Sunday, January 2, 2011

2011 Financial Goals (pt. 1)

I know some people think New Year's resolutions are hokey, and to some extend, I agree.

However, my life revolves around a calendar.  If you go to my work, there are three calendars that sit in front of me: the current month, the next month, and the editorial calendar.  My life runs on deadlines and a set work schedule.  I am hyper-aware of time passing.

So I'm going to take advantage of this and apply it to our finances.  They, too, run on a very specific schedule.  We have 12 months to work on financial stability.

Mike and I have determined it will be the credit cards.

Not our actual cards - thanks Google!

We took the time to add up our exact debt.  I thought we had a good ballpark figure, but let me tell you, ballpark and finances aren't a great combination.  Things can take you by surprise.

Here's the rundown of our debt:
$3,680 owed
4 cards (one for each, one joint, one department store)
76% owed out of total credit card limits

These are hard numbers to admit.  Are we as in bad of shape as other people?  No.  Is the total owed bad compared to how much we make?  Yes.  

That amount represents 15% of Jennie's total salary, or 23% after taxes/heath insurance.  That's $10 a day!  

That is WAAY too much for two people at our income level.

Frustration is tied to this figure in three ways:
1) I should have been better.  My parents, to my knowledge, have always carried tremendous credit card debt my whole life, reaching into the 5 digits.  I vowed to never go down this path.  I'm over a 1/3 of the way there.
2) In the past six months since moving, we've had to use the credit cards as supplemental income.  It's not like we've been blowing them on useless items, trips, or shopping sprees.  Nope; groceries, gas, and supplies. 
3) The above habit, of course, is what leads people into 5 digit debt.  Thank goodness our total limit wouldn't allow us to, but it's the habits that count.

There's a lot of different perspectives out there about debt.  The ol' some-debt-is-good-some-is-bad advice.  At the end of the day, I say debt is debt.  

We have thousands of dollars tied up with banks who are collecting interest off it.  We have four separate credit card payments each month.  This is a limiting situation that needs to be remedied before we become one of those dismal couples on the Today Show lamenting about our debt.

So Mike and I have resolved to get rid of our credit card debt.  All of it.  In 12 months.

This is going to be daunting task.  To do this, we need to get around $300 a month onto the cards.  This is impossible with just my salary.  Luckily, Mike is going to be getting his GI bill for going to school, which is going to double our monthly income.  We won't see that until mid-January, so we're proceeding cautiously for this first pay cycle.

The overall approach we're taking is a sliding scale.  We're tackling the cards with the lowest balance, giving them an extra large payment, and putting minimums + $5 on the rest.  

For us personally, spreading equal payments across the cards hasn't been helpful.  You never feel like you're getting anywhere.  So the goal is to feel better by knocking out whole cards swiftly.

First card up is the department store.  I just slashed the balance in half by putting $100 on it.  Hopefully we will get it to zero either by the end of the month or start of next one. 

And to really emphasize our commitment to this plan, we're also locking up the credit cards.  Literally.  All four reside in our lockbox.  There's no point in having them in our wallets when we're trying to eliminate them.

I do know people who have literally frozen their cards.  We get in our freezer too much for this to be practical :)

We'll let you know how we do as the months go on!

Question of the Day: Out of your total credit card limit, what percentage do you owe?  Are you comfortable with this number?


  1. I should add two things:

    1) We know, credit score-wise, that we need to get out the cards once in a while, put a small balance on them, let that carry for a month, and then pay it off. We plan on doing this quarterly.

    2) This is a really steep goal. We have to be aggressive about the plan, otherwise we won't reach it. And if we experience any dip in our income or Mike's GI Bill is less than promised, we won't make it.

    Therefore, we have two backup goals. We'll consider it a true success if we can reduce the debt by 80%. If we can't do that, then at minimum we'll hit 50%. Hoping to do better but want to account for potential setbacks.

    I think that's the balance to life: Set idealistic goals, but always have realistic backup plans.

  2. Yowza... it is much easier getting in over your head than you might think. Especially since paying the minimum doesn't touch the principal, it just goes to pay the monthly interest.
    You can do it, maybe not 100%, but you can put one big dent in that plastic.

  3. You can do it!!!! Am getting out some lined paper and looking at my dismal attempts to pay off Africa...

  4. This is rockin'. I have been struggling with credit card debt for quite a few years now... I owe something into the 5 digits... I was doing well for awhile but then I stopped paying attention. Now I have excel spreadsheets set up for 2011, budget, debt, savings, etc. I save 10% of my income every month, and when it reaches a certain level, I take about $500 out and throw it at my credit card debt.

  5. @ Jessy, thanks for sharing. That 10%/$500 strategy sounds like a good one. I think it's really important for people to figure out what approach works best for them. Hope you'll be clear of the 5 digits soon!

  6. I use my credit card once or twice a year, if even, and usually pay it off in six weeks. I've heard this can actually be bad for my credit score/rating. Is this true?

  7. @angelasw: great question. The counterintuitive part about credit scores is that you must be "in debt" for them to be tabulated. Check out the below links for a good overview on how a credit score is determined and top mistakes people make, particularly #2 from the second link.

    Credit cards are a really tricky balance. To improve your score, you need to use them, and carry balances periodically. On the other hand, if you really can't afford to be using one or it's too much of a temptation, you are better off playing it safe.

    It's also important to think about where all of your credit is coming from. There's a big difference in managing your credit if you have just one card, multiple cards, student loans, temporary loans (cars), and/or a morgage.

    If you have multiple sources of credit that you're managing responsibly, I wouldn't worry too much about using your credit card infrequently. If it's one of your major sources, you might consider using it every month for a consistent purchase. I have friends who only use theirs for gas, for example.