F-R-E-E that spells “not free”

I’m sure you’re all familiar with that catchy little jingle. The one that goes, F-R-E-E that spells FREE, credit report dot com baby. I love the song (it’s catchy), but I hate the message. Personally I think freecreditreport.com deserves a swift backhand to the jugular. It infuriates me that the company markets itself as a free credit report service, when in fact it is a we-hope-you-don’t-realize-you-are-signing-up-for-a-monthly-subscription-service.

Yes, your initial report is free, but they charge the bajeezes out of ya 30 days later if you don’t cancel the contract you probably didn’t know you signed. Unfortunately, freecreditreport.coms  catchy tune has polluted the minds of millions of Americans and have become the industry standard.

Don’t worry though, there is a way to check your credit report, three times a year, for free. As in it ain’t gonna cost you a thing free. Annualcreditreport.com is THE ONLY legitimately free, no strings attached, way to check your credit report. No fishy business going on here (it’s endorsed by the federal government). All you do is punch in a little information and within a few minutes you have full access to your credit report. No contracts, no subscriptions, no sketchiness. Booya grandma!

So now that you know how to check your credit report, it’s important you understand WHY you should check it. I do so for one reason and one reason only; To make sure everything is a-okay. I can look back through all the credit accounts I’ve had, over the last seven years, and double check that everything was reported to the credit agencies properly. I checked yesterday and let me tell you, it felt great seeing Sallie Mae showing “Paid in full.”

Not only can you check on the accuracy of any information on your report (and dispute any inaccurate information), but it also serves as the best tool to help spot identity theft. All it takes to open an account is just a little bit of personal information. What if someone has opened an account in your name without you knowing? If everything looks familiar on your credit report, than you’re probably in the clear. If there are some random credit card accounts, held with companies you’ve never heard of, there’s a good chance you’re the newest victim of identity theft.

Keeping up with your credit report (even if you have no debt at all) is just as important as maintaining a budget. It’s one piece of the whole personal finance puzzle. A very important piece mind you. If you haven’t checked your credit report in the last six months, go do it now at annualcreditreport.com (and if you’re wondering if I was compensated for this post or sponsored by them in any capacity, I wasn’t. Although, if they offered me compensation I would gladly take it :))

When’s the last time you checked your credit? Have you ever been fooled by a freecreditreport type company? Ever been the victim of identify theft? Was it as big of a headache as I imagine it would be?

Beat up debt, but save too

My boy Eric hooked me up with a guest post today. He has a finance degree from the University of Colorado and an MBA from the University of Denver. He is currently a senior treasury analyst at a Fortune 500 company. He blogs about personal finance at Narrow Bridge and the Middle East at The Israel Situation.

Kicked in the face

It feels really good to kick debt in the face. In the last four years, I have bought a brand new, $17,000 car and taken on about $40,000 in student loans working on my MBA. Of the $57,000 in debt, less than $14,000 remains. I have a plan to be paid off completely in less than two years. I have managed to live below my means and kick debt in the face. However, beating the hell out of debt is only one part of the personal finance puzzle. It is also important to keep track of your finances and build up a safety net while paying down your debt. The two main savings methods that I am employing are investing in cash savings and investing in my retirement, but I had not been focusing on both of those as much as I should have until recently.

I have felt great about paying off my debt so quickly. Paying off a $90,000 MBA within two years of graduating is something anyone should be proud of, but I recently checked in on my savings account and realized I only have enough cash on hand to live for about 2 months, not the 3-4 that I should have saved. I am on track with my retirement savings, but that can always use a increase as well. Because of this, I have developed a two prong strategy to both kick debt in the face and kick yourself in the butt to start saving more.

Part I: Kicking Debt in the Face

You have probably heard of the debt snowball at some point if you are a regular on the personal finance blog circuit. If not, here is the low-down: Pay the minimum on all of your debts except for your highest interest debt, where you put every dollar you can. This is scientifically the fastest way to pay down your debt.

Part II: Kicking Yourself in the Butt

There is no big secret way to save money, you just have to set a plan and follow it. Sites like Mint.com and banking sites like SmartyPig can help you track your savings goals. You can also set up a separate savings account at your bank if you want a little extra barrier between your savings goal and your spending accounts.

The smartest way to save your money is to not have to think about saving it in the first place. The best way I know of to do this is to set up your direct deposit from work to deposit your paycheck into two accounts. A certain amount of money is designated to go to the savings account and the remainder goes into your checking account. Keep your savings account deposit going as long as you have to in order to reach your savings goal.

Increasing your retirement savings is also an easy, automated process. Most employers let you take money directly out of your paycheck to be deposited into a 401(k), Roth 401(k), or IRA account. Every time I get a raise, I increase my contribution to my retirement accounts by 1%. If you are not taking advantage of a 401(k) match from your employer, you are giving up free money! Set that contribution level right now. If you are already contributing to your retirement accounts, just increase your level by a percent or two to keep building your retirement accounts. If you are worried about locking the money away, try an automated investing plan at a brokerage that allows you to sell and withdraw your funds whenever you want without tax implications.

Whatever you do, just make sure you are saving for emergencies and your future, and while you are at it, make sure you are paying off your debt too.

Questions: How did you decide how much to save vs use to pay down debt? Do you use the automated saving methods above? Why is Ninja so freakin’ sexy?

Editors Note: My only beef with Eric is that he likes to Kick debt in the face, where I prefer the punching method. And yes, I added that last question, I’m pathetic.

Excusing bad behavior

One of my favorite things about personal finance is hearing all the crazy excuses people use to justify bad decision making. For example my friend pulled the, “My transmission just went out so I HAD to buy a brand new car” Since when did a little car work, justify the need for a new car loan? Maybe it’s a sense of entitlement, or perhaps a lack of responsibility? Maybe I’m crazy, but I think it’s time we slap our peers back to reality and remind them that financing a boob job (wonder how many pervs are gonna click that link) is a terrible idea. Here are some of the most common “crappy excuses” I’ve come across…

Car:

The only thing stupider than financing a new car, when your old one is broke, is financing a new car when there is nothing wrong with your old one. Seriously people, cars are not like shoes. They do not need to match your outfit. I know at least three people who sold there, perfectly fine, cars for some type of hybrid or ‘fuel efficient’ car. Ummm, really? You are going to sell your $8,000 Toyota Camry that gets 25mpg, and go finance a $30,000 Prius that gets 47mpg? Did you know, that prius will only save you about $600 a year in gas? Which means it would take more than 20 years to actually save money. Fuel efficiency is NOT a valid excuse for financial stupidity. (I’m not talking about people who can afford Hyrbids, so all you hyrbid owners can stop foaming at the mouth.)

Tax Deductions:

Similar to the hybrid model above, I can’t believe how many people used the $8,000 tax credit as their excuse for buying a home. Since when did getting $8,000 from the government, warrant spending $300,000 of your own? Seems a bit crazy to me. Again, if you were already looking to buy a home and had adequate liquidity, then you made a smart move by taking advantage of the low market and the tax credit. Something tells me, however, a bunch of people went and bought homes they couldn’t afford, just because they felt like they were suppose to. Do you know anyone that took advantage of this credit or any other credit, that should not have?

Sales:

This is probably the excuse that makes me want to punch a baby the most frustrated. You know exactly what I’m talking about, and sadly, some of you are probably guilty of it. I’m talking about the woman, who after complaining about how broke she is, goes and buys a pair of boots from Nordstrom because they were on sale. Or the unemployed dude who puts rims on his car because he got four rims for the price of three. You know the guy. He loves to say “I saved $300 buying these rims”  when the truth is he SPENT $900 to get them. There is nothing wrong with looking for a good deal, but there is absolutely something wrong with buying crap you don’t need just because “It’s on sale!”

Man oh man, the list goes on and on and on. I can think of at least three more categories I could rant about (balance transfers, student loans, unemployment) but for the sake of not offending everyone, I’ll bite my tongue and call it a day. I’m sure many of you come across excuse makers every day. Care to share any of the ridiculous things these people come up with?

Should you save before paying down debt?

I love getting mail from PDITF readers. It makes me feel like I’m important, even though I’m really not. Well, it’s time we help another Debt Puncher out and share our two cents on his situation. His email says…

I just paid off the first of my 9 (yes…credit+retail) cards. It’s a huge achievement. I’m currently following the high-interest method to keep motivation high. My top priorities are:

*Paying off credit card debt
*Establishing a buffer in checking

Would you apply all your monies to paying credit card debt first or vice versa? Or set-up a plan so both can be achieved albeit at a slower pace. According to my projections, I can reach both these goals within a year.

Well, Mr. Anonymous Reader Guy, if I were you I would stop paying your credit cards, forget about savings, head to Vegas, and bet it all on black. Thanks for stopping by, hope I helped 🙂

Haha, I’m only kidding (unless you’re feeling lucky then GO FOR IT!). I’ll answer your question by sharing a little bit about my journey. As you may already know, I started my PF journey with $28,000 in student loan debt, and just a few hundred dollars to my name. Making the decision to save vs pay down debt is not an easy one. In fact, I wrote this post, this post, and this post about it.

Personally, I hated the idea of not having any liquidity. Dave Ramsey suggests saving up $1,000 in a checking account and throwing all discretionary income at your debt. It’s not bad advice, but it’s not what made me feel comfortable. I totally would have lost sleep knowing I couldn’t even write a check for next months rent if crap hit the fan. You can’t pay rent with a credit card so I needed to have money in the bank.

That said, I would not recommend doing what I did and OVER save. At one point I had $20,000 in the bank,  but only $17,000 in student loans (you can read about it here). If I could go back in time, I would give myself a swift backhand to the face for that one. I totally perverted my enthusiasm for saving and kept that student loan around longer than I should have. I was a very bad Ninja.

So my advice to you is probably going to be the most incredible advice you have ever heard in your entire life. Go get a pen so you can write it down. Ready? Don’t Drink and Bike, you might spill your beer. Oh wait, that was advice I gave to my alcoholic friend.

What I meant was, you should probably save some predetermined amount ($2K, $5K, or whatever) while making minimum payments on your C.C. But the second, and I mean the second, you’ve accomplished that goal, pay down those CC’s like there’s no tomorrow. It may not make the most financial sense to keep your CC balances a little longer, but if you’re like me it makes a lot of PERSONAL sense. Besides, it sounds like you are gonna knock out both goals pretty quickly anyway, so the difference in interest paid is probably relatively small.

That said, I realize I am only one voice in this PF world, so I’d like to turn the soapbox over to the PDITF readers and see what they would do. How much did you put in savings before attacking your debt? Anyone else out there like me and OVER save? How do you balance financial sense (paying down the CC ASAP) with personal comfort levels (saving up a decent chunk in savings)?

If you have any questions, comments, or just a funny YouTube video you want me to check out, feel free to shoot me an email.

Are you a debt H8er?

‘Debt’ is quite possibly one of the most interesting pieces of personal finance. It’s relatable, as the majority of Americans have some type of debt (credit cards, student loans, mortgage, car payment, etc). But what is really interesting is the way it can polarize the PF world. I mean just look at the title of my blog. It’s pretty clear I’m not a big fan of debt. In fact, I once wrote a post titled “Good debt is for dumb people.” I do, however, realize that MY opinion isn’t the ONLY opinion.

Debt freedom is not a prerequisite for financial freedom. In fact, I’d take out a $20,000 car loan today if it meant I could have $40,000 in the bank six months from now. Does that make me a PF sell-out? Perhaps I should change my blogs name to Lightly Slap Debt In The Face?

Sure, I don’t have plans to go in to debt anytime soon. Yes, I plan to take on a mortgage one day. No, I don’t think you are going to Personal Finance Hell for having auto loans. Yes, I think you’re stupid for having a degree in Art History if you have $100k in student loans. But at the end of the day, what I think/do/say doesn’t really matter for anyone but myself.

I’m not gonna beg you to pay off your car loan sooner, because what you do doesn’t really effect me. Heck, maybe you’ve found some clever way to leverage car debt and use it for financial gain (doubtful, but possible)? Just because I don’t gamble with bank loans, doesn’t mean you shouldn’t.

We are all adults here so I’m going to assume you can make adult decisions and determine how much debt you’re comfortable with. I have no authority to demand you curse the name of Sallie Mae, or rebuke your love of credit cards. Afterall, I’m just an immature dude, with a blog, and REALLY crappy drawing skillz that likes to throw his $0.02 in on the boring world of personal finance.

So now that I’ve gotten that off my chest, I’d like to ask you a few questions. What debt have you sworn off for life? Any debts you plan to repeatedly incur (i.e. car loan)? Do you use any type of debt as a means to become more financially stable? If so, how?

No debt free scream here

I should have saw it coming. Just as one could have easily predicted Clay Aiken would eventually come out of the closet…

…I should have known my proclamation of debt freedom would be followed by one question, and one question only.

“Are you gonna call Dave Ramsey?”

I was probably asked this by a dozen or so readers via emails, comments, and tweets. So let me address the masses: I have no intentions to contact Dave. It’s nothing against Mr. Ramsey, his show, or his teachings. Actually, The Total Money Makeover kick started my passion for PF. If it wasn’t for Dave, I’d most likely still be in debt.

You’re probably thinking to yourself “If Dave was the major player in becoming debt free, why wouldn’t you want to call in?” Truth is, I’d love to, but there is one tiny thing preventing me from doing so…. I’d be a terrible interview. No, not because I’m socially awkward, but because I didn’t really follow Dave’s plan. Here’s how I envision the DR debt free interview would go…

DR: Hey Ninja, You’re on the DR show.

Me: Hey Dave, I was calling in to let you know, I’m debt free!!

DR: Awesome man, how much debt did you have? And how long did it take you to pay it off?

Me: I was $28K in the hole and it took a little over 2 years to pay it back

DR: Great, making what kind of money?

Me: Well I started at $38k and now I’m making a little over $65K

….and here is where the interview would get awkward…

DR: So did you live like no one else, so later you could live like no one else

Me: Not really. In fact, I bought a motorcycle (with cash), fully funded my Roth IRA, contributed to my 401K, dined out at least once a week, paid for a $4,000 honeymoon, and had enough cash to pay off my debts about 8 months ago

DR: ….click….

And that would be the end of my interview. Honestly, guys (and girls) I won’t be calling DR because I didn’t do what he said. Had I really been on a “beans and rice” budget, I probably could have been debt free a year ago. I’ve never heard a debt free interview with someone that didn’t follow his baby steps…to the “T”.

Most of you know that wasn’t the case for me. At one point, I had $16K in debt, but $23K in savings. If that’s not a DR sin, I don’t know what is. Now that I think about it, my interview could actually make Dave’s plan less appealing. After all, I didn’t cut out fun or entertainment from my budget, I still use my credit card for just about every purchase I make, and I was working baby step 4 before baby step 2, but in the end every thing turned out just peachy. Ya see, even though I wasn’t “living like no one else” (by DR terms), I’m convinced I still have the ability to live like no one else.

While the liberating feeling that would follow a “debt free scream” would be awesome, I felt just as good professing it to you all last week. Heck, I’d even argue it was more rewarding sharing it here since you all participated in my journey. I apologize to the DR cultists, but there will be no phone call from Ninja on the DR show any time soon.

For those of you that are debt free, did you call in to the show? For those working towards debt freedom, do you plan to? If you were me, would you call in?

Ding. Dong. The witch is dead.

Yo yo yo! Quite possibly the most exciting announcement EVER . You’re probably going to want to take a seat before you read this. Are you sitting down yet? Okay good.

Today, mi amigos, I would like you all to know, I just popped a cap in Sallie Mae’s a$$ and laid her to rest. FOR GOOD!!!! That’s right PF’ers I am debt free! I feel so many things right now, but mostly I’m just turned on. What can I say? Being debt free is sexy. Ahhh, it feels so good to say, I think I might just say it again… I’M DEBT FREE!!!! Okay, now that I’m done gloating, let’s take a little walk down memory lane…

I graduated college Spring 2007 with $28,462.96 of student loan debt. I did the typical post-grad choice and deferred my payments for the six months allotted. I then consolidated my student loans with Sallie Mae, which in hindsight was the biggest financial mistake of my life. In February 2008, I had to make my first student loan payment. A whopping $178. I did this one time. After the first month, I decided I didn’t want to be in debt for the next 20 years, so I stepped my game up. I began doubling my monthly payments and figured I’d be out of debt some time in 2017. I thought I was pretty smart.

I continued making these double payments for exactly one year. In March 2009, it was time to get even more serious. I began throwing between $1,000 and $1,500 towards my loan every single month. Although I was committed to paying off my loan quickly, I still lacked the intensity needed to really get the ball rolling.

In April 2010, that changed. I became determined to be debt free by my wedding day. This is when I made a $10,000 decision and reduced my loan from $14K to $4K. After some more number crunching, excel spreadsheeting, and mathematical calculating I realized it was time to say goodbye to Sallie Mae for good. Over the weekend I submitted my final payment, and in case I haven’t already told you, today marks my first day of debt freedom!!! Kind of.

Apparently I made a mistake in predicting the accrued interest over the few days it would take my payment to process. Come to find out, my calculation was off by eleven cents…

So over the 2.5 years it took me to pay back my loan, I ended up forking over $3,832 in interest. This brings my total repayment to $32,295. While that number might be painful, it’s a whole heck of a lot better than the $52,000 total I would have paid had I taken the full 20 years to pay it back. Boo to the Ya for saving money.

I can tell you right now, I am already benefiting from the psychological effects of debt freedom. I feel incredible and am so excited to be able to spend my money without a voice in the back of my head saying “You shoulda used that money towards your debt.” Sallie Mae is one woman I never want in my life again. Ever.

As if you couldn’t tell, I am  really excited about this. Let me just get it out of my system one last time. HELL YEA!!! I’m Mother Effin, Debt to the Free. It’s time to go play “Ain’t gonna tie me down” over and over again, cause as of today, I am no longer Sallie Mae’s biotch.

Any suggestions for what I need to call my blog now? Perhaps, Punch Making Really Dumb Financial Decisions In The Face?