One of the goals for this year was to get our car paid off in full. Towards end of last year, we realized we were so close to having our car paid off that if we could squeeze out a few extra payments over a 6-month period, we could potentially save a few hundred dollars in interest. Paying off the car early would also help us boost our savings account since we’d have an extra $322 a month left over that was originally set aside for car payments but could soon be applied towards our saving account instead.

I’m glad to say that we’re $378 shy of meeting our goal and will be completely car-loan-free by February 10th. Yahoo!

How did we do it? Last October, our stocks just weren’t doing so great. We didn’t have a ton of money invested, but what money we did have either wasn’t making much or was beginning to decline in value. Instead of watching them languish in the topsy-turvy market, we decided to cash them out after a slight gain and apply a hefty amount towards our car loan.

The amount we applied towards the car was equal to almost 5 car payments – that’s a big chunk paid off the loan. I was able to also apply an extra $500 payment last November (close to one and a half car payments). Then again, at the end of December, we realized we had some money in savings that we could apply towards our car and still have a comfortable amount left over for emergencies. That equated to the equivalent of 3 car payments.  Since I was still auto-debited each month for our car payments, the extra payments we made were on top of our scheduled payments.

Instead of having the car paid off in November of this year, we’ll have it paid off in February – 9 months early! If I stay dedicated to my savings plan, I should be able to increase my savings by almost $3,000 by applying the car payment amount towards savings each month. I’m also saving approximately $200 in interest off the car loan as well. I should soon see my savings bar grow!

Having a financial plan and seeing it work is a terrific feeling, especially so early in the year.

How are your plans and long-term goals going?

This is a guest post from Erika at Newlyweds on a Budget. She writes about managing finances, being a newlywed, and frugal living.

I am currently 27 and live in a shack with my husband of a year and a half. We have paid off credit card debt, paid off our car loan, have survived living on one income for four months, and are planning on starting 2012 with a bang to save up for a house down payment.

We hope to own a home in five years. This is our plan.

1. Pay off remaining $2,000 credit card debt.

We paid off our car last month, which brought down our total debt down to a $2,000 credit card, and a little under $20,000 left in student loans. We plan on paying off the card within the first few months of 2012 (which is currently at 0% interest until April 2012). We will continue to tackle the student loans by increasing our payments.

2. Save, save, save

This past year, with both of us working, we were able to save $8,000 in eight months as a back-up/survival fund for when my husband would stop working for four months to enter the fire academy full-time. Now that he is going to start working again at the end of December and we’ve managed to live fine off my income, we hope to save all of his income for as long as possible.

3. Upgrade

When we found out that Eric wouldn’t be working for four months, we downsized from a one-bedroom apartment to a guesthouse/loft in someone’s backyard. It’s not the ideal living space, but it’s managed to save us a ton of money (and probably is the reason we were able to stay afloat these past four months on one income). I think we’ve paid our dues though–and while we would love to continue saving a ton of money, the reality is that our sanity is more important. And so is a nicer place. I’m thinking one with a dishwasher, a bedroom door, and heating that doesn’t come out of a portable heater? Is that too much to ask?

4. Get a raise, contribute toward down payment

Within the next five years, I definitely plan on getting a promotion with a substantial raise at work. We will probably increase our means of living a bit with this new raise, but I also hope we can contribute a good chunk to our down payment. I know my husband expects to be hired as a full-time firefighter within the next five years as well (it’s tough competition for firefighter positions in southern California), and that will increase our income substantially.

5. Still manage to have fun

I want to own our own home. I still plan on living frugally. But I don’t want to forget to have fun, and that includes traveling. I want to travel as much as possible before we have kids. And even though we’ve been married a year and a half and we still haven’t gone on our honeymoon, we will one day. I also want to go to Europe. I want to try and fund our travels through a separate “extra” fund. Meaning, any extra income we earn that doesn’t come from our immediate income, such as mileage reimbursement checks from work, mystery shopping money, blog advertising, and tax returns.

What are your steps to buying a home? Any tips for us?

*Little House says: This is an awesome plan. I really like how you downsized when your income situation changed. I think people can learn from this. Thanks so much for sharing!

The other day I was revisiting my 2011 goals and I realized I hadn’t made as much progress as I was hoping for. However, in light of the events this year, I’m still able to pat myself on the back and say, “Good job. But you can do better.”

Let’s start with a quick venting session:

1. I didn’t work nearly as much the first three months of this year as I normally do. This is partly due to my position as a substitute teacher, but also due to me being picky about where I sub. I’ve become a bit spoiled.
2. I took 4 months off to finish my teaching credential knowing I couldn’t work those months and really didn’t have a great financial plan in place to make up for the lost income. Dumb!
3. My goals changed a bit – I decided (with prompting from Mr. LH) to pay off our car sooner than later. A lot of extra payments have been applied over the last two months. This is great, but I hadn’t planned for this.
4. I received an unexpected tax bill from ’09. Ouch is all I can say about that!

Now for a clean slate:

1. I’m close to paying off my car loan, have a tax bill to work off, and student loans I need to tackle. Total amount to tackle: $35,000.
2. My savings account is looking a bit skimpy. My new, realistic goal, is $7,200 saved for the year. (SMART goals are on the way to accomplish this).
3. Blog goals: Ramp up my readership to 375 visitors per day. I’ve been neglecting my blog a bit due to school, but I’m done in 3.5 weeks. And yes, I’m counting down the days: 16 more.
4. Bike goal: I didn’t hit my 1,000 mile mark. So, I’m going to set a more attainable goal of 600 miles. I’m also working on a bike blog as well. But that’s another story.

As I formulate a plan to pay down my remaining debt and save some of my income, I’ll report quarterly.

What goals are you reviewing or reevaluating? What makes them SMART?

A while ago, a mutual friend of ours admitted that he had ruined his credit and wanted to begin rebuilding it through obtaining a secure credit card. I advised him on opening up a secure credit card because  most banks keep the amount of the credit line, for instance $500, in a savings account as collateral for extending credit to a person who is a less than credit worthy. A secure credit card is similar to a  prepaid Visa gift card, but it’s reported to the credit bureaus as an actual credit card which helps build a positive payment history, providing on-time payments are made.

To my astonishment, he was declined a secure credit card through a large financial institution. His credit was so poor, the bank wouldn’t extend him the line of credit even with depositing the total amount of the credit line into a bank account. He was flummoxed and wasn’t sure what to do next. Knowing that his credit was so poor, I did a little investigating and realized that his next best hope would be to approach his own bank, a credit union, to see if they could help him out. It turns out that they were able extend a credit card to him, and it wasn’t even a secure one at that.

Would this help anyone who’s credit is in shambles? It depends, but a few tips to follow if you’ve had this happen to you:

• Approach your own bank about a secured credit card. They might be able to work something out with you if you’ve been a customer for a while and have a good banking history.
• Open a bank account at a credit union, and then apply for a credit card – credit unions are sometimes more accommodating.
• Forgo the credit card altogether and fix your finances!

My third point is important; if your credit is really terrible, it might be better to work on the negative existing accounts than to open yet another one, even if it is a secure credit card account. In his case, it might have been better to not open another account just for the plain fact that he’s having difficulty managing his money and his credit. As you can imagine what happened next….he maxed out his card and is now back to his old habit of making minimum payments and not seeing the balances drop. Unfortunately, some people need to experience great pain before changing their ways, even after a friendly lecture on personal finance!

Do you know of someone who was turned down on a secure credit card offer? What would you recommend to a friend struggling to get their finances in order?

Deep in Debt? Don't buy into checks in the mail that offer relief.

Once a month I help out one of our clients with her personal finance issues, such as checking her credit card balances and calculating her residual income from her deceased ex-husband’s films. Unfortunately, she has always had others take care of her bills and finances and is purposefully clueless about finance charges and credit card debt. Hence, whenever credit card offers come in the mail, she has me look over them. The majority of the offers I shred immediately; there’s no reason to own more than 20 credit cards!

However, the other day while going through her offers, I came across a suspicious looking check from the National Debt Relief Stimulus Plan. “Hmmmm,” I thought. The return address was directly from Washington D.C., but knowing her finances fairly well, it seemed too good to be true; pay one-third of the debt she owed by cashing their $28,000 check. It just smelled fishy, so I did some quick and dirty research online and found that most people were wondering the same thing. It turns out that it is not a program from the government as the title would have one believe. Instead, it is a debt consolidation company using the terms “relief and stimulus” in their name for some persuasive and deceptive marketing.

Luckily for this woman, I caught the scam and shredded it right away. But what about a more desperate person who thinks this is their answer to becoming debt-free? What would happen then?

According to my research, if someone actually cashed one of these checks unknowingly, they’d be signing up for a debt consolidation program. The debt consolidation company would begin negotiating with their client’s financial institutions for a settlement amount. Obviously, someone who is already delinquent with their payments may not care as much about how a debt settlement would affect their credit score. However, a person who has been able to keep up with their debt payments, but is becoming frustrated by not seeing a reduction in their total amount due would then be subjected to a negative account or accounts on their credit report.

Is this helpful for a person deep in debt? Personally, I think it depends on the individual. If they are making a decent and conscious effort to change their spending ways and begin living debt-free, then it could be beneficial; getting their debt down to zero in a shorter period of time and paying less for it. On the other hand, many people enrolled in these programs never complete them. They end up missing a payment, then all of their accounts plus their consolidation account go into collections. This behavior is usually the reason they ended up so far behind to begin with. I know someone who recently entered one of these programs because they were “desperate” and they are already missing payments only a few months into the program.

Is this National Debt Relief Stimulus Plan company deceptively marketing to desperate people? In my opinion, yes. Personally, I think this is wrong. If I were the CEO of this company, I would feel ashamed to be posing as a government program. Instead they need to offer a free finance seminar on how people can negotiate with their creditors themselves, then explain how their services really work.

Have you encountered these checks or know someone who did? Does this seem like a legitimate way to market a debt consolidation company? Is it ethical?