Each month, I chip away at a little bit of principal on my Crummy Line of Credit. Little by little, the total balance due shrinks. However, the process has been slow-going and quite frustrating. The loan itself is a monster, and with an interest rate at almost 30% (29.99% to be exact) it’s disappointing to see how much interest I’ve paid over just this year alone: a whopping $1,557.98. I’m terrified to actually pull a Quickbooks report and find out how much I’ve paid on the life of this loan to date.

But……I’m happy to report I managed to secure a much, much lower interest loan and pay off more than HALF of the crummy line’s balance. Whoo hoo! Of course, I’m just moving half the total balance due to another financial institution that I have to pay as well, but at an incredibly low rate (and zero percent to start), I can focus on getting the crummy line’s balance paid off.

Here’s what I did; I paid off $3,500 of the remaining $7,626.77 using the new, low interest loan. Because I made a whopper of a payment, the financial institution offered me a “settlement” amount that is $1,480 LESS than the original loan balance for a total of $2,646.56 remaining. The $3,500 loan is zero percent interest for a year, then a low 7.5% fixed rate.

The remaining $2,646.56 is no longer generating interest charges, but it is generating a daily fee of $5.99. I agreed to make two more payments of $1,323.28 and will have this baby paid off by the end of October. Not too shabby compared with the 32 months it would have initially taken me and the interest I would have paid, $3,526. Yikes!

According to Credit Karma’s calculator, the $3,500 low interest loan will take approximately 10 months to pay off at a monthly payment of $350 and zero percent in interest if I stick to my plan of paying it off in 10 months. Here’s a quick comparison:

• Total paid in fees on the remaining crummy line of credit: $359.40
• Total amount of time until zero balance: 12 months
• In contrast, if I had kept the crummy line of credit I would be paying $3,526 in interest over 32 months. Yuck.

For those visual learners out there, here’s a quick visual aid:

Crummy Line of Credit Balance Due

Lower Interest Rate Loan: Switch and Bait

By calling the Crummy Line of Credit’s customer service and explaining that I wanted to make a large payment, I was able to negotiate a “settlement” amount. If I had been able to pay off the complete loan balance, I would have saved an additional $359.40. If I can pay if off sooner than expected, I save approximately $5.99 per day.

For now, I’m happy with the idea that this sucker will be completely paid in full and no longer generating balloon-interest payments.

Have you negotiated lower balances or “settlement” amounts to reduce a debt? What was your experience?

Lose that annual fee!

On a mission to clean up and improve my credit score, I had taken on a couple of cards a few years ago with annual fees. Neither card had a very high credit limit, but at the time it was all any credit card company was willing to lend me. So, I signed on the dotted line and decided to swallow their fees with the hopes of building a solid payment history. Flash forward to today and I’ve finally accomplished that goal: my credit score is over 700 and I’m now receiving credit card offers from more legitimate credit card companies with lower APR’s and NO annual fee.

It took me a while to decide whether I should accept any of these new offers, though. My reasoning was that taking on a NEW card, and potentially canceling an OLD card could ding my credit score. Since raising my credit score was part of my 3-step plan toward becoming a homeowner, it seemed counter-productive to take this action. On the other hand, because I’ve put off purchasing a house for a couple of years, I decided that I really didn’t want to continue paying annual fees on cards with such low credit limits.

A NOTE ABOUT CLOSING CREDIT CARDS: It’s important that when YOU close a card of your own, you follow up with a letter to all three credit bureaus explaining to them that you were the one that closed the account, not that the account was closed by the creditor.

I’m excited to say that the other day, I accepted an offer from American Express for a card with a 10.49% APR, no annual fee, and a credit limit that is much higher than a couple of my combined cards. I canceled one of my annual fee cards, the one with the lowest credit limit, and am waiting to see how this activity will affect my credit score. I made sure to mail in my letter to all three bureaus explaining that I closed the account. If not much harm has been done, my goal is to cancel my second card with an annual fee, leaving me a total of 3 credit cards (one which I share with my husband) with only one annual fee card. I’m not really willing to relinquish the last annual fee card because I feel I need the payment history which dates back about 5 years.

Since I don’t use my cards unless I can pay them off in full each month, I should be able to quickly reestablish any points I do lose on this transaction. Just a quick refresher on how credit scores are calculated:

1. 35% is based on payment history: Most reports show a two-year period of payment history on installment, revolving, and store credit. Even one payment that is over 30 days late can negatively affect your score.
2. 30% is based on how much debt you owe: This is also affected by how much credit you are utilizing.  They like to see a debt to credit utilization of 30% or less.  Another note on credit utilization is that you should never be utilizing more than 30% of your credit on any one card or loan.
3. 15% is based on your length of credit history: The longer you’ve been responsible with credit, the better your score gets. Unfortunately with this one, all you can do is wait and make sure that your oldest, positive credit account is on your reports.
4. 10% is based on the types of loans you have: There are three types of loans available to you, installment, revolving, and store credit. The credit bureaus like to see that you have access to at least two of these types. Installment loans can be a car loan, mortgage, or student loan. A revolving line of credit is usually a typical credit card like a Visa or MasterCard. A store line of credit can be a gas card or a department store credit card.
5. 10% is based on new credit: Credit bureaus may view you as a risk if you’ve opened too many accounts in too short a time period. This is based on how recently you’ve opened a new line of credit of any kind, and how many you’ve opened.

My latest action could potentially negatively affect my credit score because the card I canceled was one of my oldest, see point #3, and I opened a new credit card, see point #5. Only time will tell, and in the meantime, I’m saving $69.00 a year.

I’ve received some great input on my Newlwed Bliss Box.  The feedback I’ve received includes some additions and terrific and creative ideas including expanding my checklist to include discussing life insurance and a will (fabulous addition I might add), and adding beautiful photos to motivate the newlyweds to discuss each topic. I also like the comment about adding in little financial love notes, such as I saved X amount of dollars by taking my lunch to work, etc. Another ingenious idea I received was to include an enticing spa gift card so the gift isn’t so drab or condescending.

So, continuing on with this idea for a gift, I’ll be explaining and offering links to a couple of the spreadsheets I would include with this gift. The three components described within this post in detail include the Budget Worksheet, Debt Worksheet, and Short/Long Term Goal Worksheet. Creating the spreadsheets took a little longer than I thought and there is definitely room for improvement. Please feel free to add your two-cents!

Short term / Long term goal worksheet: Two simple columns labeled long term savings goals and short term savings goals (including potiential due dates – so really four columns) with general categories that can be filled in and added to with the intention of setting priorities.  General categories include wedding costs such as attire, ceremony fees including the marriage license, reception costs, invitations, decorations, gifts, etc. to get the ball rolling and are listed under some day-to-day categories since once the wedding is over, those costs are complete! I didn’t add in sum equations because this worksheet is much more flexible to a couple’s needs. Hopefully the couple would be able to find the sum function at the top in their Excel tool bar.

Next on the list of items to describe in detail include a fun spender/saver quiz and the resource list….All in good time!

Are the worksheets too scary for a new couple just starting out? Did I list too many categories, potentially overwhelming a couple of wet-behind-the-ears newlyweds? Or, is listing the categories and detailed items a great way to help them remember their actual expenses?

I meant to write about my crummy line of credit status and biking challenge last month (see May’s here), but it slipped my mind (must be that summer sun!). To date, I’ve completed my bike challenge with 4 miles to boot! Biking is my love, so it’s very easy for me to commit to biking a certain amount and fulfilling that goal and then some.

Bike Challenge – Complete

Crummy Loan Pay Off

My crummy line of credit loan, however, is going a bit slower than hoped, only $2oo less than what it was six weeks ago. The interest is so atrocious at 29.99% that a large portion of my payment goes towards interest. However, I have a plan that will resolve this issue by next month.

Crummy Loan Pay Off

 Now Some Awesome Posts for Sharing:

•  Barbara Friedberg Personal Finance and MBA Course: Investing and Portfolio Management….some great tips for those interested and ready to invest in the stock market. It confirmed what my husband is doing, investing for the long haul.
• Engineer Your Finances with Book Review – Enjoy Your Money. What was most intriguing about this book review is the comparison to the movie The Breakfast Club. One of my favorite ’80’s movies, if this book is as enjoyable, I could see myself blowing through it in an afternoon.
• Budgeting in the Fun Stuff with Fit in a Fun Friday – Road Trips. Almost everyone has a memory of a road trip they experienced as a kid. Most of mine were of arguments, sleeping in the back of a van or wagon, hectic “Look, kids! The Badlands!” comments, and dusty, sweaty, musty smells. However, those memories are looked upon with nostalgia.
• Young and Thrifty with Taking the Plunge and Putting an End to Home Envy. I feel her desire here, I too hope to be a homeowner in the next year or so. She’s not so crazy with wanting to purchase in Vancouver, a pricey area. I hope to purchase a home in Ojai (maybe I’m dreamin’!) within the next year or two. Perhaps were both loopy!

A Big Thanks to My Top Referrers this Week:

• Digging Out From Our Mess
• Money Reasons
• Young and Thrifty
• The Frugal Girl
• Blogging Away Debt

…I signed up for CreditKarma.com so I can now obsess check my score’s progress. One of the elements of my 3-step plan towards purchasing my own little house is improving my credit score so I can qualify for the best and lowest APR mortgage loan. Now that I’m privy to amortization charts, I can quickly compare a mortgage loan at 5.5% versus one at 7% and see that the amount of interest paid on the 7% loan is nearly twice the amount that someone would pay on a 5.5% APR loan. Excellent credit has its benefits!

What I like about CreditKarma.com

I really like how quickly I can check my credit score with CreditKarma.com. Of course, the score I’m seeing is my Transunion score and the last time I pulled all three credit reports my Experian score was actually higher. My Transunion score was smack dab in the middle, sandwiched between the much lower Equifax score and the slightly higher Experian score. I can only hope that my other two scores are steadily rising as well. A few other features that I find beneficial are:

• The report card: CreditKarma.com analyzes the credit score based on a few factors, such as length of history, late payments, type of credit, payment history, and new credit. I scored a ‘B’ overall. My length of history is lacking and my types of credit is also poorly misrepresented.
• Score Simulator: Hypothesizing what can happen to a credit score, good or bad, only makes me more diligent to make sure I make all my payments in a timely manner and keep my credit usage low. The simulator shows how quickly a score can plummet versus how slowly it rises.

Where CreditKarma.com needs to improve

Some of the things I really like about Credit Karma are the same things that need a little tweaking. For instance, the Score Simulator is terrific for seeing how quickly a score can drop. However, it lacks the ability to hypothesize what happens when all of your current debt is paid off. I can slide the “pay off debt” scale into the negative (like pay off my student loans), yet my score remains the same. Here are a few other things that need a little more work:

• The report card: I was able to see where I was right on target with my credit. Yet, the one area where I scored an ‘F’ was in the types of credit I currently have. This credit score factor is very elusive. When I used the simulator and found out what would happen to my score if I took on a mortgage, my credit dropped significantly.  The simulator may not have factored in that I’m missing an installment type loan that could raise my score. The report card and simulator aren’t working in conjunction with each other.
• Additional Savings Options: Credit Karma provides the credit scores for free, so they need to make money somewhere. Here is where they make a little money – offer credit cards and insurance from affiliates at lower rates. I found this feature annoying and slightly deceptive. If I signed up for another credit card at a lower rate, Credit Karma is estimating I could save around $238 over three years. However, signing up for another card could potentially lower my score based on their simulator. This feature still needs a little work and more explanation.

Overall I like the ability to view my score whenever I feel like it and for FREE. Though it may only be tracking my Transunion score, it does give me an indication of if I’m moving in the right direction or have fallen off the path toward excellent credit, my ultimate goal.