USDA Prime … loan?

I know, I know …. I’m supposed to be working on to the “M” phase of my DMAIC approach to getting out of debt – measuring where my debt is and how my income is spent.   And truth be told, I’m actually working on a budget for the first time in my life and found some very helpful budgeting and debt tracking excel forms online.   But I suppose I’m not really budgeting yet … the current process is more of a recording as to where my money goes every month (something I’ve never done before).   I have to say, psychologically I’m a lot tighter with my money when I’m forced to actually record where and when it goes.  I’ve actually started bringing lunch to work, dropped an online dating service and cut my cell phone plan – all of function of looking at my actual take home pay and realizing that a significant part of my expendable income was going to relatively silly/non-essential things.  Seriously, I must have been spending $60 a week just going out for lunch (and that’s just lunch!).  I think I’m too embarrassed to take a look at what I was spending on dining out in total (those night of ordering or eating dinner out, lazy sunday brunches, overpriced coffees and who knows what else). 

But … the “Measuring” phase has temporarily been put on hold.  Why you ask?  Isn’t this a web log tracing an individual effort to get out of debt? 

I’ve decided to buy a house.  I know, I know … I’ve read Dave Ramsey too and this certainly is not the path layed out by the Total Money Makeover. 

* I don’t have all my debt paid off

* I most certainly don’t have an emergency fund

* And I definitely don’t have a sizeable down payment

But  …. a USDA loan provides 100% financing, no money down, and no PMI payments!  This is even better than the FHA loan options I explored.  And while I’m no Warren Buffet, I really think this is a buyer’s market … especially for first time homebuyers.  

And I have to ask the Dave Ramsey’s of the world … if I’m not paying PMI and can essentially shift my rent budget to a home budget … is that all bad?  Granted, the home will probably cost me another $400 a month … but if I keep cutting out those lunches, online dating subscriptions (which I actually found to actually be an excellent way to meet people – despite the fact I was initially hesitant and never considered myself to be a guy that needed to resort to online dating)  and who knows what else … those extra funds should be doable! 

And with that being said … I’ve been pre-approved for a $175,000 loan and put in an offer in on a home today – listed at $173, 000 and I offered them $162,000 (seller also covers closing costs).  

My thinking –

1)  I can start building equity (and do so even faster with no PMI payment) in an actual home for just slightly more than what it costs me to rent a place.  AND … with a USDA loan I can accomplish this without having to put any money down! 

2) I will qualify for the $8,000 tax rebate and can just put that right into my consumer debt (in fact, that’s enough to pay off one of my credit cards). 

I’d like to hear about other first time home buying experiences.  Maybe I’m approaching the situation with flawed logic – so tell me where I’m going wrong?  If it sounds like I’m repeating a mistake you’ve made in the past … well pay it forward and let me know!

For information on USDA loan options and requirements, check out –

http://www.rurdev.usda.gov/rhs/sfh/GSFH_Information/individuals.htm

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Financial Carpe Diem?!

I have to be honest … having admitted what a financial failure I am has been somewhat of a relief!   Something cathartic must happen when we’re really and truly honest with ourselves.  But the point in saying all that … I felt really excited to do something financially positive when I woke up this morning.  Here’s what I’ve done before my lunch hour –

Saved $29 in overdraft fees! 

Yes – great timing to incur the second overdraft fee in my life!  But I think that’s a symptom of my financial ineptitude – “I can’t be a financial mess, I pay my bills on time!  I’m not one of THOSE people incurring late fees and penalties!”. 

Anyways, I was not going to lose $29 as a result of being financially irresponsible.  Part of this Debt March should be about taking a stand against financial mediocrity and learning how to take charge of where my resources go. 

I politely contacted the branch of the bank that I visit regularly and asked to speak with the manager and through a series of redirections was able to get a hold of him.  Here’s roughly how the conversation went:

Me:  Good Morning Mr Branch Manager, my name is Holden and I regularly bank at your downtown branch and have been a customer of your institution for a several years now.  I would like to resolve an issue I encountered with my account earlier this week.

Mr. Branch Manager:  Certainly Holden, what would you like to discuss?  And can I have your account number to access your file? 

Me:  Earlier this week I incurred an overdraft fee of $29.  If you look at my file you’ll see that the overdraft of $50 occurred on Tuesday morning as a result of an automated payment that I have set up.  As you’ll also see, I had funds deposit in less than 24 hours to more than cover the automated payment.  Additionally, if you review my account you’ll see that this is the exception and not the rule.  I was hoping you could waive this fee as a courtesy?

Mr. Branch Manager:  Holden, we do appreciate your business and I do see that you have a solid banking record with us.  While I cannot personally waive the fee, I will contact our Consumer Request department to make the request on your behalf.  If you’ll give me your contact information, I’ll call you back to confirm the results. 

Me:  Mr. Branch Manager, your wisdom is surpassed only by your kindness.  I look forward to hearing from you and appreciate your help this morning. 

And guess what?  Within five minutes I received a call back indicating that the $29 fee would be credited to my account today.  It took 5 minutes, a couple of phone calls,  and a proactive approach to save myself $29!

How many of us just accept these types of fees?   Are we so averse to confronting our financial failures that we’ll make a bad situation worse – “I know I overdrafted (or made a late payment) but I’m just too embarrassed to call my lender and try to do something about”? 

And all those $29 fees have probably added up to a signficant amount of money over the years.  I think lenders rely on us being lazy and inactive … the very behaviour and thinking that leads us down the broad path of financial destruction. 

Maybe these are the first steps to being financially responsible – admitting you have a problem with money and making a conscious effort to take control of where and how it’s spent.  

I know that sounds like common sense … but how does the saying go …. it’s not all that common anymore. 

So is $29 really worth a post?  I think so … maybe it’s a baby-step or a new symptom, a symptom of not wanting to be financially sick and out of shape.  Maybe this is me learning to walk before I run?  How many of us got our first credit card and started charging away before we had any idea what APR meant?  Doesn’t that seem backwards? 

These are probably very simple questions … but I’m not sure I’ve ever asked myself many of them? 

Do you have any stories similar to my $29 overdraft fee episode?  Tactics you’ve used to correct a mistake or prevent a bad situation from being worse? 

I’d like to hear them.

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DMAIC … a starting approach?

Alright – day 1.  I have to admit that I haven’t fully thought through this attempt to reduce my debt and become more financially disciplined/responsible.  But … I think that lack of thinking ahead maybe part of the reason I’m in this position … a mountain of debt and nothing to show for it. 

I’m hoping some of you can relate.  Makes you wonder how much thought any of us put into those dozens of little financial decisions throughout the week – that happy hour, Starbucks in the morning, the latest gadget, a new jacket, etc?   And do we get to a point where our financial lives are such a mess that’s it’s just easier to ignore rather than turn that rock over and see just how ugly the situation is? 

Anyways … I decided to apply a basic Six Sigma methodology called DMAIC (an acronym) in approaching my Debt Elimination project.   The approach is used to improve a process and God knows that my financial process could use some tweaking. 

So here’s a breakdown of DMAIC –

D – Define the problem and articulate the goals

M – Measure key components of the current process and collect important data

A – Analyze the data to uncover trends and relationships.  Try to uncover the defects in a process

I – Improve the process based on the finding of your analysis.  Implement new approaches that eliminate previous defects. 

C – Control the future process.  Based on the goal that was set, make sure all actions, inputs and processes don’t deviate from that objective. 

I know, I know … sounds boring and unnecessarily complicated.  But I think this type of approach my force me (or you?) to really think about the financial situation I’m in. 

The Problem: I’m not yet 30 and I’ve got over $30,000 of debt.  Debt that is growing larger each year.  I don’t own a home, I drive a 7-year-old Toyota Camry, I’m not married, I’ve got no children and despite having a job that pays me a base salary of $42,000 a year + commission (up to another $20,000) … yes, despite all of this, I have very little to show for my mountain of debt besides the occasional head scratching moment when I’m paying my monthly bills and wondering what the hell happened.  Again, some of you probably make much more, some less, some have more debt, some less … but I’m convinced that my situation isn’t unique and that there are millions of people just like me scratching their head at the end of every month. 

The Goal:  I’d like to be consumer debt free (no credit cards, car payments, student loans, etc) within 3 years.  I’d also like to purchase a house by April 30, 2010 of this year (seems like too good of a buyers market now and I’d like to take advantage of that $8,000 tax credit).  

Daunting, I know.   So what are your personal financial goals for 2010? 

In the coming days,  I’m going to dive into “Measuring” the problem: what exactly are my debts?  what’s my interest rate?  how much am I paying in interest?  where does my money go each month?   I’ll make a conscious  effort to be completely unemotional about the process and  just collect relevant information about my personal finances  to set up a base line of just what kind of financial mess I’m in.

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Welcome to The Debt March!

I’m getting ready to turn 30 in a couple of months  and I’ve got a pile of debt and not much to show for it.  Credit card debt, student loans, that big screen LCD HDTV from Best Buy that I didn’t need and a host of other small and unmanageable little debts.  I’ve come to realize it’s a slow painful death by a thousand debt cuts. 

It’s a bit sad … but not an all too uncommon story among my friends, acquaintances and colleagues in their 20’s and 30’s.   I’ve come to realize that somewhere along the way I completely missed out on anything that might resemble a  financial education.  Simple concepts such as a monthly budget,  living within my means, interest rates,  credit card usage, first time home buyer issues and who knows what else have eluded me for nearly 30 years. 

I’ve spent time with friends talking about the rat race – how to get out of it, how to take advantage of it, etc.  But I’ve come to realize it’s not the rat race (however one may define it) that really wears on me but rather this slow, dulling Debt March that I’ve been on.  It’s so seductive, so easy … hand over a credit card (which I’ve literally referred to as ‘play money’)  … out of sight, out of mind. 

But I’m done with it.  Don’t want to do it anymore.  So in true New Year’s fashion (as if we should need a special day each year to remind us it may not be a terrible idea to make some much-needed improvement in our life) I’ve decided to record my efforts to get out of debt.  I don’t think my situation is special, unique, extraordinary … in fact, it’s probably rather boring and every day.  But that’s what I’m banking on.  Perhaps my slow dull Debt March will resonate with others out there? 

The reason for this silly little blog  – I’m going to force myself to post something each day: something I did that I feel is a tangible step out of debt.  I want to chronicle the efforts I’ve made, see what works, what didn’t, what I should be doing, what the experts say …. all in the hopes of 1) getting out of debt and 2) getting the financial education I missed out on for all these years.

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