Financial fitness group Part 1

VeganInTraining

thanks for the input Solpwr! Bahet, that's so much for joining the board, having someone with more knowledge on here is very helpful!

i agree with Solpwr about having 6months of expenses in savings, but until I have all my debt paid off I'm just keeping 1000 in savings because what's the point of having 10k in savings at 1% (or something like that) when I have credit card debt that is 11-20% debt? But once I'm out of CC debt, I want to get 18months of expenses into savings. Anyway, I just wanted to pop on and say I paid off my Discover card the other day! I'll be closing it soon. I have one other card that I will pay off this month and then I'll be working on my Visa card. They offered me a 0%apr for 15 billing cycles so I transferred my balances and I should be able to pay it off in 6-9months. I'm pretty sure that Dave Ramsey would say not to transfer balances, but the transfer fee was less than 2 months of service charges/interest from Discover card.

As far as the no spend month is going we are doing great! My parents are going to be in town this weekend so we'll be having them over for a meal to two. I need to figure out how to make something delicious but not expensive. I'm thinking stuffed Zuccini because I have everything I need for it other than the Zuccini. I'm so glad we decided to do this because #1 we can put the extra money to pay off debt (and we're rewarding ourself with an extra 100 in the Christmas in NY fund) and it's made me more aware of what our grocery and gas budget SHOULD be. So next month I think I'm going to try and plan my grocery shopping better than I had been and make sure I stick to budget

JaniseCookston

Hey Emily,

I am intrigued by this no spend month idea. How did you set your budget for it and what are including and not including?

Bahet

Emily, I'm just glad I can help. Dave Ramsey may not agree with transferring balances but I say if you will save more than it costs then you come out ahead and should do it.

Congrats on paying off the Discover card! You may want to think twice about closing it though. You should have at least 1 credit card for emergencies if nothing else. Yes, it's typically better to pay cash but that's not always possible. If your car breaks down and you don't have a credit card and don't have the cash, then what? Also, it can have a positive affect on your credit to have a few cards you've had long term and it can put a little ding in your credit to close an account. Weird I know but I don't write those rules. :laugh:

JaniseCookston

Bahet,

But on the Dave Ramsey plan there is no need to care about the credit score. Credit scores only matter if you are planning on borrowing more money in the future. But if you are planning on living debt free then who cares what your score is. The emergency fund is there to cover emergencies, no need for a card. In fact the last thing you need in an emergency situation is debt.

VeganInTraining

Hey Janise. I think I put a link to the site I got the idea from. We chose $200 because it's just 2 of us so it's doable but it will not be easy. We wanted a challenge. Feel free to check out my blog http://www.myfitnesspal.com/blog/EmilyRanae22 I'm posting my progress throughout the weeks, I am going to at least blog each week with my progress.

I will probably be borrowing money for a house in a handful of years so I do plan to keep at least one card. But I have not had a great experience with Discover (at one point my interest was 24%....granted it was because of a mistake that I made, but 24 is rediculous for going over the limit) I will keep my Nordstrom card because they have been nothing but good to me! But I don't plan to use it, and I especially wont be using it for emergencies, unless I decide I want to Nordstrom bucks from it and I pay it off after using it. hehe

JaniseCookston

Thanks, Emily.

You can still get a mortgage without a credit score. Dave mentions all the time that you just need to find a company that does manual underwriting, meaning they qualify you for the mortgage based on your financial standing not simply your credit score. And also I have a Nordstrom card that is linked directly to my checking account like a debit card so I rack up the points without ever going into debt

VeganInTraining

I need to investigate that one linked to your checking account! I LOVE Nordstrom...and I forgot about the manual underwriting. We currently don't have the internet so I'm behind on his podcasts hehe

Bahet

Janise,

If you are ever going to buy a house or a car or take out a student loan a good credit score is imperitive. I completely disagree with Dave if he says you don't need a credit score to get a mortgage. Either that is old information or he's, well, I'm not sure what he's thinking.

We bought this house in December. We're in our 40s, have excellent credit, no debt, own a rental property in AZ, make a good income, and had 20% down. We also have IRAs that we didn't touch to get that down payment. However, because of the recent foreclosure/mortgage mess we still had some problems getting approved at the lowest interest rates. The industry doesn't just throw mortgages for $300,000 houses at people with a $20,000 income anymore like they did just a few years ago. You might still be able to find mortgages where they don't check your credit score or offer $0 down loans but you will most definitely pay for it in the long run. You are not going to get a good interest rate and your closing fees will have all sorts of extras that someone with good credit and 20% down won't have.

As for "the last thing you need in an emergency situation is debt" again I disagree. If your choices are going a bit into debt (and paying it off ASAP) or not getting your car fixed and losing your job because you have no transportation or not being able to pay the hospital bill when your kid breaks his arm, then debt is the only reasonable alternative. I say the second to last thing you need in an emergency situation is debt. The LAST thing you need in an emergency situation is to have the problem get worse because you didn't want to take on a bit of debt.

JaniseCookston

You are right if you plan to finance a car or take out a student loan you need a good credit score. But I don't plan on ever taking out a loan to buy a car or a student loan. You can save up cash to buy both a car and a college education.

The information about a not needing a credit score to buy a house is not old, Dave has people calling into his show everyday who have done just that. The key is being financially stable and working with a mortgage company who does manual underwriting. If a couple has a solid income and income history, a 20% down payment, is debt free and has 6 months worth of expenses saved in the bank a good mortgage company will certainly manually underwrite them for a mortgage with a good interest rate regardless of their credit score. If a couple or person can't meet these criteria then they don't need to be homeowners anyway.

When it comes to emergencies, I didn't say the choice was between debt and not getting your car fixed, or losing your job, or not paying the hospital bill. The choice is to not use debt and instead pay for those things in cash that you have saved up in an emergency fund. We currently have a $1,000 emergency fund which will cover most car repairs and we have good health insurance and a health savings account to cover hospital bills. After we are debt free we plan to beef up the emergency fund to three to six months of expenses, which will certainly cover the majority of emergencies. So certainly going into to debt is the reasonable choice the way you presented it but I think that's a false dichotomy, there is a third choice, save an emergency fund and use that for emergencies.

JaniseCookston

I need to investigate that one linked to your checking account! I LOVE Nordstrom...and I forgot about the manual underwriting. We currently don't have the internet so I'm behind on his podcasts hehe

I think it is called the MODCard. Mine is bright green. I've had it for a few years. I would assume they are still offering it but not positive.

And I apologize if I was coming across as telling you what to do. Everybody is free to do (or not do) the Dave Ramsey plan to whatever extent they choose, I just wanted you to know there are other options

madbeach9

bump

Bahet

We actually agree on the emergency fund/credit card bit. That's why I said this in my original post:

Yes, it's typically better to pay cash but that's not always possible. If your car breaks down and you don't have a credit card and don't have the cash, then what?

I also said you might not NEED a credit score to get a good loan. BUT you will pay more fees and have a higher interest rate than someone who does have a good credit score. That adds up to wasted money.

JaniseCookston

Well good to find some common ground on the emergency fund.

Still disagree that you will pay more fees and a higher interest rate without a good credit score if the other factors we mentioned (20% down payment, no other debt, etc) are in place. So we'll probably just have to agree to disagree on that one.

We actually agree on the emergency fund/credit card bit. That's why I said this in my original post:

Yes, it's typically better to pay cash but that's not always possible. If your car breaks down and you don't have a credit card and don't have the cash, then what?

I also said you might not NEED a credit score to get a good loan. BUT you will pay more fees and have a higher interest rate than someone who does have a good credit score. That adds up to wasted money.

luvJOJO

I am really confused about why you would close the credit cards (if you are trying to keep a good credit score). I always heard that it was bad to close them because it doesn't say who closed them it will just list as account closed. Plus I have a ton of available credit and I thought that was a positive on your report. I have a lot of credit cards open that I don't use. Well actually I will charge something small on each one every so often and pay it off. I rotate doing this just to keep them open and my accounts in good standing. I know there are some saying your credit score doesn't matter BUT I am a single mom and will most likely need my credit score to be good. I hope to buy a house in the near future and I can't see myself ever saving up enough to pay cash for a car in my current situation.

VeganInTraining

From what I understand having a card open with nothing on it is just as bad as closing an account. I may be wrong about the "just as bad" but i know that having many cards with a 0 balance is not good for credit. The best senario for your credit (as far as credit cards go) is for your card to carry some sort of balance less than 1/2 the credit limit. I close them because it's not going to to effect my credit enough to keep me from getting a loan on a house in 5 years and I have no need for credit cards. Plus if I have a card readily availible that has a 0 balance it is just asking for me to purchase something on it because "i can pay it off in 2 or 3 months" Maybe by the time I get all my debt paid off I'll be able to to do the whole buying groceries on a card for the cash back and pay it off every month but I doubt it. I like to operate in all cash then I can physically see how much money i have left and I notice the money leaving my hand rather than it just leaving my account

Bahet

It all depends on your specific situation. If you have a high credit limit to income ration that can be bad for your credit. If you have a lot of closed accounts that can also be bad. Mind you, by "bad" I'm not talking about a 50 point drop. It could be as little as 1 or 2 points or as much as that 50 point drop. Again, it all depends on your specific situation.

solpwr

Excellent post Solpwr!! However, I find one area where I disagree with you. I do not recomment a Roth IRA except in certain circumstances. If you are not eligible for a tax free traditional IRA or if you think you'll make more money when you are retired than you do while working then a Roth is the way to go. In most oth circumstances it is better to take the tax free status now. Odds are you are in a higher tax bracket when you are working than you will be after you retire. If that's the case it's most likely in your best interest to take the tax exempt status now.

Hi Bahet,
My use of a Roth IRA is very specific, and not to replace a traditional IRA.
In my case, my retirement savings is now in the form of 2 pensions and a 401K.
I am using a Roth IRA as an account that I use to have my emergency fund in. My emergency fund is now $6K, and I plan to fund it at the $6K limit for another 5 years. You cannot use a tradtiional IRA as an emergency fund without paying penalties when you need to withdraw from it early. With a Roth, you can withdraw your invested amount at any time without penalty because you've paid taxes on it.
I am not advocating a Roth IRA for a retirement account, only as an emergency fund.

Bahet

Excellent post Solpwr!! However, I find one area where I disagree with you. I do not recomment a Roth IRA except in certain circumstances. If you are not eligible for a tax free traditional IRA or if you think you'll make more money when you are retired than you do while working then a Roth is the way to go. In most oth circumstances it is better to take the tax free status now. Odds are you are in a higher tax bracket when you are working than you will be after you retire. If that's the case it's most likely in your best interest to take the tax exempt status now.

Hi Bahet,
My use of a Roth IRA is very specific, and not to replace a traditional IRA.
In my case, my retirement savings is now in the form of 2 pensions and a 401K.
I am using a Roth IRA as an account that I use to have my emergency fund in. My emergency fund is now $6K, and I plan to fund it at the $6K limit for another 5 years. You cannot use a tradtiional IRA as an emergency fund without paying penalties when you need to withdraw from it early. With a Roth, you can withdraw your invested amount at any time without penalty because you've paid taxes on it.
I am not advocating a Roth IRA for a retirement account, only as an emergency fund.

I think I'm in love!



:laugh: I'll stick with my hubby though. He may not be a financial whiz but that's why he has me.

TammiAcker

Whatever happened to this group? There has been no activity for two months?

VeganInTraining

not many people jumped on board so it kinda fell off....but maybe if we move it into an actual group that would help? I might set that up after I finish my homework if any of you would be interested.