned my $860 this month bringing the total of this fund to $1,190. At this point I am still putting all monies earned from my side hustles into this fund as a way to track the income. I am not putting it toward debt repayment at this time, but may be soon… depending on how much I earn. I only want to use this money to pay off debt if it is earning over and above the costs to maintain side hustle operations. I am also looking to reinvest this back into the business.

The total amount saved for August, September, and October was $1,028.37 which brings our total cash savings to $3,100.21 for now.

Thoughts…

Our finances are finally running like the well-oiled machine we have been molding them into. As I recently wrote about on FiveCentNickel.com, there is much financial peace in planning! Once your plan is in place it’s just a matter of time, patience, and fortitude. All extra money is still going toward the Lending Club loan until it is demolished. Once it is we will start crushing our 2nd mortgage, then student loans, then build up our Emergency Fund to 6 months living expenses, then finally begin investing while simultaneously slaying our 1st mortgage.

If you desire to track our progress, you can do so directly by following the MDRSS (Monthly Debt Reduction & Savings Statement) tag series.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Homemade Christmas Ornaments & Decorations

Matt Jabs — Wed, 04 Nov 2009 10:00:17 +0000

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This post was written by my mom at the request of Lydia from MyMoneyChat.

A few days back, in a post on personalized holiday gifts my mom left this comment that prompted Lydia to request the recipes:

“Another way to decommercialize Christmas or any holiday is to get together as a family and create homemade decorations for the Christmas tree and the home. It can be done while sharing a meal together and brings a sense of the elusive Christmas cheer that we seek so hard to recreate in our lives from the television commercials while at the mall spending our hard earned dollars on decorations and gifts. One of Matt’s personal favorites is to make paper chains out of colored construction paper. One of mine is to create salt dough ornaments with cookie cutters and then after baking them, paint them and spray them with some sort of lacquer. They last for years and every year that I unpack them and carefully hang them on my tree, I am taking a trip down memory lane and remembering the warmth and satisfaction of sharing such an activity with my family.”

So as requested… here are the recipes for three of our favorite homemade Christmas decoration traditions from my childhood. Feel free to adopt these creative and frugal activities and making them your own. Involve the kids, involve nieces and nephews, siblings and cousins, parents and grandparents, etc. Everyone is going to love getting together to enjoy this good old fashioned frugal family fun!

My wife and I are planning to throw a homemade holiday decoration party for both sides of our family this year. Not only will this serve as a great time of family togetherness, but will also provide a lasting example of the power of frugal living.

Homemade Salt Dough Ornaments (Mom’s Favorite)

Salt dough is very simple to make, so I will share the recipe that I have had for years, that is handwritten by my sister on the back of a business card!

4 cups white all-purpose flour
1 cup salt
1-1/2 cups hot (hottest tap) water

Dissolve the salt a little in the hot water, then mix in the flour. That makes a nice dough that is very easy to handle. Sprinkle flour on your countertop to avoid the dough sticking. Use a rolling pin and roll it out (you can also use any smooth cylindrical glass container like a peanut butter or beverage bottle.)

Roll the dough to about 1/4 inch thick and use cookie cutters to make the shapes you like, depending on the season (don’t limit this to Christmas!) Transfer cut ornament shapes to a cookie sheet. Poke a hole in the top of the ornament that will serve as a way to tie ribbons for hanging the ornaments when they are finished (a Phillips screwdriver works fine.) The ribbon can be the type of ribbon one uses to wrap gifts with, the kind that you can curl with a pair of scissors.

Bake the ornaments at 325 degrees until they are hard. This will usually take 30-40 minutes, depending on how thick they are. It is important to make sure they are completely dried out so there in no mold. It is also important to remember that if you are creating these ornaments with small children, perfection is not important! Encourage them to do the best they can and appreciate their efforts! Criticism breeds frustration and implies rejection!

Let them cool. Then, I just use cheap acrylic paints and paintbrushes from the craft department at K-mart or Meijer and paint as creatively as possible! Acrylics are water soluble so don’t worry if the kids make a mess… it’ll clean up! This is no place for the fun police… a little mess never hurt anyone. Use a different paint brush for each color and let each color dry before applying a different color. The acrylic paints do not take long to dry. If you are making several ornaments, just apply the same color to each one and by the time you are finished you should be able to go back and start another color.

Usually I just paint one side with detail and the back side just one plain color. You can get as detailed as you want with these. After the paint dries, lay them on some waxed paper, preferably in a well ventilated area and use a spray lacquer of some sort to spray both sides in order to preserve them. You must spray one side, let it dry, then spray the other side. You can get the lacquer in any paint department. Use waxed paper because the lacquer will stick to newspaper. Do not include the kids in the lacquer process, just do that part yourself.

Tie a ribbon in each one and vóila! You have Christmas ornaments and lots of memories. You’ll also most likely have a new family tradition on your hands because this process has the wonderful peripheral benefits of encouraging family togetherness and creativity!

You can alter this ornament process to make it simpler to work with small children. You can mix cinnamon and nutmeg in the dough and just cut out and bake the ornaments without painting. You can make them in the shape of gingerbread men and they smell real good, but dont involve the mess of painting. Less time consuming, too. They also make great gifts for the kids to give to friends and relatives.

Construction Paper Chains (Matt’s favorite)

Making paper chains is also a wonderful activity to do with small children. Matt always loved making these and part of the reason was that he loved making the homemade glue. Guess he even loved making homemade products way back then!

Get yourself some rectangular colored construction paper and lay out in landscape position. Using a pencil, draw out 1 to 2 inch strips and cut accordingly.

To make the glue simply mix together:

white all-purpose flour
cold water
few pinches salt

Use as much water as you need to make it into a thick glue-like paste. If you do not want to make your own paste, or find this doesn’t stick or dry well enough, Elmer’s makes a non-toxic glue for kids.

Glue the first one together at the ends, making a circle. Then take the second strip, lace it through the first circle and glue that together at the ends, then proceed the same way until you have used all of your strips and made a chain long enough to drape around the tree or to festoon your living room!

Popcorn and Cranberry Strings

Our family also used to make popcorn and cranberry strings. These make great decorations for the Christmas tree inside the house, or, if you have an evergreen tree in your yard you can decorate the tree to feed the birds and squirrels!

All you will need is:

some strong thread
a needle
popcorn (microwave variety will not work well for this project)
a bag of cranberries (produce aisle at grocer)

To make, simply pop some corn in a pan on the stove with a little oil or with your air popper. Grab your cranberries, needle and thread and begin threading your needle alternately through a cranberry, then a couple of pieces of popcorn, a cranberry, a few popcorn, etc. until you have created a string long enough to wrap around the tree. Go ahead and make a couple of them, don’t be shy! Don’t forget to tie large knots at both ends of your string in order to keep the cranberries and popcorn in place!

What about you?

Did you make some cool holiday decorations growing up? Don’t be a Scrooge… share the recipe!

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Tithing Our Time?

Matt Jabs — Tue, 03 Nov 2009 10:00:53 +0000

This is a guest post from Mr. NotTheJetSet

not the jet set . net is a blog about personal finance, stewardship, green and frugal living – personal finance for the rest of us: one family’s story. We don’t claim to know it all. We won’t claim to make you rich. But we may get you to think a little differently about money and how it affects your life.

He’s a spender, she’s a saver. Together, they’re Not the Jet Set.

Fed up with working too hard to not have any money, we made the decision to take control of our finances. We began a mission to get out of debt and stay out of debt – forever. On June 23rd of 2006, we completed Baby Step 2 by paying off approx $40,000 in 20 months. During that time and ever since then, we’ve seen it as part of our calling to help others achieve what we have – financial peace.

Tithing our Time

Years ago, while living in Texas, the Mrs. and I belonged to a church that was ’stewardship based’. At it’s core this meant that there was no fund raising activities to benefit the parish – bake sales, catered dinners, bingo night, none of it. The intent was that all funding was to come from stewardship – tithing, free-will donations, and Sunday offerings. Many felt that it was not possible to run a parish of this size this way, but it was our priest’s insistence that would win folks over. He often said, “As a stewardship parish, we’ll never have a money problem – only a faith problem”. A powerful statement meaning that if our income wasn’t paying the bills, then lack of money wasn’t the problem, but rather the lack of faith driving us to give. It was great to be a part of, and also amazing to see the affect that our FPU classes had on the weekly numbers as more families were giving and more were able to at least work towards a tithe.

Ever since then, we’ve been big believers in stewardship as it applies to not only our treasure, but our time and talents as well.

In terms of treasure – We tithe and try to give on top of that when we are able.
In terms of talents – We facilitate FPU classes and council families needing additional help.
In terms of time – Well, I guess this is where we feel we have been falling short.

*Matt’s Note: The 4th area of stewardship is our health.

So how do we give our time?

Sure, one could argue that the 2 hr+ FPU classes and their prep work would fall into that. But are we then just ‘double dipping’? Seems like we can do more for the Lord. Of course we go to church every Sunday, but that’s just the minimum – we used to do so much more.

Then we got a bit of a wake-up call. Our Priest’s sermon recounted a Bible verse about listening to the Lord, and then gave the modern interpretation of it – interrupted with cell phone calls, pager buzzing, text messages… Our time with the Lord has been invaded and a common culprit of that is technology. Later that day, we were with a group of friends who were talking about the same thing and how they simply had to stop the way they were going and re-prioritize their life. We knew we had to do the same.

So the Mrs. did the math and approached me about this concept of ‘tithing our time’. If we truly gave a tenth (a tithe) of our time to the Lord, that would amount to 16.8 hrs per week. A great goal, but pretty intimidating – I mean, that’s 2 work days. As our priest in Texas would tell people wanting to tithe on their income, but fearful about being able to commit to the full 10%, he would say to start with something – even just 1%, start with just $10, start giving something!

So that’s what we are doing. We are starting with something.

Here is what we are doing…

We have both enrolled in an adult Bible study class through the parish. This class lasts about 2 hrs once per week, plus has homework each week.
We are giving a part of each day. In the spirit of starting with something, we are giving 30 minutes each day to the Lord – be it Bible study homework, quiet contemplation, prayer or something else.

With these, in addition to Sunday Mass and FPU classes, we are each giving 8 hrs per week to God. Not bad! That’s nearly 50% of the goal of 16.8 hours.

In the spirit of giving, we also looked at our own house. As the Bible says, “he who does not take care of his own household is worse than a non-believer”. Here we are giving so much of ourselves outward, and yet the living room is a wreck, the dishes are stacked up by the sink, the office/sewing room is a horrible catch all and barely usable, and the basement has yet to fully recover from the house projects of a year ago. So the Mrs came up with a plan for the whole family to give 30 minutes each night to cleaning the house. Focused, intense effort wherever it is needed most. We were able to try it out for a few days last week and the results were amazing. Three and a half people (the little one doesn’t help that much at under 2 years old) cleaning the same space for 30 minutes has resulted in very clean and presentable spaces each time. In fact, it was the spark we needed to start getting the office/sewing room under control.

So I’m interested to find out how YOU give?

Personalized Gifts – Spend Less and Love More

Matt Jabs — Mon, 02 Nov 2009 10:00:55 +0000

photo credit to Pink Sherbet

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Stop spending money on gifts of conspicuous consumption and start giving personal gifts that show your love and thankfulness for others.

The Power of the Homemade Gift

I am proud to say publicly that I love my mom! Today I will share a poem I wrote her years ago that serves her as a daily reminder of the love I hold for her.

Remember as you read that with the holiday season coming up, instead of “buying” something for you mother (or other loved ones) take the time to create a personal gift from the heart. Not only will it cost you less, more importantly it will breed thankfulness, encouragement, and love between you and them forever. Even many years later, reading this poem will often bring loving tears to both our eyes.

To this day, my mother remains a consistent and endearing source of encouragement in my life. She is and always has been my most staunch supporter. She truly is a wonderful woman whom I love with all my heart.

Please enjoy the poem I penned for her more than 15 years ago.

A Sons Thoughts of Mom

My Mother is my friend
My Mother is my guide
My Mother teaches me
I love her

She lifts me through praise
She reads my soul
She knows me
I love her

In her is courage
And charisma, and life
She shines from inside
I love her

Her beauty is natural
She lives from her heart
She seeks love and truth
I love her

I believe in her thoughts
I believe in her heart
I know she loves me
I love her

My Mother is my friend
My Mother is my guide
My Mother teaches me
I love her

- written by Matt Jabs

Use this article as motivation to de-commercialize Christmas this year and return your family and friends to a focus on personal thankfulness and love.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

The Gazelle Has Left The Building!

Matt Jabs — Fri, 30 Oct 2009 07:04:49 +0000

photo credit to Paul Brink

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We are the gazelle, our lendors/creditors are the cheetah (hunter.)

“Deliver thyself as a gazelle from the hand of the hunter, and as a bird from the hand of the fowler.” – Proverbs 6:5

In the past I have gotten into some pretty hefty comment debates with various readers about saving money while paying off debt.

If you don’t remember those discussions, you can read these two posts to catch up:

Basically we ran into a few things that made us realize that $1,000 for an Emergency Fund was just not enough in our case, so we made personal finance personal and did what worked for us by using 75% toward debt repayment and 25% toward savings.

A Changing Of The Guards

Now that we have our Emergency Fund built up to the amounts equal to roughly one month’s expenses, we have decided to set aside “The Balanced 75/25 Method” of debt repayment/emergency fund savings and focus on full strength gazelle intensity.

To us, building our initial EF up to these levels – THEN turning the gazelle intensity back on – just plain made sense. We feel better, and the gazelle has left the building, so things are good.

Why one month’s worth?

The main reasons we needed one month’s expenses:

Wisdom – if something goes wrong we have prepared by setting a decent amount aside. $1,000 just didn’t cut it in our situation.
Security – my wife feels more secure with that money there, and at the end of the day, if she feels more secure everybody is happier!
Preparedness – this is like the manly version of security. I feel more prepared knowing that even in the unlikely event that both of us lost our jobs simultaneously, we would still have over one month of time to fully devote to finding jobs without having to worry about whether we could pay the bills that month.

So what’s next?

Now that we are able to focus 100% of our available money toward debt we are going to attack our debts one at a time. Here they are in the order we plan to pay them off:

Lending Club Loan – Like I have said before, the math doesn’t work out, but I am still faithful to believe that we can have this paid off by 12/31/2009. We started this loan at $11,000+ just 2 short months ago and have already paid this down to $8,500. Maybe you know of some rich dude/dudette who wants to donate to a good cause?
2nd Mortgage – We’re breaking slightly from the debt snowball method here and tackling this one 2nd because the interest rate is quite a bit higher than our student loan rates.
My student loan – This is a smaller of the two student loans and the one with the higher interest of the two, so that works out nicely.
Her student loan – This will be our last non-mortgage debt to pay off because of its super low rate.
1st mortgage – and once this is paid off – you guest it – WE WILL BE DEBT FREE!

It is so true that simply having a plan in place gives a lot of financial peace in and of itself because you understand what needs to be done, how long it will take, and that it is just a matter of time, patience, and fortitude.

What about you?

How much savings is right for you? Are you happy with the $1,000 Emergency Fund that financial guru’s like Dave Ramsey promote, or are you like us in that you feel more prepared and secure with slightly more money?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Is Entrepreneurship Riskier Than Employment?

Guest Author — Thu, 29 Oct 2009 07:12:17 +0000

photo credit to sezzrs

Today’s post was written by Joel Ohman…

Joel Ohman is a Certified Financial Planner and President of 360 Quote LLC. He is a serial entrepreneur and is currently spearheading several successful consumer comparison websites including Credit Card Chaser and Health Insurance Providers. Although Joel holds some opposing views towards credit cards, he is a strong supporter of DFA so please welcome him with open arms and inquisitive hearts!

It is quite likely that at one point or another in your life you have thought about striking out on your own and starting your own business. Whether your motivation was/is to bring a new idea to the market in hopes of striking it rich or whether you simply decided that you just couldn’t stomach one more day of being a cubicle dweller and filling out TPS reports for an unappreciative boss – no matter what your reason was or is it is likely that if you haven’t had the entrepreneurial urge yet then most likely you will at some point in the future.

What is also likely is that the second you mentioned your plans for becoming your own boss to your spouse/friend/parent/fill in the blank you were immediately discouraged by the big “R” word – RISK. Not just lower case “risk” as in, “Oh well, I took a risk and I wasn’t successful this time. I will try again.” but “RISK” in all capital letters as in, “OH NO! Honey, why did you take this RISK! What have you done to us! Your business went under and now we are forced to live out of a cardboard box on the street and dig for grubs to feed the children!”

The case I would like to make is that being an entrepreneur certainly involves a level of risk (as does any profession) but just like there are ways to mitigate and manage risk with a “regular” profession there are also ways to mitigate and manage risk as an entrepreneur. My goal is to provide a concrete framework for evaluating the risks of any given entrepreneurial undertaking for anyone who has ever considered becoming an entrepreneur.

Entrepreneurial Risk vs. Employment Risk

Before attempting to compare the risks of entrepreneurship with the risk of being employed one must first admit that there are in fact many risks inherent with being employed just as there are with being an entrepreneur. One underlying assumption that the recent economic downturn has certainly unseated in the minds of most is the misguided assumption that entrepreneurship is full of risk while being employed is risk free. Layoffs, pay cuts, and/or failure to find a suitable job have all been recent and widespread indications of the risks that are inherent to almost any gainfully employed position.

Certainly entrepreneurship has the potential for great reward to accompany its risk but one thing worth mentioning is that the commonly quoted statistic that over 90% of all small businesses fail within 5 years is considered an unsubstantiated myth and other studies put the number at around 50% (which may or may not accurately reflect “failure” as it may include family businesses who shut down on their own, businesses who were bought out, serial entrepreneurs who moved on to bigger and better things, etc.). Granted, entrepreneurship absolutely involves risk and I am not trying to make a case to the contrary. What I would like to present is that even employees have a level of risk that can be quite high and in addition that there are certain things that can be done in order to both manage and minimize the risk of entrepreneurship.

While the risks (and rewards) can be quite different between entrepreneurs and employees there are some important differences that I believe can be summed up in two main areas:

Control – Employees are “at the mercy” of their employers and/or the owners of their company while entrepreneurs have a high degree of control (and of course more responsibility) in controlling their own destiny.
Money – Entrepreneurs typically need to risk not just their time and effort but their own money in order to get their business off the ground while employees typically will not need to risk any of their own money as an investment (for the sake of this discussion we will leave stock options, sales commissions, and other performance based employee pay systems out of this comparison because while not an investment of employee money per se it does involve a different level of risk).

Granted we could spend a lot of time delving into the specifics of each of the two areas but I believe that it is fair to say that the two main differences in risk between the “Entrepreneur Profession” and the “Employee Profession” could be characterized nicely as differences in the general categories of control and money.

Managing and Minimizing Entrepreneurial Risk

As any student of Finance 101 knows within the first week of class, “Generally speaking, the greater the risk the greater the potential reward”. So the goal in becoming an entrepreneur is not to eliminate risk which is for the most part impossible but to manage and minimize the risk so that the risk is appropriate to your specific situation and that you have positioned yourself in an entrepreneurial undertaking that has an acceptable risk/reward relationship to you.

Here are some concrete principles that may help you both minimize and manage the risk that is inherent in any entrepreneurial endeavor:

Save Money by Funding Yourself – “Fund Yourself” is a term that is sometimes called “Bootstrapping” and essentially means that rather than betting the farm to invest all of your nest egg into a business idea (or rather than spending a ton of effort trying to raise money from investors) see what you can do to get your idea to the market as cheaply as possible. Sure, you will have to spend some of your money but budget wisely with the goal being to get the idea to market and test out market demand for your product or service. Yes, blowing all of your nest egg into a hare brained business idea can be labeled as bootstrapping but strive to “bootstrap” as wisely and cheaply as possible so that you can gauge market demand and then iteratively make improvements (or if the idea is a dud then you can simply come up with another idea and be thankful that your budgeting allowed you to have funds left over for another business idea).
NO Drastic Changes – This may sound weird to some but drastic changes are not the key to entrepreneurial success. In fact, making a drastic change will only increase (often dramatically) the level of risk associated with anything entrepreneurial. One example of making a drastic change that unnecessarily skyrockets risk is when someone quits their job with no planning and starts their business the next day. You may be gung ho at first but unless you already have experience, contacts, resources, and more in the field of your new business then you have likely just heaped yourself a huge serving of unnecessary risk without the accompanying huge potential reward. A better way to do it (note, that I am just speaking in general risk/rewards terms now and of course some people are certainly the exception) is the way that Matt Jabs continues to work his day job as an Information Technology Manager and then in addition works to build Debt Free Adventure into an ever increasing source of income. When I first started my Florida health insurance agency (my first of 5 companies that I started) I made the decision to continue working my day job as a tax preparer studying for the CFP® (which I passed) while working to build my agency on the side. Yes, there were many weeks of working what was in essence two 40 hour a week full time jobs but the risk of having to live out of a cardboard box if I failed was greatly minimized.
Use the Web – In the past no matter what you wanted to sell you had to face the obstacle of deciding how to reach potential customers. In most cases this meant that you needed to rent space for a physical storefront or pay for space at a tradeshow or any other number of potentially very costly things. Now whether you want to sell shoes or hand crocheted blankets or sea monkeys you can set up a website or blog in a matter of hours and have people buying your products or using your services from the other side of the world. I am admittedly biased about loving the Internet because while some of my most recent ideas have been building a website to compare credit cards and a website to compare health insurance providers I love the concept of being able to think up an idea and then immediately start testing out the idea by putting it live on the Internet for anyone to see when they type in your domain name. With the ease of use in setting up popular blogging/website building software such as Wordpress it is often as simple as choosing a domain name and then its off to the races to test out your new idea.

There are likely many other ways to both minimize and manage the risk of being an entrepreneur but I hope that sharing some of the things that I have noticed will prompt you to find a way to make your entrepreneurial dreams a reality.

What do you think?

DebtFreeAdventure::Category List (2)

Credit Card Hide and Seek

Matt Jabs — Wed, 28 Oct 2009 08:21:54 +0000

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Did you know that credit cards are good at hide and seek? I didn’t either.

Apparently… after watching some of their closest friends and family members disappear – last seen heading toward Close ‘em Shred ‘em Forget ‘em cemetery – credit cards will wise up and hide. Don’t let them. Go get ‘em man!

I won’t lie… it is really nice to have the upper hand when it comes to credit cards. When you are seeking to shred them, it can actually feel like they are trying to hide from you!

Credit Cards Hang on for Dear Life

Last week my wife and I made the controversial decision to close, shred, and forget all our credit cards. Well… all except for one. Less than a year after deciding to strive toward freedom from debt, credit cards were now a thing of the past. Well… all except for one. I mean we are finally ready to live a disciplined life focused on debt repayment and wealth building, all in the absence of credit cards. Well… all except for one.

The longer we pondered our new freedom from credit cards, and the more we speculated living life without debt, this “well… all except for one” thing was really starting to stick in our craw.

We Decided to Get Rid of The Last Card

So last week when we decided to close all our credit cards – well… all except for one – we decide that although we would keep the last card, we wouldn’t actually use the last card. Looking back now I can see how this makes absolutely no sense, but nonetheless, that was our plan. The card was a new credit card from our new local credit union. It was a rewards card that paid 2% cash back.

Well… tonight we finally decided to go ahead and cancel it too, and that’s when it happened!

5 More Credit Cards were Found Hiding!

While rounding up our “last card” we ended up stumbling upon 5 additional credit cards that we had totally forgotten about. It sounds like a glaring mistake, but it was actually quite a harmless mistake.

You see… when you are – in the zone – of closing, shredding, and forgetting your credit cards, it is really easy to get so engrossed in the shredding process that you forget “the lesser cards” who are usually hiding in lesser traveled places around the house.

What are the lesser cards? Department store cards. Do not forget about these little buggers when you finally decide to bite the bullet and end your relationship with credit cards. Don’t let any of your cards | new or old | big bank or department store | survive the power of the shredder!

How to Win at Credit Card Hide and Seek

1. Go Hunting

To ensure you are truly ridding your life of all credit cards – make sure you hunt around for all the cards in your possession!

Don’t be a fuddy duddy about it either, make it fun. Go get dressed up in your best camouflage, do your best Rambo impersonation, and start hunting. Remember… the credit cards drew first blood, not you!

Here are some common areas that credit cards may be hiding from you:

Your messy purse
Your messy wallet
Your office and/or desk
At work
The infamous junk drawer
Your car

2. Get Your Free Credit Reports

I am a huge zealot of securing free copies from all three credit bureaus every year. Do this as a way to inventory your credit accounts and close them as necessary.

Get a free credit report from Transunion
Inventory all your credit accounts and decide which ones you want closed
4 months later secure your free credit report from Experian
Ensure all accounts you closed are indeed marked as paid and closed
Tidy up any errors on the second report
4 months later get your third free credit report from Equifax
Tidy up any lasting errors on the third and final report

Baker from Man Vs. Debt released an article yesterday at Get Rich Slowly detailing how to get your free credit reports using AnnualCreditReport.org. Use this guide if you need detailed help in securing your free credit reports.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

photo credit to jinthai

How much Interest are YOU Paying? Get Mad at Debt!

Matt Jabs — Tue, 27 Oct 2009 08:59:34 +0000

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Back in April I calculated how much money we were spending in interest on debt each month. I highly recommend you do it too – NOW. This post is my 6 month update to see how much less interest we’re paying now.

I was encouraged to write this “interest paid update” after reading that Matt Breed of FinancialMethods.com found calculating how much interest he was paying was also one of his great motivators. He agreed – as everyone seems to once they run this simple calculation – that figuring out exactly how much money you pay others in interest every month is one of the best motivators to help you move against your debt. Way to go Matt.

My Debt Costs Me $58 Less Now!

If you want to take a truly sobering look at just how much your debt really costs you, follow this simple guide to figure out what your monthly interest amount paid is. Once you complete the exercise you will have finally developed a proper relationship between you & your debt!

What I mean by Interest & How Destructive it is…

While there are several definitions of “interest”, for the purpose of this article we focus on the interest amount paid toward our debts and will define interest as a fee paid on borrowed assets; and/or the price paid for the use of borrowed money.

Simply put, interest destroys your ability to build wealth by taking your hard earned money and misappropriating it toward paying rich people (the people who loaned you the money.) I will demonstrate this fact by listing my interest amount paid from last month (March of 2009).

How Much Interest I Pay Each Month – compared to 6 months ago…

So here is my favorite part of the post because this is where I report how much less interest I am paying out now than I was six months ago. I have actually included both amounts side-by-side for easy comparison. Enjoy the interest shrinkage… I know I did!

I am paying $58 less interest to banks than I was 6 months ago! YES!

As you can see, I saved the largest amount by consolidating my debt through Lending Club. I consolidated my debt for two reasons: to simplify monthly payments, and to save money on interest payments. Well… it worked.

So what’s my advice? If you have high interest credit card or auto loan debt… consolidate it through Lending Club to save!

How I Arrived at the Above Amounts…

Follow these simple steps to find out your monthly interest amount paid:

Write down a list of all your loan amounts including your mortgages, student loans, auto loans, credit cards, etc.
Either look at the statement each account mailed you last month, or log into their associated web sites to find the amount of interest (a.k.a. finance charge) you paid over the past month.
Write down the numbers you find above next to the associated accounts
Calculate your very own monthly interest amount paid.

After completing the above steps, you will most likely be filled with anger! I was.

Anger Toward Debt Grows…

Going through the exercise of calculating your interest amounts paid on all debts shows you exactly how much money you pay to bankers each month. Does that make you angry? It should. The goal is to eventually make that money work for you instead of banks.

Seeing these numbers gives real meaning to Proverbs 22:7, “The rich ruleth over the poor, and the borrower is servant to the lender.”

Motivation and Encouragement to pay down debt faster…

This step is simple but crucial. If this is your first time calculating your interest amounts paid, don’t allow yourself to slip into the trap of becoming overwhelmed. Realize that you can turn this around, but you must stand up and fight. You must take control of your own financial destiny. You must work toward your own financial freedom.

Becoming overwhelmed will paralyze you, so instead focus on the fact that a journey of a thousand miles begins with a single step and start stepping now!

Real Steps to Reduce, Lower, and Eliminate Interest & Debt…

By using a focused, goal oriented approach, I was able to lower my monthly interest amount paid by $58/month in six short months. I will use this as motivation and will continue to keep track of how much I reduce my interest amount paid each month. You should do the same.

Hold on to the list of interest amounts paid you formulated above.
Call each creditor & attempt to get your interest rate lowered. This can give you a HUGE jump start in lowering that initial amount. DO NOT skip this step!
Each & every month record the interest amount paid for each debt.
Calculate your total interest amount paid every month.
Track your progress by listing your lowered amounts.
Place these monthly amounts somewhere you can see them every day, like your refrigerator.
Balance your focus by paying off both small debts & high interest debts. I use both methods in tandem.
Some would say reward yourself once a month by treating yourself to something you want, but for me the lowered amount of interest I’m paying is reward enough. Use what works for you.

The more we eliminate our interest amount paid each month, the more we can use toward paying ourselves. So what are you waiting for? Get started ASAP.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

photo credit to Éamonn

Non-Monthly Expenses – How to Budget for Lump Sum Payments

Matt Jabs — Mon, 26 Oct 2009 09:23:33 +0000

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If you are trying to live on a budget and you have not planned for non-monthly expenses, it is just a matter of time before your budget is destroyed by one of these time bombs lurking just below the surface!

Anyone who has ever tried living on a budget knows that the biggest budget busters are not regular monthly expenses, but non-monthly expenses forgotten in the budget because they only come due periodically. Annual, semi-annual, quarterly, and occasional payments break the bank far to often… so today let’s explore how to get control over these common budget busters.

You Have To Plan

If you do not keep a budget, then start. If you do not manage your money, your lack of money will manage you. Sick of living paycheck to paycheck? Sick of never having any money? Sick of using credit cards and wasting money on interest? Then start budgeting!

Once you start budgeting, one of the first problems you will face will be a non-monthly whammy that you forgot to plan for. I promise… don’t worry, it happened to us too. Here’s what we did to make sure it never happens again:

Make a list of non-monthly expenses. Brainstorm as many as you can remember and write them down. You may consider breaking your list into Fixed Non-Monthly Expenses and Variable Non-Monthly Expenses
Create a separate savings account for your non-monthly expenses. Scroll down to see why I use ING Direct and how I create my sub-accounts for this purpose.
Fund new account automatically each month. Hopefully your bank gives you some sort of automatic savings plan to disperse a certain amount into the new fund automatically each month – yet another great reason to use ING Direct for banking.

Make a List of Non-Monthly Expenses

Here is an example list of non-monthly expenses that are normally paid via lump sum payment – there are fixed and variable non-monthly expenses that you can plan for.

As I already mentioned, the list in the picture above is just an example of expenses others may have. I am providing it to help you brainstorm and remember all the non-monthly expenses you may have floating around. Remembering what all your expenses are is actually the hardest part of this entire exercise. You will undoubtedly forget an expense here or there, but you can adjust when the time comes – at least you have most of them planned for now, and eventually you’ll nail them all down.

For us, our personal list is made up mostly of auto expenses with a few others thrown in for good measure. We also limited ours to anticipated fixed non-monthly expenses for now. We’ll tackle the variable non-monthly expenses later.

Create a Separate Savings Account for your Non-Monthly Expenses

For many reasons that I often bring up, I am a HUGE fan of banking with ING Direct. They make saving easier because they allow you to easily create sub-accounts for all your separate savings goals. Budgeting for non-monthly expenses basically involves saving the money over the course of the year so you have it available and will not be taken off guard when the lump sum payment comes due.

If you do not bank with ING Direct, sign up here.

If you already have an account with them, follow these simple steps to create a sub-account for your non-monthly expenses account:

Click on “Open an Account.”
Under “Orange Savings” click “OPEN NOW.”
Select the type of account you wish to open – I always use “Orange Savings Account – Joint.”
If opening a joint account, enter the joint account holders information.
Name your account “Fixed Non-Monthly Exp”, choose the account you wish to fund from, and enter the amount you wish to open with and click “Continue.”
Review the info for accuracy, click the two check boxes, and click “Open Account.”

Fund New Account Automatically Each Month

Yet another reason to love ING Direct… their Automatic Savings Plan feature.

Now that you have your account your sub-account created go to your “My Accounts” tab and click “Automatic Savings Plan” and set up the amounts calculate above to fund your Fixed Non-Monthly Exp fund with the necessary amounts.

Now whenever a non-monthly lump sum expense rears it’s ugly head it will not be a budget buster! When it arrives simply log into your ING Direct account, do an “Instant Transfer” to move the money from you Fixed Non-Monthly Exp fund into your regular checking account and pay the bill accordingly.

It’s that simple!

Now you have no excuse to let lump sum payments sneak up and bust your budget.

What About You?

What non-monthly expenses do you have? Do you they take you by surprise? Let us know some of the strategies you use to handle these expenses so they don’t bust your budget!

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

FICO Score and Credit Cards – The Way I See it

Matt Jabs — Fri, 23 Oct 2009 10:00:52 +0000

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This brief post is about one thing – my stance on FICO score and credit card use. You can take it or leave it, I’m just gonna lay it all out there for everyone to praise, pooh-pooh, or pout about.

So by all means… feel free to butt in.

A Little Background

If you want to read more about the background of our situation with credit cards and credit card banks please see any or all of the following previous articles:

I think that should cover it. For those who want to read up on it… go for it, otherwise let’s get on with it.

How I View FICO Score and Credit Card Use

This is actually just a copy job of a comment I left over on MoneyUnder30.com. David, the site owner, recently published an article encouraging visitors to radically re-think their credit card use. To summarize, David encourages us to close all credit card accounts except for two, and says we should try to keep our oldest card and highest limit cards open. He also advises against using credit cards for rewards – which I highly agree with! David’s advice is solid – if – you are trying to use your credit cards to build and maintain your FICO score.

Here was my response to his post, which basically captures our stance on the use of credit cards and how my wife and I feel about the FICO score itself.

Here is a brief synopsis of my sitch (situation):

We have no credit card debt. We have no temptation to use them, and have no problem setting them aside or using them responsibly. We choose not to use them for reasons that go beyond finances. We kept one card open, but we don’t use it either.

Okay, you’re probably with me so far… but here is where I’m going to lose you:

We don’t care about our FICO score.

Lost you didn’t I? I know there are all kinds of reason why we should care… but… we don’t. I know only about 5% of people will understand this point of view. The other 95% do not need to list the 15 reasons why you need FICO… we already know them. We still don’t care.

I could go on about how we are never going to borrow money again, or how we don’t care about how FICO effects our insurance premiums… but the most concise explanation I can give in an already long blog comment is to say that it is a form of protest against an industry that we do not believe in.

And I went on to say…

Some will think I’m crazy, some will think I’m an idiot, still others will think I’m right on. I think I’m doing the right thing for my situation.

Here’s the cool thing about not caring about our FICO: they’re still going to go up, or at least stay where they are. Here’s why:

We have two mortgages on credit, two student loans on credit, and a Lending Club loan on credit. We repay all of them on time every month… always have, and Lord-willing… always will.

So as I thumb my nose at the CC banks and their tangled and undesirable scoring system… I will retain and maybe even increase my score.

I call that, “beautiful irony.”

What Do You Think?

I don’t really have much else to say on the matter so I’ll shut up and open it up for discussion.

Go.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Photo credit to pasotraspaso

Debt Testimonials – Rethinking Interest Paid Moves Fred Into Action!

Matt Jabs — Thu, 22 Oct 2009 10:00:50 +0000

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When is the last time you sat down and really evaluated your debt, calculated your total interest amount paid toward all loans, and truly established a proper relationship with your debt? For my buddy Fred… that time is now!

“Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.” – Romans 13:8

Fred called me the other night to talk finance. Always the lover of money talk, I quickly perked up my ears. Fred recently sold his house, is in the market to buy a new house, has a large chunk of money saved, but has a high rate auto loan that he just started to really examine – which was the main reason he was calling.

Here is Fred’s story and what he decided to do…

Fred’s Debt Repayment Testimonial

You know that new car mistake? Yeah… I fell for it a couple of years ago. I was on my way home from work when I decided to stop by the Ford dealer – and there it was: A Black Mustang GT with red leather interior, V8, and 5-speed trans – a car guy’s dream!

Long story short, I drove it home that night. I think I had about $7 and change in my pocket, but financing wasn’t a problem. They took my Grand Prix on trade, which I still owed on, and they just rolled it in to the new payment. Rolling the old car in to the new loan really was not the best thing to do; especially considering the car wasn’t worth what I owed on it, not even close, but that Mustang had me in a bad case of the wants!

Don’t get me wrong , what a great car! But I live in Michigan and Mustangs are not the best winter car out there. So there it sat in the garage – all – winter – long – with me making $500 monthly payments, plus insurance. I did that for just over 2 years, then recently started really considering the interest I was paying...

I sold my house about a month ago and even in this market I was able to get a few bucks out of it. Combining the earnings from the house with what I already had saved brought my savings up to around $70k. Now we are currently looking for a new house. While it would have been great to use most of the savings toward a down payment, the Mustang loan started bothering me more and more. After rethinking the fact that my bank was only paying 0.25% interest on my $70k, but I was paying 8.8% on the Mustang ($341.08 towards the principal and $158.92 in interest), what I needed to do suddenly became very clear.

On October 21st, 2009 I paid $19,414.66 on the Mustang, the finial payment! We still have over $50k left to put towards a down payment on a new home, and now that the auto loan is gone we can build our savings back at a much faster rate. Also, by paying off the loan I am basically putting that 8.8% interest in my pocket which makes the savings grow that much faster.

There are many reasons to pay off your car, and today I can give you 19,414.66 of them… and boy does it feel great!

Way to go Fred! Congrats man.

What About You?

Do you need to sit down, calculate your monthly interest amount paid, and make a few steps toward improving your financial situation? Now is the time people, and you are the only person who can set your finances in order. By paying off the 8.8% loan, Fred reclaimed over $150/month in interest payments and is now essentially earning 8.8% on that money over the next 4 years (life of loan). What kind of money does that calculate out to? $3,451.05 – This is the amount Fred saved by paying off his loan early.

Now not everyone has a $70k bankroll sitting around to work with, but this story should pique your interest (no pun intended) to at least pay extra payments toward your loan principle. Even a small amount toward extra principle payments will save you much more than you may first think.

It’s time to roll up your sleeves, get motivated, and get ready to destroy some debt!

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Discretionary Spending & The Spending Journal

Matt Jabs — Wed, 21 Oct 2009 10:00:24 +0000

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If you want to increase your success with budgeting and money management, start keeping a spending journal. Period.

Before starting our spending journals we could not get a solid handle on our budget. Discretionary spending is the silent killer looking to wreak havoc on your budget.

discretionary spending – (economics) The amount or portion of a person’s or group’s expenditures which is used for non-essential or voluntary disbursements; the amount or portion of one’s expenditures which one may make as one sees fit. – wikitionary

I sense a high degree of passion for debt freedom in most of you, but know the pitfalls we all face while trying to get there and have found our spending journals to be a cornerstone of financial success.

What is a spending journal?

A spending journal is a small notebook for recording your daily discretionary spending.

“A small leak can sink a great ship” – Benjamin Franklin

You do not have to record every penny! What? That’s right… despite what you may have heard, you do not need to record every penny that flows through your budget in your spending journal – you only need record expenditures that are not part of your regular monthly payments.

For example: You do not need to record your car payment, phone bill, rent/mortgage payment, insurance payments, etc. Instead you want to focus on the little “nickel and dime” purchases you make throughout each and every day. You know… the ones that drain your checking account each month and leave you asking, “where did that extra $400 go?”

Note: You do need to keep track of all your money, but your spending journal is only for keeping track of discretionary spending.

Why keep a spending journal?

It will help you control your money rather than you being controlled by your lack of money.

To track the small, everyday expenditures that are causing the small leak in your great ship!
To help you curb spending.
To help you prioritize your spending.
To make budgeting much, much, much easier.

Note: Budgets fail because people have a hard time controlling and tracking discretionary spending. That trouble ends with the proper implementation of the spending journal!

How to keep a spending journal

Keeping one is easy – don’t let anyone tell you otherwise.

You spend a dollar, you write it down. You spend $100, you write it down. Can’t write it down right this second? No worries – keep your receipt and write it down later – just make sure you write it down!

Keep it simple. You do not need to be über math geek. Simply record the date, the amount, the item, and the budget category. For example, if I purchased a coffee for $1.25 on the 2nd day of the month my entry would look like this: 2nd – $1.25 on coffee = dining & entertainment.
Keep it on your person. Ladies: carry it in your purse. Fellas: I carry a man bag (I swear I’ll write more about it someday) and keep my pocket-sized spending journal and pocketbook inside. I keep the bag with me most all the time. If you’re too manly to carry a bag then keep your spending journal somewhere you frequent daily like your kitchen counter, your vehicle, or at work.
Save receipts. If you cannot record the purchase right away, keep the receipt and record it when you get back to your journal.
Write down every discretionary penny spent. Not every penny that comes through your checkbook, just the random purchases not already accounted for in your budget.
Total it up each months end. You may hear others advising to total it up every day… don’t bother, that is too complicated. All you need to do is add up the overall total along with the total of each budget category.
Add the totals to your budget. Now that you have successfully tracked and categorized your discretionary spending, go add the numbers to your budget being careful to fill the proper amounts in for each category.
Adjust your budget accordingly. This is the really cool part. Adjust the amounts for next months projected budget based on the numbers you spent the previous month. Continue to do this each month, deriving averages in your monthly discretionary spending and always looking to “trim some fat” whenever possible.

Some say to do this for a month or two… I say do it for the rest of your life. Trust me, it’s easy and it makes all other financial planning/budgeting much easier and less overwhelming.

Note: I’m not talking about using Quicken, or Mint.com… I’m talking about good old fashioned pencil and paper record keeping kept on your person.

Challenge:

Try this for one month. I’ll bet it makes an enormous difference in your financial life – even if you thought you already had it in order!

What say you? Are you in?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Homemade Toothpaste Recipe – Easy and Frugal

Matt Jabs — Tue, 20 Oct 2009 10:00:31 +0000

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This recipe will take less than 5 minutes to prepare.

Why do I make my own homemade products? It all started when I made my first batch of homemade laundry detergent a few weeks back… since then I’ve been hooked! Now I am on a mission to make as many household products as I can. It saves me money and gives me a sense of joy and accomplishment! Up this week… homemade toothpaste!

When I make products I FOCUS ON EASE OF PRODUCTION, EFFECTIVENESS, and COST SAVINGS.

I am not only making this homemade toothpaste for the benefit of me and my family… I am also doing it for your benefit. I am passionate about empowering readers with the means necessary to increase both frugality and self-sufficiency.

SIMPLE INGREDIENTS

2/3 cup baking soda
4 tsp fine sea salt (optional – gives paste extra scrubbing power, but is okay to leave out if the taste is too salty)
1 – 2 tsp peppermint extract according to taste (or add your favorite flavor – spearmint, cinnamon, orange, etc.)
water (add to desired consistency)

COST BREAKDOWN & SAVINGS

Here is the breakdown in cost analysis for 5.33oz of my homemade toothpaste (same amount as one tube of my old toothpaste):

baking soda @ 16oz = $1.00 | 2/3 cup is 5.33oz which = $0.33
fine sea salt @ 22oz = $2.00 | 4tsp is .66oz which = $0.06
peppermint extract @ 1oz = $3.00 | 2tsp is .33oz which = $1.04 | Better yet, use 1tsp is .17oz which = $0.52

(**note** you can use as much or as little peppermint or other flavor as you wish, add the flavoring little by little until you reach an amount you enjoy.)

Prior to making our own, we were using Tom’s of Maine Spearmint Gel® costing an average of $5.00 for a 5.2oz tube. Based on the calculations above the same amount of my homemade toothpaste will cost me between $0.91 and $1.43 for 5.33oz, depending on how much flavoring I use.

The cost savings will be between $4.09 – $3.57 per tube!

Aside from cost, there are many other benefits of homemade products. By making this toothpaste not only are we cutting costs by upwards of 300%, we also know the exact ingredients and count time spent as fun, educational, and useful for all involved!

A SIMPLE RECIPE & MAKING OF A BATCH

Remember, each batch yields the equivalent of one 5.3oz tube of toothpaste which you can store in a small storage container somewhere close to your toothbrush. When you are ready to brush, simply wet your toothbrush, scoop or spread as much paste as you like, and begin brushing.

Update If you are grossed out by double-dipping with others but don’t want to make separate batches – do as DFA reader Lakita of Paneh Praise suggests – put the paste in a Ziploc bag and cut the corner off for a homemade squeezable tube. Thanks Lakita!

1. Start with these ingredients:

2. Mix together and add water until paste reaches desired consistency.

That’s it! You’re done. Now go get rid of that bad breath!

A few FAQ’s and answers:

Where should we store the paste? In a container of your choosing close to your tooth brush. I use a small plastic ware container.
Should we each have our own container, or can we share with others in our family/roommates? If cooties bother you then get your own container… if not then don’t worry about it. My wife and I share one.
How do we get it onto our toothbrush? Simply wet your brush, scoop or spread on some paste, and brush away.
Does this really work? Yes. I actually like it better than store bought and find it gets rid of onion and garlic breath better than any toothpaste I have ever used.
Where do I get the ingredients? At pretty much any store, or you can buy them online through the links above.
Is this toothpaste bad for me? No. But that is just my opinion since I am not a dentist, and because these claims have not been evaluated by the FDA. That said… all ingredients are commonly used products and otherwise regarded as utterly safe.
What about fluoride, don’t we need it? Not in my opinion. Research I have done reveals fluoride as a toxic poison. Dentists typically say it is beneficial when applied to the teeth of children, but I encourage you to do a little research of your own… I’m guessing you’ll come out holding the same opinion as me.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Save Money – How To Talk To Customer Service

Matt Jabs — Mon, 19 Oct 2009 10:00:30 +0000

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It doesn’t take magic fairy dust to get customer service reps to give you a “good deal.” A lot of times all you have to do is practice the lost art of being nice!

STOP OVERPAYING for monthly services. STOP OVERPAYING at the store. LOWER YOUR BILLS with a simple phone call. GET SALE PRICES even when items are not on sale.

Most people overpay for just about everything these days – but usually lower bills and discounted prices are just a matter of employing a few simple, old fashioned tips!

Sound too good to be true? It’s not… A lot of times all you have to do is ask!

Proven Tips to Help Save You Money…

While some CSR’s (Customer Service Reps) are trained to try and dissuade you from your dream of reduced expenses, others wouldn’t mind giving you a break at all… as long as you treated them right! Here are a few tried and true pointers that I use every nearly every day. Enjoy!

You HAVE to ask – If you do not ask for a discount… no one is going to give it to you. Quit waiting for money to fall from the sky and go make something happen! This tip is the one that saves me the most money. I use it everywhere I go. Later on in the article I’ll share one of my bigger wins from using this priceless advice.
ALWAYS maintain an excellent spirit when dealing with the CSR – The old adage, “You catch more flies with honey than with vinegar” is quite true. Simply consider how you would want to be addressed then give the CSR the same respect and courtesy. After all… they probably catch flack all day so if talking to you is a pleasure for them, they are likely to do whatever they can for you.
Maintain separation between the CSR and the company itself – This is an awesome tactic that is CRUCIAL to your success in lowering costs. Basically you want to create a distinction between the CSR and the company they work for. This allows you to voice your displeasure with the company, while not attributing any of the displeasure to the person you’re talking to. For example instead of saying, “You are charging me too much for Internet”, say something like… “I am just really unhappy with how much Comcast is charging me for service, especially with all the other options out there.”
Get the CSR to empathize with your situation – Now that you have created that separation between them and the company… you can easily place them in your situation. Say something like, “What would you do if you were me?” Or simply, “How would you feel if you were in my shoes?“ Or, “you know what I mean right… you’re trying to make a living just like me right?”
Use the company’s competitor’s prices and services against them – If you use Comcast for Internet, talk about the low prices AT&T is offering on residential DSL service with similar speeds. Say to them, “I will stay with Comcast if they can match AT&T‘s prices, otherwise I‘m going to have cancel and go with AT&T. I mean, what would you do if you were in my shoes?“
Be willing to discontinue the service – Ultimately if you are not truly willing to leave your current provider, you will be less authoritative and they will be less likely to oblige you. Make sure before making this decision you discuss it with your wife and/or family. Be sure to explain the alternatives, and also key on possible benefits of canceling the service altogether.
Be confident and persistent – Just as you are much more likely to listen to someone who delivers a confident and meaningful argument, so the CSR will be too. Before you call, make a plan of action. Write down the reasons why you need the price reduced along with price quotes from several other providers. If you are prepared and resolved, the CSR will have a hard time denying your request…it worked for me!!

Employing these tips has saved me thousands of dollars over the course of the last few years!

Don’t Limit These Stratagem to Phone Calls…

One of my “biggest wins” experienced from these strategies happened earlier this year when I was installing my back yard paver patio.

We went to our local home improvement store (Menards) to purchase our supplies
We sized out our patio using their friendly computer system (I got the CSR to help me so I could “buddy up” with him)
We picked out all the patio stones and peripherals we needed for installation
We went to the desk to have the CSR price out our goods
After he gave me the price I said, “Hey man… since I’m spending so much here (it was around $1,800) do you think I could get some sort of discount?” Almost without hesitation he replied, “Sure. Let me go ask my supervisor what we can do for you.” He came back and offered to give me the last sale price on every item I was purchasing. When it was all said and done we saved over $300 just like that!

What are you waiting for?

Go try this out and let us know what happened in the comments below.

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Photo credit to Kennedy Garrett

Credit Card Rewards – Rethink Your Returns

Matt Jabs — Thu, 15 Oct 2009 23:55:22 +0000

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Would you change your use of credit cards if you discovered the “rewards” are perceived income and not actual income? What if credit debt was enslaving your nation? What if both were true… what would you do?

“There is that maketh himself rich, yet hath nothing: there is that maketh himself poor, yet hath great riches.” -Proverbs 13:7

Two Predominately Popular Views

The debate over the use of credit cards seems to be divided into two polar camps - Camp Rewards and Camp Avoid. The following is a basic description of both camps and a summary of the view held by each.

Camp Rewards – These folks use credit cards to take advantage of the rewards programs they offer. They tend to use their cards for most purchases leaving their own money in the bank to draw interest all month, then pay the cards off each billing cycle thus evading any finance charges. This group rarely sees credit card use as a moral issue and tends to believe that consumers should use credit cards only if they do not have enough personal responsibility to operate within the guidelines of the rewards rules.
Camp Avoid – These campers avoid the use of credit cards like the plague. They may or may not have been raked over the coals themselves and usually have a moral conviction that the business practices of credit card banks are abhorrent and may even view their abstinence as a form of protest. They traditionally believe that using credit cards encourages over spending by creating a dangerous disconnect between themselves and their money.

Having recently shredded and closed all my credit card accounts I am firmly entrenched in Camp Avoid, have waged war on credit card banks, and would like to challenge the members of Camp Rewards to jump ship by providing them with a different perspective on the subject of credit card rewards.

Regardless of the camp you’re in… if you need someone to convince you that the business practices of credit card companies are immoral, then you may want to quit reading now – I cannot help you. With that in mind, this article will not work to convince anyone of the immorality of the industry but will assume readers already aware of an obvious truth.

Instead… I will set out to convince those dancing the dance of credit card rewards to cut ties with the industry and come join Camp Avoid! I am not setting out to discredit or dishonor those who use credit to get rewards… but rather am imploring you to take a step back and consider the bigger picture. I do not judge anyone… but I do live to persuade others to choose the BEST option!

If anyone has been able to fend off the strategies of the credit card banks, they can consider themselves lucky. “Convenience users” – a term used to describe card users who pay off their balance in full each month—is at an all-time low, representing only 37.4% of the credit-card using population.” *source from 2004, I’m sure this number is much lower now.

A Different Perspective…

What if the rewards were only perceived and not actual?

Credit card companies would have us to believe that their credit card rewards are ultimately a way to increase our bottom line. In fact, they spend billions of dollars annually on clever marketing campaigns intended to make us believe we need their “rewards.”

Should we trust their marketing campaigns? Good question. I’ll let you form your own opinions on their level of trustworthiness.

Let’s break down a few numbers, read a few quotes, and consider what all is involved concerning credit charges and how they effect the pricing of goods and services in our current economy.

Rewards 101 – Interchange Fees

Interchange fees are fees that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) when merchants accept cards using card networks such as Visa and MasterCard for purchases.

Interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes). In the United States, the fee averages approximately 2% of transaction value.

In recent years, interchange fees have become a controversial issue, the subject of regulatory and antitrust investigations. Only very large merchants such as Wal-Mart might have the leverage to negotiate fee prices, and while many merchants prefer cash or PIN-based debit cards, most cannot realistically refuse to accept the major bankcard association-branded cards. This holds true even when their interchange-driven fees exceed their profit margins. Some countries have established significantly lower interchange fees. The fees are also the subject of several ongoing lawsuits in the United States. -Wikipedia

Because merchants have no control over the fees they are charged, and because fees in the U. S. are the highest of any country in the world – high costs must be passed on to the consumer.

Interchange fees affect the market by raising the cost of consumer goods and services by at least enough to cover the 2% they cost merchants.

Those who have been following our Debt Free Adventure no that we also boycott Walmart and choose instead to shop at local businesses whenever possible.

“Credit card companies typically levy more than $2 in fees for every $100 consumers charge at American businesses… but credit card companies rules prohibit merchants telling consumers about these fees at the point of purchase.” *source

Price increases for all…

Given the information above we see that interchange fees cost users of debit and cash along with the users of credit.

Each year, in addition to interest, late fees, over-the-limit charges and other fees charged by credit card companies and their banks, consumers pay billions of dollars in hidden fees that never appear on their monthly statements. These hidden charges are called credit card “interchange fees” also known as “swipe fees.”

Major organizations like The National Retail Federation (NRF), National Grocers Association, National Restaurant Association, and advocacy groups such as Americans for Financial Reform have come out in favor of reforming credit card interchange fees.

NRF Senior Vice President and General Counsel Mallory Duncan says, “…banks are driving prices of consumer goods higher by charging merchants more and more for credit card usage. The merchants have to pass the cost back to the consumer, so everyone—not just the people who use credit cards but those who pay cash or by check, too—pays more.” *source

It gets worse.

Merchants are legally disallowed, per the terms of their merchant agreements, to disclose this fee information to consumers.
Merchants are charged a flat fee and a percentage on every credit purchase you make but cannot legally require a certain amount per transaction for use of credit (though some do so anyway.) In other words, per their agreement with the credit card banks, they cannot require a minimum purchase of say $20 for the use of a credit card to make a purchase.
Jim of Bargaineering.com recently reported his findings of how credit card rewards points translate into cash. He discovered how the equation credit card banks use is not: [1 point = 1 unit cash]. Instead, after looking into it a bit further Jim found that a more accurate equation would be: [1 point = 0.65 unit cash]. He also found the equation to be unique to each bank… each using different rates of conversion – some higher, some lower.

Unless you are much smarter than I am, the only conclusion to be made is that by swiping our cards we are essentially supporting the construction the infrastructure and industry that raises our prices. The same industry that is oppressing the poor and exploiting the vulnerable.

“Home Depot pays more in interchange fees than for employee health care.” *source

So we don’t really make money from rewards… using credit cards actually costs us more money then we could ever make back. If it were not so credit card banks would not entice with offers to use rewards. They make ridiculous amounts of money and use rewards as a way to trick us into thinking we are making money.

Rewards 201 – Personal Responsibility

A common point among those who encourage using credit cards for “rewards” hold that those who cannot “use the cards properly” lack personal responsibility.

While I outlined my strong support of personal responsibility, I am also a HUGE advocate of mercy for the poor and less fortunate.

I challenge you to consider how…

Credit card banks prey upon the weak and vulnerable paying millions of dollars to universities and alumni associations alike who buckle and sell the personal information of their students, faculty, staff, and alumni to this vulture industry. *source 1 & 2

Concerning people with less income and a “taste for plastic” – rather than refusing to extend credit, or giving lower interest rates to them – as Liz Weston suggests – credit card banks continue to issue cards to these people like candy, and do so at interest rates near 30%!

And who do you suppose is one of the largest target markets of credit card companies right now? People who have recently been through bankruptcy!

Elizabeth Warren reveals what is really going on…

Rewards 301 – Credit CARD Act of 2009

While this legislation was passed in May of this year, it does not go into effect until February of 2010 giving credit card banks nearly 10 months to figure out how they can work their way around any newly imposed restrictions. If you would like to help push this through faster, check out CreditCardReform.org

How have credit card banks responded?

Simple… they are changing the terms to existing contracts in order to position themselves to make money at the expense of their customers. Yep – even the good customers like those who pay off their balances in full each month.

Some of the typical changes we are seeing include:

increasing interest rates “because of a bad economy”
instituting annual fees on existing cards that never carried them before, without clearly informing customers
increasing minimum fees by as much as triple, leaving a lot of their debtors unable to pay.

What About Debit Cards?

Unfortunately debit cards are used as credit more than they are used as debit.

You know the drill. You go to make a purchase and the check out person asks, “debt or credit?”

So what’s the difference?

If you punch in your personal identification number (PIN), it’s an online transaction – it gets completed electronically and it’s done pretty quickly. If you don’t use your PIN and you sign a charge slip instead, it’s an offline transaction. Offline transactions are processed much like plain-vanilla credit card purchases.

Even though you use a debit card, offline transactions are very much like credit card transactions. Your debit card might have a Visa logo on it, for example, so it runs through the Visa network. It’s not a credit transaction, but it uses the same infrastructure. *source

So who cares whether it is an online or offline transaction? Merchants. If you use your card as debit, merchants are charged less fees so you can imagine that banks give you heavy incentive to choose credit! You should care too because as we read earlier… the merchants pass those glorious fees right on down the line.

If you use your debit card as a debit transaction, you are not negating the fees, but you are in effect lowering them. This is because the cost for debit transactions is less than the cost of credit transactions.

What About Cash?

Unfortunately, because the extreme use of credit has built price hikes into almost all retail pricing situations, even the use of cash will cost you 2% more!

How does that make you feel about rewards? Honestly.

Many merchants would love to give customers a discount for using cash, and some still do! However, because of the complexity of the issue they cannot typically maintain a system where they charge one price for cash and another price for credit… it’s too cumbersome and costly to maintain.

So why use cash… why not just forget it and continue using credit?

Because it is the right thing to do. I suppose that is the basis of my entire argument summed up nicely in one clear statement. I am sure I will catch a good amount of flack for this article… but that is fine. I wanted to present facts to sway your opinion about the use of credit by showing how it continues to enslave our nation.

Most importantly… do YOU think it is the right thing to do? If so, then we must ask ourselves if $200 – $400 per month in “credit card rewards” is worth doing what we now think of as wrong. Maybe you do not see this industry as repressing and destructive. If that is the case, then I guess I have failed you today.

Like I said above… I do not judge anyone for their use of credit cards – this post has been weighing heavy on my heart and I simply wanted to convey it as honestly and openly as possible with the hopes that I might sway even one existing “rewards” user!

Remember… the more we use our cards as credit, the more we are supporting the existing credit card fee infrastructure.

Consider This A Challenge & Rethink Rewards!

You Have A Vote

Every time we go to make a purchase we can lessen the devastating effect of credit on our nation by simply choosing to boycott the extreme use of credit. We can use our debit card as debit, or better yet… use cash. I know it may be a pain, but life isn’t all about money – nor is it about always taking the easy way out.

Whether this credit crisis was our fault or not – doesn’t it feel good to help those who need help? To have mercy on those who need mercy. To take a stand for what is right – even if you have to stand alone. Who cares if you’re the only one standing? At least you stood!

Switching to cash and debit only transactions will not be an easy change for the wife and I. But I suppose we will approach it like we do everything else… one baby step at a time. It will get easier and easier with each passing day – then before you know it making credit purchases will become little more than a bad dream!

Bible wisdom is better than silver and fine gold…

“There is a way which seemeth right unto a man, but the end thereof are the ways of death.” -Proverbs 14:12
“Do they not err that devise evil? but mercy and truth shall be to them that devise good.” -Proverbs 14:22
“He that oppresseth the poor reproacheth his Maker: but he that honoureth him hath mercy on the poor.” -Proverbs 14:31
“The eyes of the LORD are in every place, beholding the evil and the good… In the house of the righteous is much treasure: but in the revenues of the wicked is trouble.” -Proverbs 15:3,6
“He that refuseth instruction despiseth his own soul: but he that heareth reproof getteth understanding.” -Proverbs 15:32
“Righteousness exalteth a nation: but sin is a reproach to any people.” -Proverbs 14:34

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Credit Cards – Close ‘em Shred ‘em & Forget ‘em!

Matt Jabs — Tue, 06 Oct 2009 10:00:48 +0000

Before…

DFA community wisdom says forgo the “rewards” of the credit card industry and put an end to toxic relationships with giant credit card banks.

Last week I asked all of you to help me decide a Wise Use of Paid off Credit Cards. Here is what you said:
Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

The overwhelming majority say “forget FICO” and chose instead to “close ‘em, shred ‘em, and forget ‘em!”

So…

I decided to take your advice…

After…

Yesterday we closed all our old big bank credit cards, and were not the least bit sad to see them go! Here is a list of our ex-saboteurs:

Capital One
Chase (twice)
Citi
HSBC

I also closed these department store cards:

ABC Warehouse
Banana Republic

Thank you to all who participated in the poll, and especially to everyone who added to the many insightful comments (53 at the time of this writing.) You input was very carefully combed over and very much appreciated.

So why else did we close our credit card accounts?

Good question. For whatever reason it was not a decision that came quickly or easily, rather we toiled over the decision for months.

And I’m not really sure why we toiled. Credit card companies have never been a benefit to me, or my wife. They have never “saved” us from economic hardship – quite the opposite actually.

In the interest of full disclosure, there was a period a few years ago where my wife was out of work and we used the cards while “in the red” at the end of each month. However, looking back if we would have simply lowered our standard of living – like we have now – we never would have needed to use them and would have gotten by just fine – nay… better – without them.

The truth of the matter is, credit card banks make me nervous.

Their business practices blow past “questionable” and fall more accurately in the realm of “criminal.”

You don’t have to hold a doctorate in Economics to realize that fattening up the bottom line by any means defines gospel truth to credit card banks. Arguing the moral inventory of the credit industry would be a job reserved for the corporately brainwashed – to whom I say, “WAKE UP!”

Case in point… since paying our cards off – just a few months back – we have already been hit with a newly instituted annual fee whose induction was buried on page 3 of a statement we received about our interest rate going up. Ultimately I take responsibility for not reading the entire document (*puke*) but this type of hoodwinking is exactly what I want to avoid – and exactly why I ended up canceling our cards.

**NEWSFLASH** Attention credit card companies – Despite what you may have learned in credit card school, your customers do not enjoy getting bamboozled.

Should you close your credit card accounts?

That is up to you my friend. If you want my advice I would say to yes, you should close them – however I will refrain from using this blanket statement since some people love to play the rewards game. Personally… I don’t have the time or patience for it, and would MUCH prefer simply never having to deal with the toxic credit card banks ever again.

Here are some reasons for and against closing your old credit cards accounts. I will try to remain fair to both sides here…

Nah… I will call it exactly as I see it.

Reasons you may want to leave your account open:

When credit cards say jump for rewards – you say how high. Remember, to get their rewards you have to use the card in a very specific way. And if you screw up once… BAM! Fees high enough to wipe out months, maybe years, of built up rewards.
Increased FICO score – In the above poll DFA readers overwhelming advised against basing your decisions on your FICO score or, as some called it in the comments, your “I Love Debt Score.”
Security for emergencies – C’mon… you know what I’m going to say now right? Don’t use credit cards for emergencies… work to build up your Emergency Fund and use that instead. Trust me… this is the way to go!

Reasons for you to close your credit card account:

No more temptation to use them – You can’t spend what you don’t have. Getting rid of your cards eliminates temptation to spend money you don’t have.
No more dealings with a company who lives to empty your pockets – From the time you’re of legal age the giant credit card banks are courting you with very carefully orchestrated strategies… all with the end goal of getting you into an endless cycle of interest payments to them.
No worrying about fees (late payment fee, over the limit fee, etc.) – No open credit card accounts = no fees. It’s just that simple.
No more interest payments to others – Instead you can bank your money and pay yourself interest. What a concept eh?
No more supporting an industry that feeds on the less fortunate – I mentioned the fact that you no longer have to deal with deceitful companies, but closing your accounts will also end your relationship with an industry based on predation of the less fortunate. According to the FDIC 93% of fees are charged to 14% of credit card users.

I’m sure there are countless other reasons to terminate your relationship with your big credit card banks… but this list is more than enough to open your eyes and give you a head-start.

Will I ever use credit card rewards again?

Because I am a Personal Finance Blogger…

I may soon be testing the rewards program of my local credit union in the hopes of providing DFA readers with a positive rewards solution – because I will never endorse big bank rewards programs and I would like to be able to endorse a healthy alternative… if possible.

In that spirit I have decided to leave myself a single credit option, albeit a much healthier one. If you must keep a credit card, the following route is probably your best bet.

After recently switching to ING Direct for our banking - *love it* – we decided to subsidize the liaison with a membership to our local credit union. A few weeks prior to our close ‘em, shred ‘em, and forget ‘em decision… the credit union extended a joint, rewards credit card offer, and we accepted. While we have no immediate intention of using this card, because it is with our local credit union (not a big bank) and because of the reason stated above, we are keeping the account open… for now.

Do you use a local bank or credit union Credit Card for rewards?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Debt Free Adventure!

Pay Off Debt – The Hybrid Debt Snowball Fight

My wife and I are entering week 6 of Dave Ramsey’s 13 week Financial Peace University course.

3 Things We’ve Solidified after 5 weeks of class:

Accelerated Debt Repayment – It’s a Fight!

Photo courtesy of Princeton University Archives

Debt Snowball fights with those you owe can hurt if you don’t carefully plan your strategy. Using the proper accelerated repayment program will save you thousands and leave your creditors eating snow!

Here is what works for us…

Our Debt Repayment Strategy

Of these three plans I choose - The Jabs Hybrid Solution:

How Much Money and Time I’ll Save

Do What Works for You!

Related Posts

Layaway – Buying Clothes on a Budget

I’m bringing Layaway back!

What is Layaway?

Why use Layaway?

My recent Layaway Love Story

The coat and receipt you see above are both from my own personal layaway experience… from yesterday.

In light of these facts we decided it was important to create and designate money to… a Clothing Envelope.

Enter Layaway…

Which Stores Offer Layaway?

Will you become a layaway enthusiast?

What about you? Will you be using layaway any time soon?

Related Posts

Is The $6,500 Homebuyer Tax Credit Retroactive for Existing Non-First Time Home Buyers?

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Many people want clarification on exactly who is eligible for the new $6,500 homebuyer tax credit. Read on to see whether or not you qualify.

Obama Signs Extension as Expected

So Exactly WHO gets the $6,500 credit?

And Exactly WHO gets the $8,000 credit?

Please note that… any home owner who sells the newly purchased home or ceases to use it as a primary residence within three years of the purchase date must repay the credit. And in both situations the yearly income limits are $125,000 for individuals and $225,000 for couples.

Why Not Make the Homebuyer Tax Credit Retroactive?

Will This Stimulate the Economy?

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Related Posts

$8000 Credit extended – $6500 Credit introduced

photo credit to Infrogmation

Is it Retroactive?

What Credits Did the Measure Extend?

Who Was the Credit Expanded to Include?

To Be Eligible for the home buyer credits… buyers in both groups have to have signed a purchase agreement by April 30, 2010, close on the home by June 30, and must use the home as a principal residence.

Should the Government Have Extended Benefits?

What Do You Think?

Chime in now.

Related Posts

Monthly Debt Reduction & Savings Statement for Aug, Sept, & Oct 2009 – The Question Edition

photo credit to Marco Bellucci

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The deadline for our year end financial goals is fast approaching yet we’re not quite half way there. The question is…

Will we make it?

Before I get into the goals and progress I wanted to briefly mention a few things:

And now… on to the progress!

Our Current Goals

Our Current Debt Progress

Our Current Savings Progress

Thoughts…

If you desire to track our progress, you can do so directly by following the MDRSS (Monthly Debt Reduction & Savings Statement) tag series.

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Related Posts

Homemade Christmas Ornaments & Decorations

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This post was written by my mom at the request of Lydia from MyMoneyChat.

Homemade Salt Dough Ornaments (Mom’s Favorite)

Construction Paper Chains (Matt’s favorite)

To make the glue simply mix together:

Popcorn and Cranberry Strings

All you will need is:

What about you?

Did you make some cool holiday decorations growing up? Don’t be a Scrooge… share the recipe!

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Tithing Our Time?

This is a guest post from Mr. NotTheJetSet

He’s a spender, she’s a saver. Together, they’re Not the Jet Set.

Tithing our Time

*Matt’s Note: The 4th area of stewardship is our health.

So how do we give our time?

So that’s what we are doing. We are starting with something.

Here is what we are doing…