Credit Scores

Credit Reports and Credit Scores

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My wife and I order our credit reports and credit scores from time to time to keep tabs on things, and, more importantly, make sure we are not the victims of identity theft.

Below is a table (click on spreadsheet) that I began compiling recently of our credit score track record. BTW, I received numerous copies of my credit reports in 2005 because we were preparing to purchase our condo. As you can see, my score dropped considerably around 3/31/05 because I was disputing a collection on my record. While I had heard that disputes temporarily hurt your score, the extent to which it dropped was startling.

What was I disputing? Well, back in 2003 I informed all of my credit card companies that I had moved and provided my new address. I received a disturbing call a few months later from a collection agency stating that I hadn’t make a payment on my HBSC credit card for months. My finances were in such disarray at the time that the only trigger for me to make a payment was to receive a bill. I contacted HBSC to find out what happened. I was told that when they updated my address in the system they failed to also update the address my bill was sent to. That makes no sense to me, but I also accept that I’m responsible for keeping my payments current, whether I receive a bill or not. I immediately paid off the $360 balance and was assured by the collection agency that my credit wouldn’t be dinged. I didn’t check my credit reports until the end of 2004, and as it turns out, the HBSC credit card showed up as a derogatory account. It took a couple of months of headache and heartache to get the necessary letter from HBSC so that my credit report could be corrected.

Our scores are at a pretty good place now. Out of the maximum score of about 850 (each credit bureau has its own range / methods for calculating your score), we’re not doing too bad. For tips on improving your credit score check out check out Liz Pulliam Weston’s article 9 ways to build a killer credit score.

NOTE: There’s a large gap during which I didn’t track of my wife’s credit report scores.

You can get a free credit report once a year from annualcreditreport.com. Speaking of which, it’s just about time for us to check on our reports. . .

Budget, Income

Above Average Income, Above Average Expenses

My wife and I make a combined $109,350 per annum (not including her commission pay). Not more than some, but certainly above average. The tough part though is that we have a very high monthly burn rate – spending close to 90% of our net income each month. I’ve included our monthly budget below (click on spreadsheet).

*Note: This budget does not include our investments/savings.

We spend over 2 times more per month than some couples we know. Granted, most of our friends rent instead of own and condo costs make up 40% of our monthly bills. Nevertheless, we need to slow the bleeding so that we can put more money into our investments/savings.

We plan to make the following changes next month:

  • Sell Car 1
  • Buy a replacement car for ½ the price of Car 1 – $200/month savings
  • Switch to a lower cost Internet/cable package – $20/month savings
  • Look into combining auto insurance and condo insurance
  • Look into lower cost birth control

Further down the road, we will have the credit cards (0% interest currently) and auto loans paid off. Of course, we also want to sell our condo and get a house in 4-5 years, so that money will be used to help cover the higher housing costs.

Credit Cards, Debt

Paying off credit card debt from years past

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I had little credit card debit during college and was actually very fugal. My parents get the credit for that, as they taught me early on to appreciate the value of a dollar. After college, however, I moved from the central valley to San Diego and the wheels fell off the cart. I started using credit cards to help make ends meet. The credit cards were addicting, and eventually, I was using them to fund a lifestyle well above what I could afford. I went out with friends nightly, traveled, and got expensive new hobbies. . . all on plastic. I remember one truly low point, when I received a new credit card in the mail with a $5,000 limit, and maxed it out buying accessories for my truck the same day. Astonishing? Irresponsible? Probably even more so if you knew that my truck was barely worth that much before I bolted on all of the new “make-up”. I got to the point that I was paying only the minimums each month on all six of my credit cards. I was never late on a payment, but I was also sinking further and further in debt.

Fast forward to 2004
As my relationship with my girlfriend was developing, and it was obvious that marriage was in our future, I had to share with her my terrible secret – I was bringing over $30,000 worth of debt into our relationship, and no plan of how to pay it off. I must be better looking than I thought because she stuck around, and has been extremely supportive and understanding. As of today, my credit card debt is only $3,475.38, and dropping at an amazing rate. As weird as it sounds, I actually enjoy making credit card payment now because I love seeing the balance whittle towards zero.

The approach I’ve taken to paying off my unsecured debt is as follows:

  • Quit making charges to the credit cards

  • Apply 90%+ off my disposable income to the highest interest rate card (while paying the minimums on the other cards)

  • Once the highest interest rate card is paid off, do the same with the next highest interest rate card (repeat until all credit cards are paid off)

  • Whenever possible, transfer debt to lower interest rate cards, or better yet, 0% interest rate cards

  • Request cash gifts for holidays/birthdays and apply them to credit card debt

  • Sell useless items on craigslist.org or ebay.com and apply proceeds to credit card debt

  • Increase income (easier said than done, but I went from $40K per annum in 2004 to $66K+ per annum in 2007)

Some other suggestions I have heard, and why I choose not to use them:

  • Cut up all credit cards – Not for 1MansMoney because we do not have an emergency fund yet.

  • Pay off the small balances first (for a sense of achievement), then attack larger card balances – Not for 1MansMoney because I can do math and know that you want to pay the higher interest rate cards first, regardless of the balance size.

  • Debt consolidation – Not for 1MansMoney because there are too many debt consolidation horror stories.

  • Store credit cards in the freezer to eliminate impulse purchases (the cards supposedly can’t be swiped for a few hours after freezing) – Not for 1MansMoney because this gimmick wouldn’t stop me from purchasing online.

To get an idea of how vigilant I have been with my debt payments, check out the one year payment history for a credit card I just paid off (click on spreadsheet below):

* NOTE: As you can see in the balance column, some charges were made to the card from time-to-time. Hey, nobody is perfect.

Sacrifice, sacrifice, sacrifice. It’s worth it to get out of the strangle hold of debt and start building your net worth.

Net Worth

February 2007 Net Worth

I will be updating our net worth on this blog at the end of every month.

Below is our net worth for February 2007 (click on spreadsheet). I realize we’re half way thru March already but wanted to use this as a starting point. As you can see, we currently have a negative net worth. Nowhere to go from here but up.

February Notes:
Purchase price used for condo value
General

Disclaimer

1MansMoney.blogspot.com’s disclaimer:

If it’s not completely obvious, I am NOT a financial professional. The information you find on this site should not be considered financial advice. Before making financial decisions, do your own homework or hire a certified financial planner (if you’re lazy).

Early Retirement, General

First, some background information

My amazing wife and I have been married for one year. When we met over two years ago, I was in bad shape financially. I owed $27,000+ in credit card debit and $4,000 to my parents. My problem was that I always spent more than I earned, and figured that I’d just catch up later. Unfortunately, later never seemed to arrive. My wife (girlfriend at the time) woke me up to the fact that I was in over my head, and I needed to change my ways and pay off my debt.

Substantial progress was made (another post, another time) and I am happy to report that we were able to by a one bedroom condo last year. As a new home owner, I began doing more financial research online, and stumbled across an early retirement forum that got me hooked on the idea of financial independence. From that point, I began scouring the web for tips and tricks on how to get ahead and have our money work for us. I plan to share with you what I’ve learned thru long nights glued to my laptop. Believe me though, it is an education in progress. Thankfully, my wife is completely onboard and, in a lot of ways, leading the way for us.

General

Just getting started

We are a young couple in Southern California, I’m in my early thirties and my wife is in her early twenties (lucky me). I plan to use this blog to outline our path from a negative net worth to financial independence and early retirement. I’ll rely on all of you to act as a sounding board for us. If something we scheme up is completely out of left field, please let me know. In turn, I hope you will find in this blog strategies that you can use to improve your own financial picture.

Our path to financial independence and retiring early.