The True Cost of Debt

debt-problemsOne of my favorite personal finance blogs is The Simple Dollar. You could spend hours on that site gaining insight from its contributors and learning from their experiences. A post on Dec. 5 reiterates the true cost of debt.

Doug Hoyes wrote:

  1. Interest eats up your budget
  2. Amortization is not always your friend
  3. Debt is a deterrent to saving
  4. Debt limits freedom of choice
  5. Debt delays retirement
  6. Debt has an unexpected life cycle
  7. Debt strains marriage

He wrote: “Simply put, debt is complicated. Yes, you will pay interest — but you will pay much more.

  • Debt grows faster than you expect.
  • Debt takes longer to pay off than you expect.
  • Debt adds risk when life throws an unexpected curveball.”

I couldn’t agree with Doug more, especially about interest eating up my budget. It has cost me to delay moving to another city or to give up trips. As a little exercise, I totaled up the interest charged on four credit cards, one of which I paid off, in 2014.

  1. Card 1 – $577.55
  2. Card 2 – $517.68
  3. Card 3 – $346.98
  4. Card 4 – $53.25

Grand total: $1,495.46.

Yep. That’s a sizable emergency fund. A great vacation to a beach locale. A nice Roth IRA deposit. ARGH!!!

The numbers don’t lie. They’re telling me that I dug myself a deep hole, and I must climb out of it ASAP.

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Post-Christmas Thoughts: 7 Ways to Save for Next Christmas

This weekend, my aunts, mom and I went to the local Walmart (a.k.a. Wally World) to pick up a few items. New Jersey aunt picked up matching sets of a scooter and Hello Kitty nail polish for my young twin cousins.

She looked up at me to find a quizzical stare.

“I found the girls Christmas presents for next year,” she said, smiling.

They you go. The items were on clearance for a fraction of the original price. I could learn a thing or two from New Jersey Aunt. She knows how to work a sale. She gifted me a baaaad Guess moto jacket originally priced for $300. I don’t know how much she paid for it, but I’m grateful.

The things is: I didn’t get anyone Christmas gifts this year—not even Grandma.

  1. I didn’t want to deal with the hustle and bustle of buying gifts.
  2. I didn’t want to spend the money.

My oldest aunt called me a Scrooge-let. In years past, I made sure to give presents to at least 7 or 8 relatives or close friends.

My youngest aunt gifted me a pair of boots on super sale at Belk’s on Thanksgiving Night. With all of the discounts, they ended up costing her less than $11. I offered to pay her when she found them at the store, but she didn’t take the money. So I gave her a huge kiss on the cheek and exclaimed, “Thank you!”

Youngest Aunt was not having my idea of not giving Christmas presents, especially to her.

I felt a bit guilty, but then I got pinged to pay my renter’s insurance and the fee for my website. So that took $270 out of my account this month. There went the Christmas funds…if I had decided to buy any gifts.

So next year, I’ll be more prepared. I think I’ll be in the giving mood.

While scrolling through Pinterest today, I saw this comprehensive blog post: 7 Ways to Save for Christmas Next Year…Now.

One way to start buying on Christmas clearance now like New Jersey Aunt; another way, to create a dedicated savings fund. My credit union offers that option. The tips are common sense tips, but it all comes down to implementing them. Ready, set, go!

When interest works against you

Screen Shot 2014-12-16 at 10.33.31 AMInterest is great when you’re saving. But my savings account only earns like 0.25%. My credit cards on the other hand — WHEW! They charge waaaaaay more.

I just checked an email that said “Your Credit Card or Loan Statement is Available.” Woo hoo! What a great way to start the day!

So I look at the balance and expected it to be less than it is. I’m like, “I just paid more than the minimum. Why did the balance only go down $40?” So I open the statement and read that I was charged $30+ interest on previous charges. I must remind myself that a huge chunk of my monthly payment is going to interest. And that really burns my beans, chaps my hide, etc.

In 2014, I’ve been charged nearly $350 in interest. Ugh! I knew credit card interest sucked, but reading the fine print in statements reinforces its suck-iness.

If this isn’t motivation to pay off my credit cards AND less interest, then I don’t know what is. The pros and cons of interest really should be taught in homes and high schools across America. It’s not a game!

Understanding Credit Card Interest

Falling into Financial Lessons: Black Friday Brings Me Back to Reality

Long time, no blog.

Why?! Because I fugged up.

My thoughts of having a No Spend September turned into Spend-A-Lot September, bled into Off-The-Chain October and settled into Need-to-Chill November. LOL! I’m laughing now because I feel a bit more settled.

Here’s an update into what I planned in September:

  • I planned a friend’s birthday party. The cost I was supposed to split with another person was not reimbursed. Oh, well. Gotta let it go because the cost was minimal.
  • I didn’t end up going to that concert out of town, so I “saved” $25.
  • I went out of state to celebrate a friend’s achievement in October and took $200 out of my savings. I haven’t replenished that yet.
  • I planned to attend two homecomings, but ended up going to four. I cut costs by attending a free concert at my grad school’s homecoming and accepted a friend’s generosity to stay at her home at my undergraduate homecoming. (Love her!)
  • I also caught 2-for-1 sale after 2-for-1 sale on clothes and racked up. Love the clothes, but I went overboard. No doubt.

Then on Black Friday, I discovered that I got hit big time by my car repair credit card. I didn’t pay off the entire $1,000+ plus bill before the 6-month deadline. The interest rate jumped up from 0 percent to 29.99 percent. The interest charged almost made me pass out. I learned an important lesson for sure. Do all you can to pay off those promotional purchases before the interest kicks in. It’s not worth it otherwise because you’ll pay much more than the original price.

Ding! Ding! Ding! Duh! That’s what interest and credit is all about. Seeing the actual number snapped me back into reality.

Consumer credit debt is not a game. It’s real. Spending that money on debt repayments keeps me from achieving other goals. It’s making me mad knowing how much debt repayment eats up my paychecks.

I worked on a good amount of freelance pieces and got a handsome check that has kept me sane. There’s more where that came from, thank goodness! In November, my bank account didn’t completely dry up after paying bills. I love the feeling of having more money than I’ve ever let stay in my checking account.

What’s interesting is that I paid bills on Black Friday while everyone was making it rain. Gosh! What a great antidote to spending!

I downloaded the statements from my remaining credit cards and recalculated my Debt Dash Plan. Focus is the key in 2015. I caught up on some of my favorite financial blogs and joined The Budgetnista’s Facebook group. I loved this picture from another member: “You Save Even More Money If You Don’t Buy Anything!”

YouSaveByNotBuying

Ain’t that the truth, Ruth?!

On the other hand, my mother and aunts made it their job to spend. They left the house at 9 a.m. and came back around 6 p.m.

They came in with tons of bags, and I’m thinking to myself, “Why is my mom spending something at every turn? Did she hit the lotto and not tell us?”

I’m making steps to avoid that path. Today, I visited the HR department and doubled my automatic deductions to my savings and increased by HSA contributions a smidgen. And it’s time to set other goals for 2015.

Baby steps. Baby steps.