The program itself started out by revealing the history of how credit card companies positioned themselves to take advantage of a lack of regulation in some states. They then went on to discuss how the companies then came to exploit the lack of regulation to take care advantage of the consumer/borrower (told you they were biased…but then again so am I).  I’m not going to suck the life out of you with the intricacies if the credit card business here today but I will say the more I pay attention to the business the more I wonder, aside from the stock holders, who is really benefiting from their practices. The one thing I found surprising was how many ex-credit card industry professionals came out to speak against industry practices.  

Now I’m not here to completely bad mouth these guys but it does reinforce to me why I choose to find other options than credit cards. Remember these consumers, including myself, signed up for this ride and if you don’t understand the contract maybe you shouldn’t be so quick to sign on the line. I am personally a share holder in several banks through my mutual funds so I love it that people several million people can’t control themselves almost to the point of bankruptcy then manage to fight their way back through 30% interest rates and late fees then immediately jump back on board for another trip. To that I say….YEEHAW boys! Let’s ride these hogs all the way to retirement on the backs of out of control consumers trying like hell to save the embarrassment of a low credit score! Keep it up suckers, daddy needs a new Maserati!   

So if you have 40-ish minutes of your life you won’t regret spending on the couch and you have an odd fascination with money, business & credit click here: FRONTLINE: Secret History of the Credit Card or even better read my Credit Card Debate page to learn how you don’t have to ever deal with them if you don’t want to.

To get started I first listed everything I owed in an Excel spreadsheet. It was immensely helpful to have all the info in one place. You could write it down and keep it all in a big fat Black Book of Debt if you prefer. Once I laid it all out most of the time it’s smooth sailing; I would simply just update the balances on the spreadsheets and pretty much leave the rest alone. Every now and again there was an opportunities to move around a balance. Occasionally though I’d have to get all FreakShow budget crazy making and start juggling thousands and thousands of dollars. Often these moments in budget anarchy happen for good reasons though sometimes it was due to events like my serious budget busting week or even better the follow up

During moments like this is felt more like I was trying to de-fuse a movie bomb…”is it the red wire or the blue wire? Three seconds left before the end of my financial world. Which is it Financio, the Red or the Blue?” With beads of sweat rolling down my face I would send online payments off via the inter-web while credit card and checking balances were checked and rechecked all the while hoping I didn’t just vaporize my family’s finances by sending every extra penny we had off the to the enemy. Knowing all too well that in another couple weeks I will once again sit down under intense pressure and attempt to diffuse our personal time bomb where all I can hear over the incessant pounding in my temples is the polite question of our progress from my wife and I lovingly respond with….

Iamtryingtopaythestupidbillsheredoyoumind?! Seriously, do you?!

 Since my wife and I are trying to reach some specific financial goals we are kind of strict about any money that we blow. The dollar amount that would trigger my wives fury while we were trying to eliminate our personal debts (I know this may sound insanely low to many of you) was around $25. Do remember though that my wife is a saver by nature and I’m the one that liked to spend. Also remember that I’m talking about spending money that wasn’t in our spending plan – I’m not talking about things like food, gas, needed things around the house, car maintenance etc. – I’m talking about things we hadn’t planned for like a cool $52 sweatshirt, or a $175 replacement for the broken cell phone – you know that sort of stuff.

Now that our debts have been cleared (with help from some learned behaviors like this one) our spending threshold has now been adjusted accordingly. We’re now closer to the $80-$100 range for “free” spending. Now that we’ve worked so hard to always discuss and share our finances we usually talk about most things over $50 anyway (note that we talk about it…not fight about it). Hopefully one day with enough hard work and discipline when I surprise my wife with the new Cadillac she wants and the only discussion we’ll have will be where we’re taking it for dinner that night and who gets to drive – now there’s the spending threshold I’m shooting for!

Agreed upon spending limits is where a couple’s shared finances can really help a couple succeed over the long term due to the unavoidable accountability. How’s the saying go? “At some point he’ll have to come home!”

What dollar amount do you feel you should have agreement with your spouse before buying something as to avoid your home turning into a bad Jerry Springer episode?  If you’re single at what dollar amount do you feel you’ve let yourself down buy spending too much?

Once I received the news that evening my wife and I decided we needed to travel three states away and we needed to leave that night (and I’m not talking about crossing three of those little East Coast states, I’m talking about crossing three big fat West Coast states). When we were discussing our options about flying, driving, going or not going, a funny thing happened that was sort of new to us…not once during our discussion did my wife or myself ask the question “Do we have enough money” or “How much will it cost?”  We knew stuffed away in a local credit union was had everything we needed to do whatever we needed to do.

At 2am, within couple hours of receiving the emotional news Mrs. Financio, Mrs. Financio JR, and myself found ourselves in the SUV, making a quick stop at the ATM to grab some cash then we made a break for the border(s).

18 months ago this whole scheme would have played out a bit differently. It likely would have involved some unpleasant discussions about money and credit cards and bills and gas money, all are the last things I want to talk about when things complicated. After all was said and done there was no debt incurred, there was no discussion about the money involved in making the trip. We were free to do what we felt we needed to do without any concern for the dollars involved. This unexpected trip that came about by a huge loss in my life was in a way also huge success for me financially and, proof that some sacrifice and good decision making can pay off in big ways that can’t be explained in terms of dollars. The crazy part was that this came right on the heels of our Serious Budget Busting Week I think somebody out there is testing me to see if I’m really serious about this whole debt free thing!

How long could you cover your household living expenses with your current liquid savings? This survey of 2,318 adults 18 & older asked how long people could survive on the liquid money they had available. It proves how unprepared many Americans are with less emergency money available than the professional financial nerds out there recommend.

• Less than one week 17%
• One week - one month 14%
• One month - 90 days 24%
• Three - six months 10%
• Six months or more 19%
• Declined to answer 17%

The scary numbers are the first two. 31% don’t think they could make it a month. That’s a scary state of affairs for a lot of people out there. Most advisers recommend 3-6 months in liquid money. According to this survey only a third of Americans measure up to those recommendations though it sounds like from recent reports the current economy may have scared some more money into savings accounts over the last year or so. From my experience lately though people have been spending more time whining about being broke than actually doing something about it…I guess we’ll see the next time “it rains!”

So how does  your family measure up? Post a comment and lets us know (don’t worry you can even use a fakie name if that makes you feel better about yourself)

*Survey source: LexisNexis Martindale-Hubbell’s Lawyers.com survey of 2,318 adults 18 and older.

the %!<&\# at Citi just jacked my interest rate right after I made the stupid payment

Her call sent Vinny Financio into action and prompted me to snoop around the inter-web a bit. Little did I know I would find out that Citigroup has also started charging annual fees to card holders who don’t put more than a specific amount on their cards, typically $2,400 per year. So let me get this straight…If I use a card you charge me, (I get that) If I don’t use my card you charge me (thats the part I don’t get!).

Okay that’s not really true, I do get it they are charging customers more fees. That’s what they do, that’s what their consumer business model is based on. The part I don’t get is why do they still have customers? You know the saying though…

you can lead an idiot to water but you can’t make him drown himself

It amazes me what people are willing to put up with. Luckily though Military Wife, due to her recent financial progress, was able to close the account and I doubt she was able to contain her ex-Marine Corp potty mouth when she told them what she thought about their new programs. I guess at this point for those that are willing to accept this treatment more power to them. Somebody has to get bent over the bar to keep those bank stocks in my mutual funds afloat for another 30 years. Personally I’ll take my own road on this one.

According to my calculations if I would have stuck to the $5 a day plan every stinking day I would be completely debt free in approximately 21,400 days. Not a bad deal…if I wanted to be debt free around my 90th birthday! Actually it’s more likely I’d be debt free well before that because at some point I’d have to kill myself over it. Of course then my wife could bank the insurance $money$. Anyway, where was I? So at the time the thought of removing all my debt at the rate of $150 a month seemed laughable, but the idea behind the book made perfect sense. The idea was to get in the habit of paying your debts before you had the opportunity to spend your money on something else. At the time I took the book at face value I think because I was desperate for a solution. Now that I look back at it the book makes perfect sense even though the numbers don’t jive. In may posts Micro Paymentality & Sick Day Bonus Pay I talk about how this exact idea can work only on a larger scale. The idea is to fight like hell to find extra money each month then apply it to your bills.

If you manage to get a grasp on your finances and put a couple of the basics into place like a household budget and an emergency fund to prevent you from needing more credit to get by, the $5 a day idea could actually work. No matter how much you can manage to eek out of your budget, as long as you can eek out something, if you put it towards your debts before you allow it to wander out of your life, and assuming you don’t rack up any new debt, you’ll eventually become debt free. Though in my case I busted it and used what I affectionately call the Vinny Financio’s Debt Free on $60 a Day Plan and it worked. I guess I was just a little too impatient to wait until I was 90 or dead to live like this.

I will say this, I am proud of her for making some more “grown up” decisions regarding her finances but I honestly think this is a waste of her time…and I let her know that (I know I seriously need a better opinion filter, but whatever). I told her that I doubt a $15 CD is really hurting her finances at all. I then told her that her newer car, her new couch and her new $2600 bull dog she bought with a cash advance with her credit card were her problem. Cutting CD’s out of the budget is cute but you’d have better luck trying to pick up a turd from the clean end! Seriously though if you think squeezing $50 a month out of your budget you haven’t address the actual problem…..YOU! 

The CD’s aren’t your problem girl. Your lack of planning & your lack of discipline are your problem. If you actually want to change the way you spend money then change the way you spend your money…ALL OF IT. Don’t just change the parts that are easy. Change all the parts that are broken, change the parts that hurt, change the parts that are will truly make a difference. Don’t try to nickel and dime your way out of 20k, 50k, 100k in debt cause we all know you sure as hell didn’t get in 20k, 50k or 100 worth of debt buying CD’s so why do you think this will ever get you out (if you did get in debt buying CD’s get your butt on Craigslist tonight and start selling!) Get out there and get mad, break something…break the habits that got you to this place. If you don’t at least try you will have no one to blame but yourself. True, it may not be only your fault you ended up here but will be your fault if you stay here (especially if you don’t want to be here).

So take a lesson from my friend and stop buying those CD’s if that’s what you need to do. Then take a lesson from Vinny Financio’s real financial world and cut deep into your lifestyle to the point it hurts, stop buying all the other garbage too until you have your stupid messes cleaned up. And then we’ll go drop some cash baby!

They would be allowed to borrow up to 50% of the vested balance with a maximum of $50,000. That should be okay in their case because they have a balance of near $65,000 and are looking to pull about $28k.

The money in their case would be available at a 6% interest rate. The interest does go back to your account but depending on the market performance this could be a losing deal as far as growth.

The loan sort of turn offs your 401k for a period of time while you work to pay back the balance. Well you don’t turn off the entire 401k but the portion you borrowed is no longer considered part of the balance so no growth will happen to the portion you have taken out of the account.

Here’s the big reason I think 401k loans should be used only as a last resort:

If you leave your company most plans require that the balance be paid back into the account within 60 days. This comes due no matter the circumstances of your departure, if you go “Jerry Maguire” on them and walk out the door with the hot receptionist you’ve got 60 days. If you decide to leave because things get a bit uncomfortable around the office after you’ve been fired, you have 60 days. If you’re unfortunate enough to die, 60 days. If the loan is not repaid within 60 days the remaining balance is considered an early withdrawal and you will have the pleasure of paying income taxes plus a 10% early withdrawal penalty (if you’re under 59-1/2). So for many families you’re looking at a full 30%-40% tax bill due on that money. So if my friends borrow the $28,000 they needed and it blows up in their face they are looking at writing a check for $8,400 to $11,000 conveniently right around the time they lose a job. Talk about crappy timing…oh, and add that to the fact that they had to borrow money so they obviously we’re already in a less than desirable situation before they lost the job! And remeber the IRS doesn’t like to wait around for their money.

So I’m not saying a 401k loan is not an option, in some cases it may be the only option someone has to save a house or avoid a bankruptcy. I just want to throw this out there so everybody knows what road they are heading down before they board the special bus.

What’s your experience with 401k loans? Please share.

Rule 1: Common Sense; this rule is pretty straight forward. You need to seriously consider what this debt will do to/for your life. Will the payments stress you family, your business, yourself? Are you making a mistake at some level by bringing this into your life? Will this be a blessing now and in the future of are you signing up for another future financial disaster and just justifying it somehow? Does this purchase fit well into your financial plan and future goals?

Rule 2: A Guaranteed way to repay; this is the rule that caught my attention (it’s a good one so stay with me!)  Can you guarantee repayment for this debt? I’m not talking about promising all of next year’s paychecks, I’m talking about a guaranteed way to repay. What this means to me is not borrowing money towards things that cannot stand good for themselves. Real estate is a great example. A mortgage is secured against the value of the property itself – assuming you had a proper down payment or solid equity when purchased. If you can’t make the payments in theory the value of the asset would stand good for the debt liability. Purchasing a business may also fall into this category assuming you are buying true assets and not just a process or name.  

A car (especially new) almost never falls into the guaranteed repayment category. This is due to the value of vehicles dropping too fast. Cars almost never increase in value (well not the kind you drive anyway). So unless you are borrowing $1,000 on a $12,000 car I doubt a financed vehicle can truly stand good for the purchase on its own. I know this sucks but how many people do you know with a financed car can sell the vehicle and clear the debt with the proceeds from the day they drive it home and through the life of the loan? That’s not a guaranteed way to repay.

Sometimes you can pledge the value of one asset as collateral for another financed asset. If you have the ability to take that route then you may have fulfilled Rule #2 and if you’re okay with that then I’m okay with that!

Obviously there are many variables to consider for Rule #2 but this part of the debt decision deserves some serious consideration and some honest answers to some tricky “what if” questions. Can you remove this debt burden from your life if necessary without being kicked in your financial groin? If you can’t answer yes to that question stop right here and reconsider.

Rule 3: Peace of heart and mind; Rule 3 is a bit more spiritual than the others in my opinion. How is this debt going to make you feel? Are you going to beat yourself up over the next five years for making a quick decision? Are you going to unintentionally going to forgo some big goal in the future for a pick-me-up right now? Will you lock yourself in to a job you don’t really want because you strapped yourself with a house payment you can barely cover? Will you put off your saving for the kiddo’s college to drive a new truck? Will you be able to sleep at night after you sign on the line?

Rule 4: Unity; This rule is easy to explain. This rule relates to married folks or people partnering with someone else in one way or another. Basically what is being said here is if you’re going to be in debt you need to be on the same page with your spouse or partners on what is happening and what is going to happen in the future. That’s really it. The two of you need to have a solid agreement and commitment to carry the burden together as one.

So assuming you can come to terms on these four rules this debt may not be such a bad thing in your life. That said, if for any reason you question don’t have a solid honest answer for any of these rules you may be buying a ticket for a ride you didn’t really plan on taking. Financial decisions should be very deliberate and well thought out no matter what dollar amount is involved. Slow down, take a little time and consider all your options then move forward deliberately and cautiously – every time   

Do you agree with these 4 rules? Have you taken on debt without considering one of these principles? How’d that work out for you? Please share.

Enjoy the following guest post – and when you get to the part about “a very wise man” and “single-handedly did something Superman and an army of super heroes couldn’t have done” remember that me she’s talking about- oh yeah!

‘Deployment money” a military wife’s favorite words. Visions of Coach Bags and spa trips dance through her head while trying to fight back the tears as her husband boards the plane. We all do it, yet most of us won’t admit it. This time though I’m taking this deployment to a whole new level. I’m on a mission to go down in the military spouse hall of fame as the one who passed the Coach bags in the Exchange and with a disdainful smirk I head to the children’s section for the half priced shoes. Ever notice they put those gorgeous bags right in the front walkway of the store? I am on the road to paying off all of our debt. All of it, all $125,000 in credit cards, car loans, and the boat. Our awesome boat – yup, the one we can’t afford to put gas in.

Thank you to a very wise man who, in a 20 minute conversation, single-handedly did something Superman and an army of super heroes couldn’t have done. Got me (of my own free will no less) to pull every credit card out of my wallet, wrap them pretty in a rubber band and throw them in a drawer I affectionately call the “junk drawer.” Fitting name huh? I then proceeded to break the news to my husband. We sat down and had what was probably the most open and honest discussion about our finances in almost nine years of marriage. We mapped out a plan TOGETHER, figured out where we could cut back, then celebrated… by eating our first dinner at home in a long time! (a personal apology to all Olive Garden shareholders).

Using my husband’s first “deployment money” that came in from a recent short trip, I paid off the lowest balance debt. Seeing that first zero was almost as exciting as a new pair of shoes. The second zero balance I have achieved almost made me… well you get it.

It’s a game now. I created a sweet little excel spreadsheet staying true to my “excel goddess” nickname that auto-calculates our totals, gives me the percentage paid down on each debt and the total percentage of debt paid off to date. Are you ready for this? 10.24% in 2 weeks. TWO WEEKS!! That’s about $12,000 of worry, stress and interest we’ll never have to pay on again!! He leaves again in a few weeks for 6 months this time. And I will sit in my office every day and secretly curse all of the women telling stories of the money they spent the past weekends on shoes, clothes and manicures, and I think of all the things our family can do with our money when he comes home. Things like a family vacation paid for with actual money. All out of our bank account instead of on credit cards. Amazing.

I have a feeling the next 6 months is going to change the rest of their lives. So do you think she can pull it off? Do you think somebody’s going to get hurt if they stand in her way?

Please take a second and add an encouraging comment.

Of course to make the Magic Month work for you I advise that like a true FinancialFreak you plan for this well in advance. Work these extra funds into your budget prior to getting that fat fist full of cash and take advantage of this magical windfall instead of letting it wander out of your life. No matter what your present financial situation is you can pay down some debts, shore up your big fat emergency fund, lock it away towards one of your savings goals, and maybe even blow a reasonable amount of it.

*Note I said blow a reasonable amount! As always let’s plan ahead, be responsible, have a little fun and make Mr. Financio proud. Remember we’ll likely have this same talk again in a few months so with a little discipline maybe it will be more talk about fun and less about paying debts!