Category Archives: debt

How Debt Can Save You Money

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With a title like “How debt can save you money”, it sounds like I’m very confused, huh.  But read my story because it’s based my “real” life experience with a financial experiment that I’ve been living, for the past three years.  So this is not theory, this is my real story!

Back in December of 2012, I decided to give up my revered status of being “totally debt free” by going out and buying a car using an auto loan instead of buying the car outright.

toyota camry 2010

I didn’t need to do this, I had the money, but I preferred to invest the money into a stodgy (but what I considered “safe”) utility stock, which was obviously and luckily not a fossil fuel based company..

Well, I’m happy to report that on 1/28/2016, my investment vs “pay off the car outright” experiment has conquered a major milestone!  This huge milestone is that the value of my investment has now appreciated to double the cost that what I would have paid outright for the car!  This means that the capital appreciation in the stock is now greater than the initial cash outlay to buy the car outright, this includes the loan interest that I would have paid the bank that I took out the car loan. The feeling this instills beats the hell out of Christmas morning 2015!!

And the kicker is that I till have about 1 year left on the loan, so potentially the total gain could be even greater considering that the stock market has been less than stellar lately.

This was my first and most important milestone to cross, but there is a 2nd goal I have too.  While I consider my financial experiment a success to a huge degree, a secondary goal that I have is to develop a dividend income stream that could cover the monthly payments for upcoming future car purchases, especially the first car purchases for both of my kids.

This secondary goal is obtainable too with ideally, some smart planning but with some sacrifice and perhaps some small readjustments.

Current financial concerns spinning in my head:

  • The current dividend yield only would cover about a quarter of the yearly cost of a “used” but decent car for my 1st child.
  • I might need to reinvest my money into a new “still safe, but higher yielding” stock since my current stock investment doesn’t have enough of a dividend yield and there are some extremely attractive, higher yielding stocks in this currently down stock market.
  • For my kids, I might have to purchase cars of a good make and model that are older than five years old.  I’m thinking maybe a Honda Accord, or even that I’ll pass down my Toyota Camry.  Passing down the Camry is a post for another day though, but it is definitely a consideration.
  • There may be an overlap in my car purchases for the kids that I might have to financially alter my plans slightly.

I could go on listing concerns for a while, but doing so cheapens my win from this financial experiment, so I’m cutting it short.

The main takeaways from my multi-year financial experiment are the following…

  1. Three years and 1 month later from the start, the 10k loan I borrowed is now basically free.  It’s my break-even point also called the crossover point!
  2. Through some smart and lucky planning, my dividend-reinvesting stock investment has gained over 100% in capital appreciation.  In fact, on 1/28/2016, I was $333 dollars over my $10,000 “crossover” point, and as of 1/31/2016.  Yes, I got lucky with this experiment in that I recapped my investment so quickly, but even if it took longer, I think it was a good idea in the 2012-2013 stock market with such low borrowing rates.  If the market conditions was different back in 2012-2013, I might not have made the plunge though.
  3. Sometimes if the market is right, it makes more sense to invest you money instead of buying things outright with it.
  4. Another “sometimes” statement is that sometimes low-risk, reasonable debt can save you money if you have an equally compelling financial opportunity, as I had in this case.

So the past few days, I’ve been doing the happy dance…

I hope you enjoyed my “real life” example of how debt can save (or even make) you money!

Here is to a hopefully better “rest of the new year”!

Don

Back In Debt But It’s Different This Time

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Well, I decided to break down and buy a new car (a 2010 Toyota Camry, not sexy but nice) for $15,500 so I’m back in debt but it’s different this time, really!

First let me say that I put down $5,500 on the car to make the amount that I’m in debt for equal to $10,000.  There are two reasons I wanted my debt to equal $10,000

  1. I honestly believe that I can make a better return in investments (even with a small increase in the amount that I might pay in taxes next year).
  2. I wanted a simple number for reporting on in this blog.  This was a minor factor, but still a factor all the same.

What you may or may not know is that I was debt free (including my mortgage) before buying this car.  And actually I think I blogged about how nice it would be to never be in debt again.

toyota camry 2010

So what changed my mind?

  1. With my excellent credit score (811 at the time of purchase), I was able to get an additional .5% of a percentage point off the interest rate for the loan.  I believe it made the rate something like 2.5% for the loan.
  2. I’m pretty sure with just a little effort, I can buy investments that can beat that 2.5% interest rate that I would have to pay on the loan.  With low-risk but optimistic investing and barring a market meltdown, I should be able to easily beat the 2.5% yield.
  3. I’m working on a strategy for three future car purchases spaced about 3 to 4 years apart.  This future purchases will include a replacement vehicle for my wife, and two cars for my kids.  Sounds like a lot, but most likely the two cars I buy for my kids will be used and the total of both will cost less than my wife’s replacement vehicle.
  4. If you are financially oriented (like me), sometimes taking on debt for other financial opportunities makes sense and can be the more prudent route.  This might sound a bit odd coming from a guy that paid off his house in about 11 years, but it’s all simple math.

Here’s the kicker, I could have bought my car outright from money that I had in my investments.  Actually, the money was even sitting in cash, so I wouldn’t have even had to incur any capital gains tax on any investments that would have been sold.

So if I had the 10k sitting around doing nothing… what am I going to do with it to make use of it instead of paying off my car?  Ah, that’s the question!  Currently, I’m leaning towards investing in a safe solid utility company that pays out a respectable dividend.  But in the mean time, it’s still sitting in cash.

After I find out the new tax rates on dividends, I’ll make a move at that point in time.  This entire process if evolving and will change dramatically in the next few months.  Stay tuned!

Bests,

Don

Blaming Your Credit Card Debt On Your Spouse

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Do you blame your credit card problems on your wife or husband spending habits while ignoring your own?

How I View Credit Cards:

First, let me say that I personally enjoy and using credit cards, but only when it’s to my financial advantage. I even use my Chase Freedom Credit Card when I buy items from fast food restaurants (every little bit adds up for reward credit cards!) That said, whenever I do use credit cards I try to live by 1 golden rule: “Pay My Total Credit Card Balance Off Each And Every Month”. This is my mantra and what I live by, not being able to do so means I lose the credit card game.

I guess to me, credit cards really are a game, and a game that so far I’m good at. I use the cards for the discounts on products but always pay off the balance in full each month so I don’t pay any fees of any sort.

But I’m fortunate in that I have a spouse that is playing the same game as I am, and even better at it, which leads me into my primary topic for this article:

Blaming Your Credit Card Debt On Your Spouse:

A few years ago, I had a friend that was complaining to me about how his wife continually spend money via their credit cards. He was telling me how buying “happy meals” at McDonalds and other small purchases like clothes for the kids, added up and was the crux of all of their credit card problems. Now I could have believe him, thinking that perhaps his wife wasn’t shopping frugally and that she would could cook at home instead of going to McDonalds every other day, but then he told me how he was going out to Vegas next month and again in late summer.

So my friend would come home and find McDonald’s toys from the “Happy Meals” and complain to his wife, but he would silently ignore his “big” purchases in the same breathe. Oh his wife would find out about some of his big purchases, after all, it’s kind of hard to hide a new big screen TV, but he would always have some deal saving story about how it only cost half the price it normally would have, or was almost free, or was sold to him by a friend cheap.

Credit Cards

Credit Cards

Dissection of Credit Card Debt:

So you might be thinking, what a jerk that guy must be, and to be honest, I thought so too. But a good chuck of people (if not the majority) that live by impulse. This is probably why the “pet rock” was able to somehow be a selling sensation… This action and behavior can be controlled much like any behavior can be controlled with the proper tools.

So if you aren’t logical and you don’t have any fear of spending money or going into debt, how will you improve? I hate to say this but I would recommend a decent “fee only” financial adviser. Someone that has a good reputation in your area that can dissect both your debt and who and how your money is getting spent.

Like Charles Dicken’s quote in his book “David Copperfield“:

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”

A good financial adviser should be able to give you tips to save money on certain spending habit you have, and could even setup some sort of practical budget for you and your spouse to follow.

If you are having credit card problems, consider using a spreadsheet to add up and account for the items that you purchased over the last 4 or 6 months, perhaps you’ll be surprise to find that the real credit card problem may be you…

Good luck,

MR

 

 

Chase Freedom Credit Card Review – My Personal Take

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After reading some of the information about the Chase Freedom Credit Card (from an endless stream of mail from Chase), I decided to take the plunge and sign up for one.

Today, I’m going to give you an objective review, and my personal perspective on my findings on the Chase Freedom credit card.

What got me to sign up for the Chase Freedom Credit Card:

Well, basically it’s partially because it’s a rewards card with up to 5% off on some purchases during certain quarters of the year.  But another huge reason was that it offered an instant $300 cash reward just for making any purchase after receiving the card.  So to test that out, I bought a latte from McDonald’s and waited a month to see if I would still get my $300 cash reward points with such a small purchase.  Low and behold, once my statement came, at the bottom of page one and under the heading “CHASE FREEDOM:  ULTIMATE REWARDS SUMMARY“, there was my $300 dollars (in the format of 30,002 points).  The 2 in 30,002 was from the latte that I bought…

Chase Freedom Credit Card Details:

Let me say that this card is a bit different than any rewards card that I have ever dealt with before. First you get a flat 1% on all purchases!  But you can get a bonus 4% (making the total 5%, instead of just 1%) on certain certain purchases!

In many ways it makes you work a little for the bonus 5%reward percentage gains.  With my previous reward credit cards, I just used them and the reward percentage was a fixed number, no thinking or work  involved.  But with this card to get the 5% off, I have to activate that bonus feature each quarter (via the phone or website), and buy at those particular types of stores or purchase those particular activities that they offer.  In some ways this is a slight pain, but for bonus 5% off it’s worth it.

The Chase Freedom Credit Card materials do not explicitly say the deals will be offered quarterly, but it appears that is what they are basically doing.

The 5% bonus categories for 2011 is:

  • January thru March:           Grocery stores, Drugstores
  • April thru June:                    Home improvement stores, Lawn & garden stores, Home furnishings stores
  • July thru September:         Gas, Hotels, Airlines
  • October thru December:   Movie theaters, Dining, Department stores, Charitable organizations

Each quarter, once you have have spend $1,500  you then revert back to the 1% reward rate, including the bonus categories.  So according to the information sent out by Chase, if you only spent $1,500 in the bonus categories each quarter, at the end of the year you would get $300 back in cash.  Of course that number isn’t including any other spending per the year.  We calculate that with the amount of spending that we charge to the credit card (remember we pay our balance in full each month), we should get at least $600 per year from this card if we use the bonus feature!

Activation of the bonus points is easy, just click Activate now at the Chase site, all you need is the last for digit of your credit card.  Again, pretty easy, especially if you schedule it in a calender problem such as the Google Calendar App., Microsoft Outlook, or whatever calendar problem you prefer.  Then again, you could sign up for text messages from the same Chase Freedom website!

Testing the Chase Freedom Credit Card:

Now that I have my card, I decided to test out the customer service telephony service.  When I dialed in, mostly it was a string of voice menu options after voice menu options.  The navigation of the voice menu was simple though and the voice was pleasant and clear (I’m not sure how important that is, but it’s nice to know).

I was able to retrieve my current balance and my most recent transactions.  I was pleased, so I decided to experiment and make a payment online.  Surprisingly, I was able to do this entire transaction without talking to a customer representative.  This might be the first time that I’ve ever done a financial transaction over the phone that involved my checking account numbers without talking to someone on the other end.  It was so simple, that I got worried and stayed in the system until I found a place to talk to a customer rep.

I was worried about identity theft, especially since I was able to call into my account without a pin, and make a payment with my checking account number.  After I got hold of a representative (fairly quickly, it was 6pm on a Sunday), he said that only authorized phone numbers can make such transactions and since I registered the cards using the phone that I was one, it was authorized to do such transaction.  Whew, wish I known that upfront.  I’m sure it’s in the document somewhere, it’s just that I didn’t read it.

Well, that’s my personal experience with my new Chase Freedom credit card.

I hope you found this article interesting!

MR