Thursday, October 2, 2008

In Celebration of Progress: $11,000 in debt is gone!

One year ago this week, I started my new salaried position as an editor. After ten years of freelancing, I was ready to settle into a steady 40-hour-a-week project with a regular paycheck and benefits when just the right thing came along.

52 weeks later, I can report that I love my job! And I've been able to make good progress toward my goal of living sustainably.

For me, living sustainably is not just about recycling or growing my own dirt using worms and table scraps in the basement; it's not just about reducing my carbon footprint or the mess I make on this earth. For me, it's really about living in a way that is actually sustainable.

Toward that end, I have set about removing myself from the shackles of debt that have plagued me in all the years that I've been too ill to earn a living wage--in other words, too sick to sustain myself. It began with the Year of Healing, which sent me deeper into debt, but which helped me to get well enough to do this job I now have (which sustains me).

Phase one accomplished.

Commencing phase two.
With a level of health that was still not 100%, but which allowed me to complete my 40-hours-a-week of work from home, last November, I set about reducing my debt and increasing my savings.

After one year, I am able to report that I have reduced my credit card debt by more than $11,000. I have invested 3% of my gross income into a 401k with company matching. And I have in my savings two months worth of living expenses. And I did all this while supporting not just myself, but my partner who arrived here in late December.

I confess I wish that it were all happening quicker. I wish the economy were in better shape and that my partner could sell his house and find lucrative work here, which would free up more of my resources to get myself out of the hole--and into a home of my own.

Nevertheless, now that I sit here surveying the work of the past twelve months, I am savoring the progress. It feels really good to have come this far.

How I did it.
I've employed a lot of money-saving techniques that I never seem to have the time to write about here. But, in a nutshell, I followed the basic rules I think are necessary to live a thriftful and sustainable life.
  • I increased my income. In addition to my full-time work, I kept a couple of freelance clients. It was often exhausting to stay at the computer nights and weekends, but it's been worth it.
  • I set a detailed and specific budget in an Excel spreadsheet.
  • I tracked all of my actual spending for one month and compared it to the budget I had set out.
  • I paid cash for things and used my credit cards only for airline tickets, hotels, and rental cars.
  • I took a good solid look at my debt. I got out all of my credit card statements and made a spreadsheet in Excel that listed the cards, their current interest rate, the monthly finance charge I had paid, and the amount I had left to pay.
  • I felt truly dismayed and overwhelmed--and angry--as I looked at that massive number. Then, I took a deep breath and I made a plan.
  • I mapped out in Excel my Debt Reduction Plan. I figured out--based on my original budget--how much I could put each month towards my credit card debt while still meeting my savings and investment goals.
  • I then stuck to my plan. Every time a bill arrived, I opened it, then opened my spreadsheet and updated the interest rate, balance, and finance charge. Then each month, I made a large payment to one of my cards based on the Debt Reduction Plan.
  • I chose to pay off the smallest cards first, rather than going after the ones with the highest balances or the highest interest rates. It created a feeling of accomplishment. Right away I was able to say, "I paid off a credit card today!" and this helped fuel my desire to keep going.
  • I made realistic allowances, such as reducing the amount I would put toward my debt in December and January, in anticipation of holiday expenses--travel and gifts, etc. Ditto June, when everyone in my family seems to have a birthday (or Father's Day).
  • I was a conscious consumer. I paid attention to what I spent money on and I employed good thrift thinking--I used the library a lot. I ate in. I bought things on sale. I planned ahead. I gave myself room to splurge now and then. I was especially diligent about weather-proofing and reigning in winter heating costs. I was blessed by the generosity of friends, who let me stay with them on vacation, significantly reducing my expenses. In other words, I spent carefully and freely, but with thoughtfulness and power.
  • I also used my spreadsheet to motivate myself. I resented that when I began my journey, I was paying more than $140 per month just in finance charges on my various cards! It spurred my desire to reduce that cost. When I wanted to splurge on a large purchase--like a couch, which I want SO badly, or new luggage or a Wii--I thought about that money just disappearing every month to the credit card companies and I made a conscious choice NOT to spend on anything else until that money was back in my hands. Now, my monthly finance charges have dropped to about $50--and that number shrinks every month.
  • I called my credit cards occasionally to lobby for lower interest rates. When I started, the average interest rate on my cards was 7.51%, with the worst one at 17.15% (the card with the highest balance).
  • I switched balances to cards with lower interest rates when the offers suited me. Now, my average rate is 4.74%.
I still have a ways to go, but I'm more than two-thirds of the way there. My current plan has me credit-card-debt-free in April of 2010. This plan allows for a generous contribution to my savings, though, so that I can meet the Phase Three goal of saving up a down payment for a home of my own. However, with some good luck this winter, some careful planning, and continued gainful employment, I may just decide to knock that last bit off a whole lot sooner so that I can celebrate the completion of phase two and finally (finally!) declare myself credit-card-debt-free!

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Sunday, March 23, 2008

Ten Things You Can Do to Save Money This Year: One

1. Don't apply for new credit. Every time a creditor checks your credit, it damages your credit score. It's an ignorant, unfair system that doesn't allow for sensible choices on your part, but since this IS the system, you must choose wisely and act accordingly.

Why shouldn't you apply for new credit? Because it damages your credit score, which means that you'll wind up paying higher interest rates on car loans, mortgages, credit cards--or any other form of loan--which means, in the end, you lose money. The difference between a half a percentage point (or more) on a mortgage, for instance, can result in tens of thousands of dollars lost over the course of the loan--or hundreds of dollars each month. Think I'm exaggerating? Check out these numbers:

If your credit score is in the top range (720+) you'll qualify for the best interest rates. On a three-year car loan, for instance, let's say you got 7%. If you had a credit score in the lowest range (500-579) you're looking at a rate of something closer to 15%. Think that's not so bad? Think again. You'd lose an extra $75 or so each month for three years, which means you'd lose $2700 over the course of the loan. (Numbers from Suze Orman's The Money Book for the Young, Fabulous, & Broke, p.24)

Think this is just a scare tactic? Unfortunately, I know of what I speak. My credit score dropped with one (major) credit reporting agency by 40 points in one year. I had reduced my debt by 20%, paid all my bills on time, and earned another year of perfect credit post-bankruptcy and yet my score really dropped! The reason? I had applied for too much new credit. Each time had a good explanation and if evaluated on its own by a human being wouldn't affect my credit poorly, but for the algorithm that creates our scores, it is only seen as bad.

In my case, one credit inquiry was for my new car. My old car died and I had no choice. I chose a car that was in my budget, that is reliable, under warranty, and saved me two hundred dollars a year in insurance, and yet, FICO dinged me for this. Another credit inquiry was from Macy's. I was spending several hundred dollars on interview clothes for a high-paying job I eventually got. When the salesgirl offered me the chance to save 20% by opening a Macy's card, I said, "yes," thinking only of the immediate savings. Another credit score ding.

Another inquiry came because I applied for an LL Bean VISA. I order from LL Bean frequently and with their VISA, I can earn useful points toward future purchases, get free monogramming, and most importantly, get free shipping. Also the rate being offered was lower than the average rate on my other cards. The annual savings would be substantial, so it's a sound financial choice to apply for the card--but to FICO, it makes me seem unstable. Another ding.

The other two credit inquiries were when I applied for low-interest cards so that I could transfer my balances and pay off the cards more quickly (and lose less money to interest payments). Again, a sound financial choice. But to FICO...not so much.

So, even though I made responsible choices in all of these credit situations, my credit score dropped by 40 whole points. To make matters worse, because my score had dropped, after my car loan was approved, I wasn't approved for any of the money-saving cards I applied for, so my score dropped and there was no upside.

This year, I am shopping for houses, so its especially important for me to have the highest credit score possible. Imagine my dismay when I discovered that even despite reducing my debt by 20% and paying all my bills on time in the last twelve months, my score had not risen--it had dropped--by a lot.

In a nutshell: always say "no" when the cashier asks you if you want to "save" by opening a store credit card. The interest rates are always high, and the inquiry on your credit isn't worth the damage. Don't apply for more than one new card per year. You are probably better off living with whatever rate you have than applying for lower-rate cards and watching your credit drop.

The good news: Your credit is not damaged when non-lenders check it. If you check your score, or if a landlord or employer checks your score, you shouldn't experience a hit. There is also a special exception (I think) for mortgage shopping. I believe you get a two-week grace period. So, if you are ready to buy a home, do all your mortgage shopping within a two-week period and all of those hits will only count as one, no matter how many lenders check your credit. (Please double-check this before acting on it...just in case the rules have changed since I researched this.)

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Friday, February 22, 2008

Ten Things You Can Do to Save Money: Four

4. Cancel your magazine subscriptions. You'll reduce waste, free up some time, save money, save some trees and reduce your carbon footprint (those magazines have to be shipped to you on airplanes and trucks) and have less clutter around the house. Some other ways to enjoy magazines for free or cheaper:

  • Request back issues on Freecycle.
  • Check them out of your local library.
  • Share a subscription--or swap--with a friend.
  • Redeem rewards. I collect Coke Rewards codes and then cash them in for prizes. Most recently, I got a year's subscription to O at Home magazine.
  • Get someone to give you the subscription. Every year, my Dad and stepmom give me a year's subscription to the magazine of my choice. And every year, I give one friend a subscription to BUST. (BUST lets subscribers give away one free subscription every year at Christmas when they renew for another year.)
  • Participate in a magazine swap. In my area, there are several. At the Cup and Top cafe in Florence, for instance, there's a magazine rack where people drop off their unwanted back issues and others can take them home or read them on the spot. If there isn't a magazine swap in your neighborhood, why not start one?
  • Read online. (I personally hate reading things online, which is ironic since I make my living writing things online, but, if you don't hate it, this could be an affordable alternative to subscribing to a magazine.)
As with all of my tips, it's first and foremost about quality of life. If you absolutely LOVE your magazine(s). If you look forward to the day it arrives and read it cover to cover and recycle it when you're through or keep it on your shelf and return to it again and again, then, by all means, keep your subscriptions. If, however, you don't really have the time or energy to read them all, let them go. If you want them bad enough, you'll find a free way to still enjoy them.

If you find yourself buying them regularly at newsstands, however, stop that immediately and go back to your subscription. It's much more affordable.

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Ten Things You Can Do to Save Money This Year: Recap

Ten Things You Can Do to Save Money This Year: Six

6. Advocate for yourself.

  • In December, I bought a book via Half.com. The book should have arrived in two weeks. I took the time to read the rules, followed the correct procedures, and got a full refund. For an investment of about 15 minutes of my time spent searching for and reading instructions, writing e-mails to the seller and to eBay, I got all of my money back. The seller finally shipped the book, six weeks after I ordered it, but by then I had already gotten my refund. Sadly, the seller left angry feedback, which reduced my seller rating from 100% positive to 98.7% positive. Even though this buyer called me "stupid!!!!!!!!," I think it was a smart choice to go ahead and file the claim and post honest feedback about my experience.
  • In December, I also bought myself two CDs online from a yoga specialty store. They didn't arrive on time, so I began writing to the store. It took many assertive e-mails, but eventually I got both of my CDs (it took about a month), as well as two bonus CDs and my shipping refunded.
  • Last week, I went to my homeopath for a follow-up visit. He prescribed a remedy that he had told me at the last visit I could throw out because I wouldn't need it any more. The remedy cost $26 to replace. When I mentioned that he had told me I could throw mine away, he replaced it for free.
  • I switched to a new gynecologist. My new gynecologist wanted to perform a new cervical exam and pap smear (something I did not want to pay for--or experience if I didn't have to. Once a year is quite enough, thank you.) I was able to convince her to skip the procedure, even though it was protocol, by telling her I'd have my most recent exam records sent over to her office. It took about half an hour of my time to deal with the bureaucracy at the two offices--and 41 cents for a stamp--to avoid the (financial, physical, and emotional) cost of the exam.
  • I ordered a $1,000 piece of exercise equipment from Amazon.com. (Don't worry, I got it on sale for $600 and got free shipping.) When it arrived, one piece was broken. It still worked, but didn't look as nice with this piece broken. Even though I was dreading the inevitable phone tree--and also wasn't sure where to begin--I dug through the paperwork and started making phone calls. My first call was to the shipper. They were very nice--and picked up the phone right away--but directed me to Amazon. I called Amazon and got a human being right away. She was super friendly and helpful and offered to send me a whole new machine! Since that wasn't necessary, she put me in touch with the manufacturer. I navigated a phone tree, got a very friendly, helpful employee, and in three days, had the part I needed at no cost to me. It was worth the 20 minutes or so I spent on the phone and digging through paperwork to have a pristine machine. It will also help in terms of retaining some measure of re-sale value, should I decide to unload it at some point.
When advocating for yourself, it's best to be polite, but assertive. Take notes. Take names. And use the phrase, "Is there anything you can do for me?" You can also ask for specific things, such as a "courtesy discount" when you've been inconvenience, or a refund of your shipping charges if there's been a serious delay or some other shipping-related issue.

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Tuesday, January 22, 2008

Ten Things You Can Do to Save Money this Year: Seven

7. Clear your clutter. Clearing your clutter has myriad money-saving advantages.
  1. If you donate items to non-profits, you can deduct the donation on your taxes. This is really only helpful if you take more than the standard deduction, but still...
  2. You can improve the feng shui in your home. It can help you have more energy, be less depressed, manifest greater prosperity, better health and well-being. For an excellent resource on how to clear your clutter with feng shui, read Clear Your Clutter with Feng Shui" by Karen Kingston ($10.95 new; about $6 used.)
  3. You can make some money getting rid of unused things. Sell them online via eBay, Half.com, Craigslist, or some other reputable outlet. Last year I made hundreds of dollars selling CDs, books, and consumer electronics that I no longer needed or wanted.
  4. Clearing clutter helps to create order, which helps to create both a sense of well-being and a better perspective on what we own and why we own it. Clearing clutter can help you purchase fewer things, because once you've cleaned everything up, you may not want to mess it all up again. It can also help you to identify poor spending habits. Are you buying clothes in the wrong sizes in the hope that you'll get smaller (or larger)? Do you find that you have more shoes than you can ever wear, or a closet full of craft supplies you never use? Clear your clutter lovingly, consciously, and intentionally and you will reap thrift many rewards.

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Sunday, January 6, 2008

Ten Things You Can Do to Save Money This Year: Eight

8. Try Before You Buy. I've saved a ton of money by trying things out before I bought them. Often, I'll hear about a book or product, or I'll hear a song and want to get it right away. But I've gotten in the habit of resisting these impulse buys, even though I'm really good at convincing myself that I should get it, get it, get it!

My best resource for trying before buying is my local library. Even though I live in a small town, I'm fortunate that we have a big library--made even bigger by the CWMARS feature, which allows residents of any MA town to borrow books and other resources from any other MA library for free. If I hear about a book, for instance, I can almost always get a copy from my local library. I simply go online, log in to my account, search the catalog, and order the book. A copy is delivered to my local branch, I get an e-mail, and I go pick it up. Nine times out of ten, the book I want is available. And, nine times out of ten, I decide I don't need to buy it after all.

Other resources are friends, who will often loan a book or CD or movie to me. I'm always careful to keep track of what I have, who I got it from, and to return it promptly.

Rhapsody (an online music subscription service) has a massive database of songs and will let you listen to every song they offer three times for free. If you hear of an artist or a song, you can listen before you buy.

In the case of shoes, exercise equipment, accessories, clothing, etc., I will often seek out a local source where I can try on, touch, or try out the item. If the local price is anything close to what I can find online, I buy local. But, sometimes, the price differential is so substantial that I shop locally, but buy online.

Recently, I wanted a Lexie Barnes bag. I did extensive research online and nearly bought a bag, which was originally $85 on sale for $40, with free shipping and a free gift (a smaller matching bag regularly $18)--the best deal online. However, I just couldn't quite tell if I'd like the pattern or the size of the bag. So, I found a local retailer where I could try the bag on for size. In the end, I loved it--and the salesgirl!--so much that I bought it there. I didn't get the free bag, which I'm still kind of bummed about, and I paid $4 more than I would have online. But, I got instant gratification and I supported a local business. Two things worth feeling good about.

And, for those Thrifters who are aghast at the expensive bag, I'll say that I expect to have this bag forever. As a woman who kept her first pretty bra for twenty years and owns four comforters with an average age of fifteen years, I can assure you that once I buy something I like, I buy it to last. This bag meets my Thrifting biggest rule of thumb: it was a conscious consumption. I thought long and hard about it. I researched my options. I tried before I bought. and this interesting, durable, waterproof, practical, gorgeous, (okay, trendy) bag makes me happy every time I use it--which is every day!

For years, I'd been using tote bags that I'd gotten for free and embellished with buttons, vintage fabric scraps, etc. But as much as I loved them, I also felt sort of dowdy and dumpy whenever I slung them over my shoulder. Now, I feel sporty and special and ready-for-anything. In my version of Thrift, this is what it's all about.

If you're looking for a good deal on a Lexie Barnes bag, by the way, the Lexie Barnes site's sale section has good deals on discontinued patterns. And ebags.com also has good deals and promotions.

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Ten Things You Can Do To Save Money This Year: Number Ten

10. Stop watching (commercial) television.
If you are a TV-lover like me, this might seem shocking and impossible-slash-obnoxiously-liberal-intellectual, but hear me out. Commercial television's primary purpose is to create desire in you. Unnecessary desire. To be different than you are, have more and different things; the primary purpose of commercial television, in short, is to get you to buy stuff.

According to Tom Bell, Staff Writer for the Portland Press Herald business section, "Consumer debt is at record levels, and the personal savings rate has fallen into negative territory at minus 0.5 percent. The savings rate has only been negative for a full year twice before, in 1932 and 1933, when Americans were struggling through the Great Depression."

I believe this lack of savings is due in large part to our near constant contact with television and other forms of advertising. It's everywhere! Football stadiums, magazines, tee-shirts, even in some schools. We'll get to those other things later, but for now, if you want to save a substantial sum of money this year, stop watching commercial television. Here's how:
  1. Invest in TiVo or another DVR technology and fast-forward through commercials. Become a conscious consumer of television. Choose your shows, make a schedule, watch the things you know you want to watch and skip all the commercials. You'll be amazed at how light you eventually feel! Without watching all the ads in between the segments of your shows, you are left only with the desire you create yourself (plus the desire created by the things in the show itself and the other ads you consume, but still, it's an improvement!). It feels really good to want only what you really want, not what someone is trying to sell you. On your own would you want an iPhone, or is it just the ads that make them seem irresistible? On your own, would you sit on the couch and feel that you needed a new Toyota/a Thighmaster/a freezer full of Lean Cuisine/a pair of jeans from Old Navy? Odds are, that no, you wouldn't generate that desire on your own. Spending on things that aren't coming from your authentic desire is a huge waste. Investing in a TiVo or DVR is a case where spending money can ultimately save you money.
  2. Stop watching altogether. Cancel your cable and listen to the radio, read the paper, and watch shows and movies on DVD or online. Netflix has an excellent selection and presents a good bang-for-your-buck. Choose this method and you can save money (by not spending on cable) and save even more by cutting out *even more* unnecessary desire than with the TiVo/fast forward solution. Yay! My friend Maria is doing this this winter and so far, it's been a great success for her.
  3. Go old school. I still tape all of my shows using VCRs. I have three VCRs. Two built-in to TVs and one separate. I have a complex system of taping and reviewing and I manage to tape and watch all of my shows without viewing hardly any commercials. This method is more affordable than the DVR version, but also takes more commitment.
  4. Cut back on your cable package. Are you paying for channels you don't really watch? In Massachusetts, most Red Sox games are on NESN, a network you have to pay extra for. But there's no rule that says you have to pay for that channel all year long. If you added a channel for a certain benefit--to watch Dexter, The Sopranos, the Red Sox, etc.--cancel it once that benefit is over. I don't need to pay for NESN during the winter. I don't need to pay for HBO or Showtime when none of the shows I like are airing new episodes. If you don't want or need any premium channels at all, you can call your cable company and ask for "reception" cable. It's the most basic of the basic, and they often won't tell you they offer it, but they are required by law to do so. The price should be about $5 per month, and it should give you all the major networks (ABC, NBC, PBS, CBS, FOX) plus some others. I've used this version of cable in Massachusetts and California and received as few as 13 channels and as many as 57. No matter what your cable operator tells you, they are required to give this to you, so if they give you a hard time, keep at it until they acquiesce.

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Thursday, November 15, 2007

Bankruptcy Advice

It's been a long time since I've contributed to my Thrift blog, and a lot has happened in the interim. I'll update you at some point, but for now, I wanted to share an e-mail I sent to the mother of a friend over the weekend. The mother, whom I'm very fond of, had written me for advice about bankruptcy, because her other daughter is planning to file. I'm sharing the e-mail here because I think it might be helpful to others. The names have been changed. **Please don't make a bankruptcy decision based solely on my advice. I am not an attorney and strongly urge you to consult one before making a decision this important.**

One thing to keep in mind if you find yourself considering bankruptcy: you are not alone. Personal bankruptcies are up nearly 50% this year. Collectively, Americans carry almost $980 billion in credit card debt. It's time for things to change.

Also, one thing I don't mention below is that I think it's possible that you may have to report the amount of debt discharged as income in the tax year in which it was discharged. This all depends on whether the creditors report it...and this is a matter for you, your accountant, and your attorney to sort out. The laws have changed since I filed, but this was the law when I went through it.

The attorney I mention below is Denise Shear of the Ostrander Law Office in Northampton, MA. If you are in Western Mass. and need a bankruptcy attorney, I can't recommend her highly enough.
Here's my e-mail:

Hi, Mary,

I'm so sorry to hear that Julia is in this bind, but I'm so glad
that she has the courage to make the right decision for herself.

My parents are visiting for the weekend, so I don't have a lot of
time, but wanted to get some thoughts down to you quickly. (There's
actually a lot here. Once I started, I couldn't stop!)

I filed before the laws changed, so some of what I know may not be
applicable, but most of it will be, I think.

I can say, right off the bat, that it's important to find a good
lawyer. And by good, I mean affordable, knowledgeable, and kind. My
lawyer was crucial to making my bankruptcy bearable. The hardest part
is the shame and guilt. She helped me to see that that wasn't
necessary or helpful. She cost $1009 and that was payable up front.

My attorney practices in Mass. and I think Julia is in California,
right? If Julia would like to contact her she may be able to
provide her with a good referral. I also have some attorney friends
with California connections who might be able to help. Just let me
know.

My second piece of quick, major advice, apart from forgiving herself
and getting a good attorney, is to open a new credit card before her
debts are discharged, if she can. This will give her a new line of
credit that can a) help her in an emergency in the next two years when
it will be hard to get a card and b) help her re-build her credit.

When she goes through bankruptcy, she will choose which creditors to
include. If she has a card with a zero balance, she should NOT include
it. Her rate will likely skyrocket, but the card should still stay
active, and this will be a vital part of recovery for her.

My attorney advised me to stop making payments on my cards as soon as
I knew I'd file for bankruptcy. I don't know if this is still an
advisable practice--and I think in the end it did more damage to my
credit history...but she should ask her attorney about this. If she's
already fallen behind in her payments, then it's a moot point.

I was careful to always pay my rent and my utilities, no matter what,
even if I had to use credit cards. This is wise because it will make
it easier to get apartments and utilities after the bankruptcy. I
would advise using her cards to pay these things off before the
bankruptcy, but again, she may want to ask an attorney if this is her
situation and is advisable.

I would also want to make sure that she understands that student loans
and back taxes can never be forgiven. If her debt is largely made up
of these things, it may not be the right choice for her to file
bankruptcy. These things will follow her to her grave.

also, if she has an IRA, she should NOT touch it. She is allowed to
protect up to $10,000 of her own assets, I think, and she should
absolutely NOT drain an IRA to pay for credit cards, particularly if
she's filing bankruptcy.

One important to statistic to keep in mind: more than half of all
people who file bankruptcy once, file twice. I know that Julia does
NOT want to be in that category. The reason this happens is that
whatever was wrong in a person's life the first time--if it doesn't
get fixed, it'll just keep happening. Especially since now they are
burdened with shame and a bad credit score.

Whatever has been the cause of her insolvency, she needs to face it.
No matter how hard it is. If she has health issues, depression, career
confusion. If it is the result of a bad relationship or reckless
spending--whatever is at the heart of the problem needs loving, brave,
honest attention.

I would recommend any and all of Suze Orman's books. Most importantly,
"Young, Fabulous, and Broke," which will give easy-to-digest practical
advice. I think she should immediately read that and either "Money and
Women" or "The 9 Steps to Financial Freedom" (or all three).

What she needs is a way to understand her relationship to money so
that she can get herself back on track. These books will help her to
understand her self and they will also help her to craft a realistic
budget and make a plan for moving forward, with or without bankruptcy.

Before the bankruptcy, she should do some practical things. She should
take care of anything and everything she can that she will need that
depends on a good credit score.

So, apart from getting a new credit card with zero balance, she should
get herself some health insurance. (I think Alice mentioned that
Julia didn't have any and is self-employed?) If she is going to
stay in California, then she has lots of affordable options. It will
be easier to get health insurance without a bankruptcy on her record.
And it will be easier to avoid future financial disaster if you have
insurance, and also it is an important step towards taking good care
of yourself, to invest in health insurance.

I suggest she start here:
https://www.blueshieldcaplans.com/(ykulyw45h25qigvz41ttxxvb)/default2.aspx?marketcode=00000203MC

Second, she should sort out her living arrangements. If she needs to
rent a room or get a new apartment, she should try to do that BEFORE
her debts are discharged. Same with a car. She will not be able to get
an auto loan for some time after the bankruptcy. (She may not be able
to get one now...but if she depends on having a vehicle, she should at
least consider her options.)

She should also come up with a solid plan for how she will live after
the bankruptcy. If she has been meeting her basic living expenses by
borrowing, the she will have to have a way to live once her credit
cards or other creditors are gone.

She should also check her credit score and print out her full credit
report now. She should keep this on file and then check it once a year
to be sure that everything is in order, and hopefully to watch her
score climb.

Once her debts are discharged, her job will be to a) continue to be
kind and forgiving with herself b) live within her means c) establish
good credit and raise her credit score to 760.

She can establish good credit and raise her score to 760 by continuing
to make regular payments on debts that didn't go away (student loans,
taxes). And by making small purchases on that zero balance credit card
she kept and then paying it off EVERY month in full. This card is
never, ever to be used for things she cannot afford to pay off
immediately, unless there is a dire emergency.

Six months after the debts have been discharged, she should apply for
one new credit card. Never accept a card that requires an annual fee.
Every six months, she should apply for a new card, based on offers she
receives in the mail or offers she finds online, until finally she is
approved for a new one. No matter how high the interest rate, she
should take it, and use it for small monthly purchases--a tank of gas,
her cable bill, etc.

It's important to only apply for credit once every six months because
applying for credit LOWERS your credit score, and our goal here is to
get her score UP. it's a balancing act.

She should never close a card, no matter how high the interest. We
want her to have a good debt-to-income ratio. And we want her to have
a good available credit to debt ratio. So, for instance, a person with
$25,000 of available credit (on cards) who is carrying a balance of
$5,000 will have a better credit score than a person with no credit
cards or a person with one $500 credit card and a zero balance.

But, all that stuff will come later.

For now, it's important to make a wise decision about whether
bankruptcy is the right thing, and then proceed bravely, gently, and
responsibly.

So, quick review of the most essential things:

1) Forgive yourself.
2) Get a kind, affordable, knowledgeable attorney.
3) Do not touch your IRA
4) Do everything you can to make sure you have one credit card,
active, with a zero balance at the time your debts are discharged.
5) Remember that taxes and student loans cannot EVER be discharged.
6) Get Suze Orman's books, read them, and do the work.
7) The Orman books will help her to do the most important thing (after
forgiveness), which is to understand why it happened and how you will
keep it from happening again. If watching is easier for her than
reading, I think there may be Orman DVDs...or she also has a TV
show...but, really, the books are vital.
8) Get health insurance. Blue Cross Blue Shield of CA is good and has
affordable plans for individuals.
9) Get an apartment or a car or anything else you really need squared
away before the debts are discharged.
10) Make a solid plan for how you will meet your living expenses
without credit cards or other loans available to you. If she's
thinking of going back to school, for instance, it's important to
understand that even though student loans cannot be discharged by
bankruptcy, a bankruptcy can make you ineligible to get new student
loans. So, if her plan is to start fresh with graduate school and a
new career, she should find out if she'll be able to get the loans
BEFORE she files. I was prevented from going to law school for this
very reason.
11) Print out a full credit report and KEEP it on file. www.myfico.com
is a good place to go. Re-check it every year, but not too often.
Inquiries into your credit score lower your credit score.
12) Immediately after your debts are discharged, begin working on
re-establishing credit.

I'll end with some good news. Bankruptcy is not the end of the world.
In fact, if you truly are insolvent, it is the most caring,
responsible thing you can do for yourself. Get the load off. Start
(sort of) fresh.

In my case, I was able to re-establish my credit relatively quickly.
Within two years, my credit score was back above 700, I was able to
get a car loan when my truck died, and I have lots of revolving credit
available to me, some of it at 0%. And, some mortgage lenders won't
consider a bankruptcy against you as early as one year after your
debts are discharged.

oh--that's one more thing. there is a lapse in time (I think it might
be a couple of months?) from when you file to when your debts are
discharged. you won't be free (or a person saddled with a bankruptcy)
until the debts are actually discharged.

I would suggest getting caller ID, if she doesn't have it already
and/or changing her number because the creditors will call,
constantly, at all hours until the debts are discharged.

It took a lot of very hard, very difficult work to climb back up. And
I'm still working on it. But it is possible if you're committed.

It may also be possible for her to do something OTHER than bankruptcy.
As I said, if taxes or student loans are the biggest problem, don't
file. There are also ways to negotiate payment plans that involve debt
reduction. She may not need to pay back ALL of her debt. She should
start with the debt counselors at the National Foundation for Credit
Counseling. www.nfcc.org, 18003882227. If they think they can find a
way to get you out of debt in five years, they'll sign you up for a
repayment plan. It will be better--SO MUCH--better than bankruptcy and
will resolve the matter more quickly, actually, because bankruptcy
lasts for more than five years on your record.

She may also be able to negotiate directly with the card companies or
other creditors. Or, if it's possible to get the money from a family
member or other benefactor as a gift or loan, that would be
preferable.

She may also want to consider other drastic measures--like moving back
home, if that's an option, or leaving California (which is so darn
expensive). If she suffers through a year in CT (or Massachusetts
where the state gives you health insurance, for instance), and could
live for free or cheap, then she might actually be able to
realistically reduce her credit card debt substantially. For instance,
if she could live for free or really cheap and could devote 50% of her
income to paying down debts for one year, could she reduce the debts
by $15,000 maybe? that's great progress! and maybe realistic. I would
urge her to consider that.

I had absolutely no where to go and no one to help. If she has
somewhere to go and someone to help, she should strongly consider
that. If that option is absolutely unavailable or unacceptable, then
she can choose not to do it, and choose bankruptcy instead. But it
should just be an INFORMED choice.

The new bankruptcy laws are pretty vicious. So, this is NOT something
to enter into out of sheer desperation. It should be carefully
considered and she should get good advice from an attorney and from
the NFCC. (Although, I think the NFCC is funded by credit card
companies, so they have a vested interest in making sure they get
their money...)

If any of this doesn't make sense, or if there's anything else I can
do, please don't hesitate to ask!

I hope you and Victor are well. I'm so glad Julia has your support.

I haven't talked to Alice since the baby's surgery, but I'm thinking of
them constantly and hoping all is well. You must have been out of your
mind with worry.

Much love,

Naomi

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Friday, March 2, 2007

A Place to Call 'Home': 3.2.07

Since I became clear that my main focus--the thing I want most in the world--is a home of my own, I have learned and done the following things:

1) Checked my credit score. It's up 40 points since this time last year! This moves me into a whole new realm of lending rate possibilities! Combed over three credit reports from the three major companies that produce them to make sure the information was correct. Devised a strategy for raising that score even more in the next six months. (Seriously pay down balances, in part by borrowing money from my mom short-term at 0%; increase credit limits; don't apply for or open any new cards; continue to pay on time and pay more than minimum payments; don't use the cards for new purchases; transfer balances to lower rate cards whenever practical.)

2) Sat with a friend and looked on the Internet at every single available house we could find in Greenfield (half an hour north of here) as well as the ones near my price range in Northampton and other towns. Found one near my price range that I absolutely loved, but by the time I got up the courage to call a realtor, the listing had been removed.

3) Asked a homeowning friend if her home-improvement wiz partner would possibly help me in my search by doing some walkthroughs or helping to answer questions or talk to realtors and/or sellers.

4) Investigated options at the USDA. Their rural development office may just have a program that could assist someone like me. Requested information via e-mail, but was told it would be better to come in person.

5) Instituted a new spending policy and budget method. I have alotted $50/week for groceries and I do not go over this amount. I have allotted $30 per week for entertainment and I keep that cash in my wallet. I re-up on Wednesdays. I do not go over. It's tremendously satisfying to still have cash in my wallet at the end of the week. And it prevents me from making purchases because I have to think--do I really want this? This way, I only get the things I really do want. This week, I only was able to give myself $10 of entertainment money because I didn't earn enough to do more, but I spent less on groceries, so the combination of food and entertainment money seems to be happening sort of organically. I can make choices about how to re-allocate funds on an as needed basis, as long as I don't go over. For instance, there was plenty of food in the cupboards, so I had enough money to treat myself to take out food twice, a coffee, and a soda so far this week--entertainment expenses that came out of my grocery budget.

6) Began investigating alternatives to traditional homes. For example, Tumbleweed Tiny Houses. Perhaps buying land and building a home like one of these will be the answer. I'm also interested in looking into Cob houses, and found a woman who does how-to workshops. She doesn't have a web site, but you can e-mail her at amlywig@yahoo.com. (Her name is Amber DeVoss.) I haven't contacted her yet, but if I do, I'll post the results here.

7) Got some information about local resources, including a lead on classes for potential first-time hoembuyers; a recommendation for a good loan officer at a local bank; and the name of a local housing organization (HAP).

8) Created a notebook where I can take notes, keep track of ideas, and form a coherent plan.

9) Read part of a book for first-time homebuyers.

10) Pursued work with higher-paying clients; completed and invoice for work more quickly.

11) Was conscious of every purchase I made--from underwear to coffee to gas--in terms of my home ownership project. Every dollar I spend on something other than a home is a dollar I spend on something other than a home. It's okay to do this; I just want to be really aware of and satisfied by my choices as I go. I don't feel deprived. I feel excited and alive.

12) Created this category at my Thrift blog.

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A Place to Call 'Home'

My biggest thrifting accomplishment was my education. It took twenty years and I honestly don't even know how many thousands of dollars and (wo)man hours, but in 2004, I paid off my last student loan and at last—thank god, almighty—I was free at last.

I say it took twenty years because I was 14 when my mother told me that I would be on my own when it came to paying for college. I started working immediately. Twenty years later I wrote the last check for my student loans, and my priceless ($125,000+) Smith College education was finally paid for. Project complete.

Now, I have a new goal. I want to own a house. I want a home of my own. It seems far-fetched, overwhelming, virtually impossible, and very scary. Just like going to college once did.

I don't understand about mortgage rates or points or closing costs or how one goes about choosing a solid home for the best price. I don't know how to leverage my assets, few though they may be, in the most powerful way. Whenever I start to do research, I get lost amidst price tags and interest rates--fixed and variable--and percentage points swim before my eyes like the spots that burst in my vision just before I pass out.

I've tried researching programs for low-income people, for first-time homebuyers, rural folk. I've tried looking at mortgage calculators and talking to realtors. I've read books and pamphlets and web sites. But I always wind up feeling stonewalled. It's just too much intimidating information. So, I retreat and vow to try again when I have more money.

This happened to me again recently.

But a few things have happened to renew my determination that this can happen for me.

The first took place during an ordinary call to my younger brother (who, at the age of 31 has already owned two homes and is now building a third) to ask him a question about electricity. (He can fix, build, or figure out anything. He's a great resource.)

I didn't expect to find him at home because for the past few months, he's been spending every free minute working on his new house. But, lucky for me, he was home. (It turns out he only came home because he was vomiting at the job site due to a flu he denies that he has. My brother has a very high threshold for pain and suffering, mostly because he just refuses to acknowledge that it's happening.)

Anyway, I had a really good talk with him, and came away feeling a longing to be as fantastically committed to something as he is to this house. He's literally building it himself from the ground up, while also working a full-time job and making as much time as he can for his two children and his wife. He spent two weeks—his vacation time—putting on siding in the rain in near-freezing temperatures (remember, it was December in Maine) by himself. He's now doing the electrical and plumbing. His wife insulated the entire two-car garage herself. My brother says she's the hardest worker he knows. (She says she's learning a lot and that her husband is a stubborn ass.)

I am proud of his commitment and a little envious, I guess, of the passion it takes to commit to something so fully. It's been a really long time since I did that, since I willed something incredible into being, since I gave every crazy ounce of myself to make a dream come true. I did it with college. I did it with my book. I did it with Sister Spit. I did it with moving across the country—and back again. But aside from college, none of those things really gratified me the way I'd hoped. And now I'm getting timid in my old age. It's harder to pick a project to commit to. It's as though I'm less willing to jump off a cliff because I'm aware there's a small chance I might not fly; or perhaps I'm just doubting that I really do want to fly. Either way, it results in a lack of momentum that keeps me stranded, marooned in an apartment I don't love and can't afford, in a job I don't love (and can't afford), in a town I'm bored with, with a manuscript I never bothered to really send out, etc. etc. etc.

My talk with my brother inspired me. I decided to go for a walk, get some exercise, clear my head. My mom called just as I was leaving, so I called her from my (free) cell phone and talked to her about home buying. I asked her some questions about how she managed to do it on less money than I make. It turns out that she bought a very inexpensive house and put no money down. That's easier to do in Maine. I had hoped that she used a more helpful magic bullet—some government program or way of working the numbers that somehow would allow a low-income person to afford a $150,000 home—the bottom of the scale in Massachusetts. But, 'twas not the case.

My problem is that I have a down payment, but my annual income is too low to afford the mortgage on even the smallest homes in this area. Plus, I went through a bankruptcy, so my credit score isn't as high as it used to be. It would seem that I either need to make more, save enough to make a larger down payment, or move someplace where homes are more affordable. None of these things are easy for me to do. They each involve drastic changes and an extensive series of decisions all hinged together to make what feels like a very complicated labyrinth of choices.

Nevertheless, I came home from my walk and checked online again at the MLS database to see what was out there in what I think is my price range. I was disheartened by the rundown homes in rural locations that my meager budget could afford. I also visited the web site of a local bank that I trust and used an online calculator to figure out how much I would likely be approved for. According to the calculator, I could afford to buy a house for $68,953. Egad. That wouldn't even cover a mobile home.

As I sat musing about the futility of my situation, a little memory started to wriggle around in the back of my mind. Amy Dacyczyn, The Frugal Zealot herself, my first and best thrifting hero. I remembered seeing her on the Phil Donahue show when I was younger. She told a story about how she was able to buy a farmhouse in her (and my) home state of Maine on just one small income with two adults and four kids to feed, cloth, keep healthy, and entertain.

So, I searched on the web and found an article Amy had written, that told that same story. As I read it, I felt revitalized, re-committed. I remembered, then, what I had accomplished with college. When I was fourteen, I was in a much worse situation than I am now, with more daunting odds and fewer resources, but I made that education happen. I figured out all of the myriad things a kid needs to know in order to apply to (what's an SAT?), get into, transport oneself to, and pay for a top-notch college education. In fact, the cost of the education was almost the same as the home I want to buy. It was not too much for me to dream of—and fully believe in—my right to that education. While there may not be any merit- or need-based scholarship or grant aid for potential homebuyers out there, there must be a way to make this work. I have to infuse myself with that same focused determination that I put toward school--and that my brother is putting toward his home--if I'm going to make this happen. If Amy could do it, I can do it; if Lucas can do it, I can at least (galdang) try.

I think that in order to make it happen, I have to commit myself to it as fully as I committed myself to the college education project. I have to know what I want and settle for nothing else. I'm thinking that if I declare it here, publicly, and keep you posted about my progress, then my dream of owning the perfect home (for me) will be more likely to come true. And perhaps my journey to home ownership will help others to achieve it as well.

Consider this my official declaration: I want a home I can afford, someplace quiet, not too far from Northampton (or perhaps someplace else in the country that I can equally enjoy) with room for a garden and animals, and lots of sunlight, especially in the kitchen. I want a home with a pool or on the water, that is affordable to heat (and cool) and comfortable to live in for me and my friends and family who will come to visit. I want to have the potential to live off the grid, to grow my own food and make all the power I need to use. There will be fresh, clean air. And, more than anything, I want a place I can call home, that will not be too difficult to pay for. I want to stop being frightened all the time that my home will go away. I want to be solid. I want my home to be my own for as long as I want it to be.

Buy Amy Dacyczyn's book.

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Saturday, January 6, 2007

Know Where Your Money Goes

I confess: I don't balance my checkbook. I know I should; I know it would be the smart, responsible thing to do. I used to, years ago, when I was sixteen and had my very first checking account. But times were simpler than. There were no ATM cards, no direct deposits, no freelance accounts receivable or online banking or auto-debit bill pay systems. I've made valiant efforts over the years to balance my checkbook, but it never sticks. And once I'm behind, it just seems like a hopeless task to try to sort it all out.

If you're like me and can't bring yourself to deal with balancing that bottom line each month, take heart. Don't bury your head in the sand, just because you can't face up to the debits and credits and checks outstanding on your statement. Shame often keeps us from doing good things for ourselves. And while it may seem like a little thing, many of us are ashamed that we don't do a better job of balancing our books.

If you--like me--just CAN'T, then find something that DOES work for you, that serves the same purpose. Make sure you open your statement every month, for instance, and skim it for things that seem out of whack. Are there fees you didn't expect? Did your paycheck go through? Are there any charges you don't remember making?

And be sure to keep a rough idea of your balance. Check it online or over the phone or at the ATM, and maintain as much of a buffer as possible. Don't rely on overdraft protection to save you--it frequently comes with devastating charges.

You may not balance your checkbook to the penny, but by keeping an eye on it, you will be more active and alert about your finances, and less likely to bounce checks or make purchases you can't really afford.

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Saturday, November 25, 2006

Living in Thrift

I've been on my own financially since I was 18. I put myself through college and have lived on modest to meager incomes ever since. My hope is that one day I will live comfortably. But even when that day comes, and my income far exceeds my cost of living, I will still practice thriftful living.

Thrift is a state of mind. A way of being. It is a practice of thoughtful spending and resourcefulness that is satisfying, rewarding, and socially and environmentally responsible. Like meditation, you can do it a little or do it a lot, and it will be beneficial either way.

When you practice thrift, you don't eat out just because you can't figure out how to eat in. You know how to stock your kitchen and plan ahead and feed yourself. And when you eat out, it's because you chose to do something special for yourself or someone you care about, or because it was necessary and/or more efficient to do so.

In thrift, we understand the connection between our life energy and our income. We don't spend blindly. We consider the source of our desires and find the best solutions to them. We are empowered by knowledge, and we try to make informed choices about what we bring into our lives, how we pay for those things, and what we do with them once we have them.

This blog will offer tips, guidance, and real life stories to help you increase and better enjoy your thriftfulness.

Yours in thrift,

Naomi Graychase
November 2006

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