Category Archives: interest

Part 3 of 5: Savings

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Just do it! The only savings I’ve ever really been successful at was my 401K. With a layoff nothing was being automatically withdrawn from my paycheck every week, i.e. nothing getting saved. Why save when you have credit cards to pay? Well, if you get laid off (like me) what will you pay those credit cards with? Your savings! You definitely don’t need the tax or future implications of cashing out your 401K in your 20s!
That said, I knew that to survive future hardship and meet future goals without debt, we needed to save. I learned about SmartyPig. SmartyPig is an online “transaction engine” that allows you to set your goals, and have your funds automatically withdrawn into a savings account. They also offer an excellent interest rate and the FDIC backing of a real-live bank. (And not one of those shrouded in scandal, either).

The bottom line: We’ve set up “SmartyPig” accounts online for two major upcoming expenses. Once my income becomes more regular, we’ll re-start our emergency savings there as well. Dollar for dollar, our savings rate is now higher than ever, despite the reduction in household income.

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Part 4 of 5: Alternative Income Strategies

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Try it Now! Join Lending Club.
This part of my strategy is mildly controversial and not yet totally proven, but it’s working for me and it’s a whole lot of fun. I’m going to encourage you to risk only what you can afford and give it a try. Our 401K, 403Bs and IRAs are tanking. We’ve literally lost 50% of our retirement/savings this past year. Seriously not fun because we have been very diligent during our working careers to save responsibly. I’m too afraid to try the stock market just yet, so when a friend suggested I investigate microloans, I decided to give it a try. First I put $25 on Kiva.org in a five-month loan. No problem, in five months, I get my money back and in the meantime, a nice lady in Central America is starting her clothing shop. No harm, no foul, and my interest-free investment is more secure than under my mattress or in my 401K. Thank you Kiva. But then I wondered if it was possible to make interest on these investments. Turns out, there is. I joined Lending Club and invested $100 into four loans, to prime borrowers only. There’s a risk of default here, but I invested only in prime borrowers, and only $25 in each, so there’s a pretty good chance I’ll get paid back at least most of what I leant. Also, Lending Club has a reputation for really chasing down those who owe money. Most forms of microlending have very low default rates though and as I’ve learned more about these while blogging at Prosper Lending I’ve decided to go ahead and keep investing. So far, I’m making money every day on my “microinvestment” of $100. This month, I’ve made $.60, and I have monthly payments of $3.33 owed to me tomorrow. Not bad for doing nothing. It’s like being a landlord with less commitment and no midnight maintenance calls. If you’ve got a little cash you’d like to invest (or if you need to consolidate a higher interest loan into something lower-interest) you might want to give peer-to-peer lending a try as either a borrower or investor. I love how interactive it is—I got to choose who I was investing in. Other options include Microplace (international investing) and PertuityDirect (a mutual-fund version of peer-to-peer lending).

The bottom line: diversity in your investments is good right? I’m helping someone and earning 10.89% interest right now. Not too shabby.

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Part 5 of 5: Paying Down Debt.

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I put the cards through the shredder. Every one of them. I’m hanging onto the chips for an art project. Mobile, mosaic, jewelry, I’m not sure yet, but the inspiration will come. Just do it. If you have to have one for emergencies, put it in a Ziploc bag full of water in the freezer. You won’t be able to thaw it quickly or the card will be damaged. Get out all of your statements and use a debt calculator to figure out how to get out. We were paying highest interest accounts first for a long time, but not seeing a big difference. Recently we switched to the snowball effect and WOW is that satisfying. We outright paid off some smaller loans in full (with cash, not credit) and that feels good. Now we have that extra $100 or $200 a month to payoff some bigger balances. We’re also getting aggressive about using any idle money we can, right down to change buckets, and checking the sofa cushions. Found $33 this way last month! Is your mortgage interest rate high? You might want to shop around—rates are way down. Take a look at Smarthippo.com. I’m thinking about doing this but haven’t taken the plunge yet as we think we may sell our condo for something bigger.

The bottom line: to creditors any paying is good paying right now. Try to get them to drop your interest rates, and pay as much as you can every single month. I sit down to write the check every month and challenge myself to pay 10% more than I had planned. Every rebate check or babysitting dollar you get, throw it at those debts. I’ll bet the credit card companies hate me. Every time I deposit anything “extra” to my bank account, I write a check back to the credit card company for the same amount. They get a half dozen checks in the mail every month.

You’ll be surprised at how fast it goes down, especially if you have your net worth on Mint. If you check your Mint.com page every day, your fingers are on the pulse of your finances and you feel compelled to tackle those debts. I sure have and it’s working great for us. We’ve turned around our finances so much that we’ve moved our expected debt free date up by more than 18 months.

Good luck—and please, let me know how it works for you!

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Be Debt-Free Calculators

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Try it Now! Join Lending Club.
The average American household has about $9,200 in credit card debt. I hope you’re in the bottom end of average. I’ve busted more than this already in 2009 (and it’s only February) and I have just slightly more than this left to go before my debt-free goal of July 2009. It’s going to be close but I have faith that we can beat it. What then? I think we’ll go to Disney Land (but not until we’ve saved for it).

CNN Money’s Get Out of Debt calculator:
Enter your debts (they’re optimistic as there’s only five lines but an option to add more). Choose from the following options:
1. Fixed Payments (how long ‘til I’m debt-free?)
2. Minimum payments (how long will it be and how much will I pay?)
3. Debt-free deadline (what do I have to do to be debt free by my desired date?)

This calculator is anonymous and produced by a reliable source (CNN). It is very, very easy to use. Unfortunately, one thing it fails to mention is that this payoff plan will only work if you put those cards through the shredder!

Living on a Dime:
You don’t have to get out all your statements, but you should know what you owe in total and the average interest rate. Plug those in the boxes and you can click “show me the light” which will say how long it will take and what it will cost to be rid of your debt. Another cathartic, though not very useful button is “take it all away” which simply clears the boxes. I realize this is likely so you can re-enter different information and try it again. I put in the same info and “took it all away” several times in lieu of paying a therapist today. I feel better already.

Bankrate.com’s Debt Calculator:

Bankrate.com is a Web site for those shopping for credit cards. If you feel like you’ll be compelled to try… don’t bother, use one of the earlier links. This is a pretty good calculator though. It also shows the interest rates of some other cards. I hope your rates are better than theirs. I know mine are.

What all of these fine organizations fail to do is to remind you to sit down and chop up that card. I’m saving my chopped up card chips for a craft project. Maybe a mobile, or a mosaic or a Christmas Tree ornament. I’m waiting for the inspiration to come to me. (I have strategically tossed some chips from each card in hopes of preventing my relapse into using the cards, but it feels so good to be this close to debt-free that I’ve never felt compelled to use the cards or order replacements.

Another thing that these sites fail to mention is that if you haven’t called in the past three months for a lower rate, you need to do it. Will your card company do a 0% balance transfer from another card? Will they reduce your interest rate for even a short time? I called back in December and got my rates lowered on almost all of my cards. One even told me to call back each month for a lower rate, and would you know, it’s working? My credit card interest rate is now between 5%-8% and it is 0% on one card until August.

Take a look at my post earlier about my results with this technique.

Not having any luck with credit card companies lowering their rates? Many people are using Lending Club to consolidate their credit cards into a single lower-rate loan. I’m an investor (yep, I invest in these kinds of consolidation loans!) with Lending Club, and I’m really happy with the company.

Also, if you’re looking to consolidate, be sure to get rid of those cards so you don’t just start over!


Need Money? Join Lending Club!

I’m saving online with SmartyPig. Want to help me reach my goals?

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If you’re like me, the only savings you’ve ever been successful at is the automatically-deducted 401(k) account you’ve got at work. If you aren’t like me, well then I’m embarrassed. I liked thinking I wasn’t the only one with a savings problem.

While researching FINOVATE startup companies, I learned about SmartyPig.com. SmartyPig offers free, high-yield online savings accounts with minimum balances of just $25.

Now, SmartyPig isn’t just the every day same old savings account you can get at your bank. It’s not even really a bank. It’s an online “transaction engine” that works in front of a 115-year old publicly traded-bank (West Bank).

The SmartyPig site is secure and tested every day by Macaffee. It’s also affiliated with an FDIC insured bank, so you know your money is safe.

I measure the ease of setting up any kind of online transaction by how many interruptions I receive from my two darling daughters “whatcha doin’ mom?” I didn’t get any, so setting up my account must have taken me less than 12 minutes. Yep! That easy.

I had a little bit of difficulty in the final stage. Apparently I failed the identity questions, so they had to mail me a paper to fill out and send back. I sent it back and my account was activated just two days later. (I think Equifax has my maiden name spelled wrong).
All in all the setup was quite painless.

Now to set up my savings goals. I elected to set up two. Smarty Pig calculated that I’m going to have to save $86.00 a month. So it’s going to automatically withdraw every month.

My second goal is public, but in a different way. People can see where we’re at in our savings progress, and help out if so inclined, but we don’t have to share actual dollar-figures, only percent to goal.

Next I can post my goals on my blog. I emailed support@smartypig.com when I had difficulty with this and got an email back about 12 minutes later. Talk about customer service. I’ve made customer service inquires a few times with SmartyPig, either by email or Twitter (follow @smartypig) and have always received prompt responses. I also phoned their customer support to find out if activating my account would create a hard pull on my FICO score. No “press number 1 for….” Just a real live person, who happily answered my question in moments. No hold time at all, no menus of doom. And no, it’s only a soft pull, not a hard pull so doesn’t affect your credit score.

When I reach my goal, I can get my money back by a check, or debit card or AHC deposit. If I were saving for something like a vacation, jewelry or a new flat-screen TV, I could “cash out” onto one of their Best in Class merchants and receive a bonus of up to 6%. They’ve partnered with Amazon.com, Best Buy, Zales and even Home Depot, if you’re making room for more kids like I am.

The Web site is incredibly easy to use, and even has video tutorials if you’re new to setting up accounts online.

The interface is friendly and very pink. When you sign up you select a cute piggy avatar or upload your own photo if you want to interact on the social side of SmartyPig.

The emails are clear, not cryptic. They also have fun Twitter contests.

This post is about my experience with using SmartyPig, but if you’d like to know more about this innovative company, visit my article over at the Prosper Lending Review.

Happy Saving!

Just my $.02 + interest for today!
By the way, if you want to find me on Twitter, I’m @Jessc098.

**12:04PM, edited for clarity.

Snowflake!

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I truly hate the “a little here, a little there” approach to paying off debt. Sure, I know it works, but I hate doing it, it’s a pain. I’ll do it anyway now becuase I know it’s the right thing to do.

Also, this week is midwinter break for our oldest daughter, and I thought this would be a good opportunity to instill some financial virtues in her. This morning we put on some loud music and sorted out the “penny bucket” which had about four pounds of coins of various nations. We sorted all the US money into coin rolls and such, and then dropped it off at the bank, $33. Not too shabby.

I’ll “snowflake” this to the last credit card. I’m ambitious now. I’ve seriously caught myself looking around the house to decide what I could sell to unload that one LAST debt and be free of my plastic chains.

Last week our oldest daughter came home and sat down on the sofa by where I was writing and said “Mom–today I learned about interest. Did you know there are good kinds of interest and bad kinds of interest?”

Wow. Those kinds of teaching opportunities don’t come along every day do they? It was the same time that the tax refund came and I was just about to pay off two credit cards entirely.

I sat her down and opened our Mint.com dashboard. I showed her our “good” interest, such as my Lending Club investments, which are earning about 11%). I also showed her our “bad” interest, and how we were going to pay off two of our three credit cards and put them through the shredder.

I encouraged her to save for her future. Tomorrow we’re opening “Smarty Pig” savings accounts together. Come back soon to see how that went.