Debt Payoff Progress for April 2013

dead endI had every intention of making April better than March in regards to debt payoff, and in reality, it is not as bad as it seems.  But the debt that I report here didn’t even decrease.  I had hoped to drop below the psychological $200,000 mark.

However, the reality is that we did make some progress on the commercial building as well as in other areas.  Our total liabilities decreased by just over $1200 and I didn’t include the payments that we made on the building or other real estate.  And with the stock market on a tear, the mutual funds in my retirement accounts really added to our assets improving net worth even further.  I am close to my net worth goal for the year, but I realize that the market can easily go down which is why I want to focus on paying off debt to improve our net worth.

 

Here are the monthly results:

February 1, 2013:  $204,682.21

March 1, 2013:  $202,074.40

April 1, 2013:  $200,241.22

May 1, 2013:  $201,650.44

 

Now part of that number is represented by “new debt”.  I say that because my wife and I are doing some much needed work on the house.  The intention is to cash flow the work, but since there was a sale going on at Lowe’s, we decided to put the purchase on a credit card since it was something that needed to be done anyway.  I had some bonus money coming at the end of April so the purchase was recorded as of May 1st while the cash was just getting into the bank.

We have a set budget for the work that we want to be done and the cash is sitting in an account and available to pay the bills as they come due.  That’s why I think that ultimately, we will see a little bit more progress as we head through the summer.

Unfortunately, this seems like such a long process to me, but I have 32 more months to go.

Better to be a Debtor than a Saver in Cyprus

I learned about the news coming out of Cyprus last evening and was in total shock.  Even if the consensus is that a significant portion of the savings in Cyprus banks belongs to money laundering Russians, the fact that a government would just confiscate wealth like that is something I never thought I would see in my lifetime.

Although I shouldn’t be surprised as it happened right here in the United States when Franklin D. Roosevelt criminalized the private ownership of gold.  I suppose 1933 isn’t too far removed from my lifetime.  Plus there have been cases and abuses with the doctrine of eminent domain.

Of course, there have been all sorts of nationalizations of assets in Third World dictatorships so I shouldn’t be too surprised.  But living in the United States has allowed me to assume that the rule of law and rights of legal ownership would trump such outlandish suggestions as to confiscate property.

Now that I have a chance to think about it, I guess the risk of ownership is that somebody with power, a gun, or both will get their hands on your stuff.  In that regard, owing rather than owning is the safer place to be.

Still Wanting to Eliminate my Debt

Still, I would rather be in a position that would allow me the opportunity for a better life somewhere than to be trapped and suffocated by debt.  Certainly, the argument for diversification of assets holds true when it comes to the risks of sudden and unexpected taxation, nationalization, or confiscation.

So I suppose that I will not be deterred in my quest to pay off my debt.  That will be the first step and once that is done, I can worry about where to put my tremendous monthly savings.  I just know Cyprus won’t be my first choice.

 

 

Speed Bump on Debt Payoff

dead endOf course, it is inevitable.  Anytime you want to make progress on something, whether schooling, a home improvement project, or debt payoff, you will run across a speed bump that slows you down or may even knock you off course.  I am not sure how this will affect me, but I do know that it has the potential to be a major issue.  However, it is still my goal to have all that consumer debt I outlined paid off totally by February 2016 at the very latest.

The Problem

In 2008, just before Lehman Brothers went bankrupt and the economy imploded, a friend and I purchased some land for the purpose of building a small building to hold his business with some extra room for a tenant or two.  It turns out that he had to occupy 65% of the building for the loans from the Small Business Administration.  So that is what happened.

Unfortunately with the economy the way it has been, the other portion of the building is sitting empty still and his business has struggled somewhat this past year with decreased sales.  Add to that his own poor personal decisions and the time has come for me to take over the building completely.  I will be decreasing his rent for 2 years in exchange for a portion of his business as well.

But, it will put a damper on the payback of my debt.  It would be nice to say that I should walk away, but I am personally (as is he) liable for the loans so that isn’t the smartest first plan of attack.  Also considering that I do have some capital already invested and it would be quite a major hit to take.

Monthly Budget

It will make the monthly budget tight again to take over full responsibility of the building expenses.  But I do think that the business has the potential to turn around.  It already made some progress in January and February is looking better as well.  In the meantime, I will have to be watching every penny and probably slow down the debt payoff schedule for the next few months until I get a better sense of the cash that will be needed.

Life has the potential to constantly knock you down, but you can either stay down or get up and forge ahead.  I will be forging ahead but in a slightly different direction.  Still, my total debt balance will continue to decline.  Plus, I get to interact with some new bankers and learn more about commercial real estate.

There is always a silver lining to those speed bumps.

Debt Breakdown–Six Figures is Only the Beginning

debt breakdownHank at Money Q and A was interested in seeing a breakdown of my debts, so I thought I would provide one.  I re-read my earlier post about paying off over $200,000 and noticed that I didn’t give an overall debt total.  It may have appeared in an earlier draft or on another blog, but it wasn’t obvious that the debt I want to pay off in the next 3 years or less is only the beginning.  The almost $435,000 in debt I am looking to pay off represents consumer debt with high interest rates or relatively high payments that if paid off would help the monthly cash flow.

Here is the breakdown of the debt on October 1, 2012 when I started keeping close monthly track of it on a spreadsheet along with the corresponding interest rate:

  1. Past due income taxes:  $126,000 at 14%
  2. Loans from individuals:  $55,000 at 15%
  3. Loan from family:  $25,000 at 7%
  4. Credit card debt (9 of them):  $85,445 at 7.15% up to 24.49%
  5. Credit lines (4 of them):  $96,282 at 12.75% to 13.99%
  6. Prosper loan:  $14,067 at 18%
  7. Car loans (2 of them):  $32,948 at 0%

The grand total for the above is $434,742.  You will notice that there is no mortgage debt or student loan debt in these figures.  It is not because I don’t have mortgages or student loans.  It is because I didn’t want to be overwhelmed and decided to break out these particular debts for paying on and focusing on over the 40 months from October 2012 to February 2016.

Then I can focus on the other debt.  As I am sure you are curious, my total liabilities are not quite $1.6 million.  I do have a positive net worth, however.  But that is little consolation if it is difficult to cash flow the month.  That has gotten much easier as of late since paying off a big chunk of debt.

Let’s see where the above list currently stands as of February 1st:

  1. Past due income taxes:  $0
  2. Loan from individuals:  $0
  3. Loan from family:  $0
  4. Credit card debt:  $72,499
  5. Credit lines:  $93,220
  6. Prosper loan:  $13,185
  7. Car loans:  $27,607

The grand total now is at $206,511.  I could easily be under $200,000 but I am holding onto cash for some much needed repairs to the house and for a possible business venture.  Nevertheless, I am still devoted to getting this done by the deadline of February 2016 if not sooner.

After that, it will be time to list out the next several debts upon which I would like to focus.  In the meantime, simply making the monthly payments will help decrease the balances over time so I would expect the situation to be continually improving.  I plan on being debt free 100% before retiring so this will be the first step in moving toward retirement.

Ultimately, I will have the necessary assets.  I just need to get rid of the liabilities.

Lending Club Has Come to Indiana

lending-club-logoBack when I was trying to figure out how to pay off my back taxes and keep my retirement account intact, I looked into the peer-to-peer lending space at Prosper and Lending Club.  At the time, Lending Club was not authorized to do business in the state of Indiana so the only option I had was to get what I could through Prosper.

The money definitely helped at the time, but it wasn’t enough to ease the pressure so I finally had to bit the bullet and took a distribution from the retirement account to pay off the taxes and some other debt.  I will detail more about that in the next post.

Following P2P Lending Returns

In the meantime, I have had an interest in following the results of P2P lending and seeing the kind of returns that investors were able to achieve.  Not that I am in a position to be an investor, but I find the information interesting even though I am only a borrower.

Here are some of the recent reports that I have been reading:

  • Five Cent Nickel is winding down a $10,000 Lending Club portfolio and received a 6.7% annualized return.  Not too back compared to the interest on savings accounts.
  • Matt is making passive income by being a Lending Club lender and affiliate.
  • Mr. Money Mustache is working on a complete Lending Club experiment and recently doubled down to invest $20,000 getting an early return of just over 20%.  That will most likely trend lower as defaults occur, hence the experiment.
  • Joe invests at Prosper and has had some defaults now so that his return is down to 8%.  Hopefully, this is the end of that kind of pain.

Well, it was reading these updates that got me to wondering if Lending Club had ever gotten around to being able to do business in Indiana.  As it turns out, two months ago in December 2012, Lending Club announced its debut for the state of Indiana.

For me, that represents some good news as I plan to use Lending Club to consolidate as much higher interest rate credit card debt as possible.  I will probably wait a month or two until I can get a business deal I am working closed and pay off a little more debt which should help my credit score.

But after that, I would hope that I could save some interest expense and decrease my mandatory payments thus improving my monthly cash flow should any emergencies happen.  Obviously, it will depend upon what interest rate I can get.  If it doesn’t make sense, then I won’t do it, but it won’t hurt to investigate the option of getting a loan from Lending Club.

It looks like they grade their loans from A1 to G5.  I would need to fall right in the middle for it to really make sense.  And there would have to be no prepayment penalty as I am trying to pay off debt from the highest interest rate to the lowest and I do have some favorable interest rate debt.

I guess we will see what transpires, and I will keep you up to date.

Care to share your experiences with Lending Club or Prosper?

Welcome to Shredding Debt!

welcomeWelcome to Shredding Debt.  This is my newest blog about finally getting sick and tired of being in debt and wanting to do something about it.  I have carried debt for a long time, but now that I am getting older am starting to realize that spending much of my hard earned cash paying someone else just isn’t fun.

I have a decent lifestyle so now is the time to prepare for retirement and the first step in that process is to get out of debt totally.  Unfortunately, it will take me several years as I have quite a bit of debt.  But I am working on a 10 year plan to see if I can become debt free in the next decade.  Then I can have the financial flexibility to decide exactly how to proceed.

The first step is going to involve paying off $435,000 in 40 months.  This is a lot of consumer type, unsecured, depreciating asset debt that eats up too much of the budget.  There was also some tax debt in this total at the beginning.  I started this step in October, so that means I am 4 months into this phase of getting out of debt.  You will be able to follow my progress right here on this blog.

With my first post, I will recap what I have done over the past 4 months to get to this point.  In the meantime, welcome to shredding debt.  Feel free to share your stories about getting out of debt.