Crapped Out On Credit

Previous totals (6/2009)

Citicards Credit Card $3550.41 
Rewardzone Mastercard $0.00
CapitalOne Card  $429.46
Kohl’s Card $241.43
Car $5905

Current totals:

Citicards Credit Card $2999.00
Rewardzone Mastercard $0.00
CapitalOne Card $413.03
Kohl’s Card $215.00
Car $5509

If you recall, I took July off from debt reduction to fund a $1000 emergency savings account. That was accomplished.

But, the months of July and August were brutal on my budget. I overspent horribly… mostly due to a vacation, a visit to my family, and various other things.

Beyond that I have changed my payoff plans it seems like on a weekly basis. Starting out I had a VERY aggressive plan that included very restrictive spending and using about half my monthly income or more in debt payments.

Since then, things have changed a bit. For one, I have gained some expenses. I won’t detail them all, but they total about $200 a month and include a payment for my Stafford loans which I consolidated.

For two, my income has gone down slightly. Actually, I’ve had a gross increase as I received another sizable raise in August. But I also received health/dental/vision insurance which of course I am very happy about, but it was a net decrease in my monthly income.

Overall, I am happy that I’ve been able to continue to pay down my debt, if a bit unhappy at the exact rate and amount.

When I moved one of the first things I had to do was open a new checking account. The institution I had been using was a regional bank that didn’t exist in the city I moved to.

I decided on Wells Fargo as they had a lot of branches in this area, they weren’t threatening insolvency, and I had used them many years before with little complaint.

As I was spending just about every waking hour at the time job searching, I decided to take advantage of the convenience of opening an account online. The online application process was fine… but shortly there after I began to learn the true cost of using this “convenient” feature.

The first problem was funding the account. When applying, you are given the option to fund your account using a debit card or e-check. Assuming this would be the quickest, most convenient way to fund the account, I opted for it.

After going through the entire process and funding my account, all I could do was wait for the transaction to go through and to obtain my account information. So I waited. And waited. And checked the account I had used to fund this new account, and saw no transaction pending. And so I waited. And three days later, I decided something must be wrong and called Wells Fargo.

I was informed that they weren’t sure why the transaction had never gone through. They told me to either a) try again or b) go to my nearest branch and make a deposit in person.

Now, obviously, option b) would basically defeat the entire purpose of opening an account online.. but option a) certainly wasn’t appealing either as I didn’t trust doing the same thing again would give me a different result. So I went into a branch.

After about a half hour meeting with a bank rep, we finally got things all squared away. I had my account information and I was ready to go. All in all, I wasn’t totally happy with the process, but I now had a checking and savings account, my debit card and checks were in the mail, and I was happy enough.

Happy that is, until about two months ago. It was payday, and up to this point I had deposited three prior paychecks with no issue. But today, I was informed they were placing a two day hold my check. I asked why, and the teller told me I had a flag on my account. I was at the drive thru window and pressed for time, so I asked for my check back. I took it to the bank it originated from and had them cash it. They charged me $10… but again, I was in a hurry and didn’t want to deal with it.

That afternoon I returned and went inside the Wells Fargo branch to discuss what happened. I was told that there is an automatic flag put on all accounts opened online. The flag tells all tellers to put a hold on any deposited checks for two days. The flag can be over-ridden by a manager, but there was no manager on duty at the time I had come in to deposit my paycheck.

The bank rep said they could not remove this flag even though it was clear from my transaction history that there was no need for it. She gave me a number to call and said they could remove it for me by phone. I called the number and was told that no, the flag remains for a year and will not be removed under any circumstances.

I was not happy about this. Had this been clear when I opened my account, I would never have opened it online and instead would have just gone into a branch. At this point I strongly considered changing banks. This was my paycheck, and I did not want to be at the whims of whether or not a manager was on duty every time I had to make a deposit. But, ultimately, I chose not to go about the hassle of changing banks again.

Luckily, my employer is now offering direct deposit and that will clear up this issue.

One of the things that led to hitting financial rock bottom was taking a close look at my credit report.

Here are some of the negatives I found:

*   A collection for an electric bill that I hadn’t known about when I moved back home after college. I paid it off, so it was on there but showing as paid.

*   A collection for an unpaid library fine. Again, something I wasn’t aware of when I moved back home, and not aware of until I checked my credit report.

* A collection for an unpaid medical bill. This was from an accident that happened in January, which was covered by insurance (not health insurance because I was and remain uninsured), but I had never received a bill for this and so had not forwarded it to the insurance company for payment.

*   The previously mentioned 7 stafford loan payments that went unpaid for over 180 days.

Here are the steps I took to try and repair the damage:

*   Called the collection agency for the electric bill and requested them to remove the collection from my credit report. They informed me that was not their policy. At this point I had no leverage. After some internet research, I learned of a possible tactic. When you have a collection account that is showing as paid, you can dispute the collection with the credit reporting agency… if the collection agency doesn’t take steps to affirm the account, it will be removed by the reporting agency and as I understand it, it can never be reported again. The idea is that once you have paid, the collection agency will not spend the time to verify the collection and let it fall off. I tried the tactic – and it worked! This no longer appears on my report.

*   The library fine collection has not been dealt with yet. I am hesitant… at this point, it will fall off my report on its own in three years. If I pay it, that clock restarts and it will be there for another seven years showing as paid. The collection agency refuses to agree in writing to remove it upon payment. So, the decision is to pay it and hope the tactic works on it too, or not pay it and wait out the three years. Of course, also factoring into this is my ethical duty to pay. This certainly does factor into it. I think libraries are under used and probably under funded and I think they are totally invaluable institutions. I most likely will resolve this by paying it soon and hope I can get it off my report.

*   I resolved the medical bill issue by requesting a bill, sending it to the insurance company, and it has been paid and removed from my report.

*   I applied for a federal loan consolidation through the department of education for the 7 stafford loans. The application was held up a bit because the interest rate was lowered on July 1, and my application was held in order to get the better interest rate. To be honest, I don’t know what affect this will have on my credit report. The 7 loans should show as closed and paid… but I do not know if or for how long they will continue to show the 180 day deliquency on my report.

So, I made about as much progress as I can. The next step of course is to get my credit card balances to $0 and pay off my car loan.

My score did go up… slightly. It is still not good. However, my plans do not include purchasing a home for at least 2-3 years.. so I am content for now to raise it slowly but surely.

One of the starkest differences between my financial life now and 6 months ago is what happens on pay day.

I used to get paid, put my check into my checking account, and then …. whatever. I had only a vague idea of where it was going.

‘Ya, gotta pay my car payment with this check.’

‘Need to pay the Citicard minimum pretty soon.’

‘Should probably buy some groceries in a few days.’

Of course the most likely scenario was I would get off work on payday, stop at an atm on my way to the casino and quickly blow a few hundred dollars. There were definitely times when my once-every-two-weeks paycheck would be deposited and gone within 48 hours.

You can imagine what those times would do to my overall well being, my self-esteem, etc. etc.

Today was pay day. I deposited my check into my main checking account. I immediately looked at my budget for this half of the month. I paid my car payment. I paid my Sallie Mae loan. I paid my portion of rent and utilities. I transferred my budgeted amount for other expenses into my second, “spending” checking account. I put the rest towards my $1000 emergency fund.

I feel fantastic right now. My bills for the first half of July are paid up and on time. My emergency fund exists even if it is not fully funded yet. I have the money I will need for the next 15 days.

I had a plan for my money and I acted on it.

Its an incredible feeling… and could not be more different than before.

This month has really strained my budget.

Before I began this financial awakening, I planned a trip to Memphis to visit my sister who recently relocated to there. My other sister, my mother, her husband, and my girlfriend all enjoyed three days there. I had a great time there… but with flight, hotel, BBQ, etc. etc… it was hard for me to really enjoy everything because I was very conscious of every dollar spent.

June also meant a Father’s day gift, my brother’s birthday gift, my girlfriend’s birthday gift and birthday dinner, and a steadily rising electric bill (there have been record high’s the past two weeks, including over 100 each of the past 5-6 days).

So here we are at the end of the month and I am definitely flat broke. Thankfully, I get paid on the 1st.

All in all I still managed to knock out a good chunk of debt in June… but I am learning how hard it is to be on a tight budget when there are so many outside forces pulling on your pocketbook.

On April 30, 2008, I had a good night at the craps table.

I started with a couple hundred dollars. I was playing “crapless” craps, which is a little bit different than “normal” craps. In crapless, you can place bets on 2, 3, 11, and 12 and there is no “don’t” betting allowed. I apologize if this is jibberish to any of my readers (I don’t think I have any readers but anywho).

The payout on those “extreme outside” numbers (2,3,11,12) is nice. If you bet the 2 or 12 will roll, and it does, you will be paid 6 times the amount of your bet. 3 and 11 pay 3 times the amount of your bet.

I had a love affair with the number 12. It was my favorite bet. You put $20 down and when it rolls, you get handed $120. I once had a 12 roll four times in the span of five minutes, upping my bet each time.

I’m getting off track. This night, I left the table with $1,600. The next morning before work, I deposited that cash into my checking account.

When I got off work, I stopped at an atm and withdrew two hundred dollars and headed back to the casino. I was in a true hot streak. Very quickly I won about $300 at a craps table. I decided to put a $100 of that into a $5 slot machine. (This is referred to as “playing with the house’s money” i.e. you have won it, but have not left the casino yet, and therefore you aren’t counting it as ‘winnings’ yet. oh the lies that gamblers tell themselves..)

Within minutes, I hit a jackpot. It looked like this : 7 7 7

Except two of those red sevens were 2x multipliers. $8000. The slot attendant came to pay me and I asked for a $6500 check and the rest in cash. They took out the state’s tax $, but I was left with over a grand cash. I went and found my dad and his wife and gave them both a few hundred dollars “to play with”. I took them to eat at the steakhouse, had a great filet mignon, bought my dad and I expensive scotch.

We went back and I blew all the cash I had on me at the craps table. Didn’t matter… I was sitting pretty. That was still the house’s money.

The next day I deposited my $6500 check into my checking account. This would have been May 2, 2008.

My checking account balance was : $9,987.36.

This was more money than I had ever dreamed I would have a hold of in my life to that point.

There’s a joke among gamblers for when you win big – Go spend that money as quick as you can, boy, because if  you don’t you’re gonna give it all back. I knew this to be true from previous experiences. I went shopping for flat screens, but couldn’t pull the trigger. I told myself I was going to put away a large chunk into a savings account. I actually looked into Certificates of Deposit.

I did not buy anything. I did not put any money into savings. I DID make about $1360 worth of payments to my credit cards.

My checking account balance on July 14, 2008?

$90.49.

The first thing I did after relocating was to apply for a job with the census bureau. I figured it would be a g0od short-term solution while I continued to look for permanent employment.

The application process is interesting… the first step is to take a test that is designed to gauge certain skills they are looking for.. administrative, organizational, etc.

The test was very easy. The woman who administered it told us that a “passing” grade was 10 right out of 25. Pretty unbelievable if you think about it.  Anyway, awhile later I was contacted and offered a job as an address canvasser and as I was still unemployed, this was very good news. 

The next step was to attend a four day training.  It quickly became apparent that everyone in my training group (about 20 people) had scored a perfect score on the test, or very close to perfect and were veterans (the census gives a veteran’s preference in hiring). These people were almost all out of work professionals. 

In fact, one of my fellow trainees was a professor of mine in college! Unbelievable.

Anyway, what this turned out to mean is that the census as a whole suddenly had a much… different… kind of work force than they had had before. Our assignment was scheduled to take about two months to complete. Within a week of us getting out and working, we had completed 50% of our assignment. 

This was not good. We were working outselves out of a job. 

Luckily, I was able to find permanent employment before the census ran out of work for me. For about two weeks I was able to work full time at my job, and about 35 hours for the census on weekends/evenings.

I was told that the census will have another assignment soon, and that those of us who already have worked will be called first to be offered jobs. I really can not wait for this to happen.  I have been looking for an evening/weekend job to supplement my income, but the census is hands down the best option for this. The money is very good and the work is very independent.

One of the biggest adjustments I’ve had to make is getting used to the idea of a zero-based budget.

In short, every dollar earned during the month is budgeted, so that at the end of the month your checking account should be at zero.

I don’t like the idea of having an empty checking account.

I realize the issue for the moment is that when I am zero-ing out, I really am broke.. whereas normally, without debt, a lot of money would be going into savings.

The problem is… I am not blessed with patience. And as evidenced by my craps problem, I am prone to a bit of obsessive behavior. Because of this, so far I have concentrated only on paying off credit cards, and have not followed the advice of just about every personal finance blog and writer by starting out by funding a $1,000 emergency savings account before going into debt reduction mode.

I’ve come to the conclusion that I need to do this. It freaks me out to have nothing left at the end each pay period. So, I have budgeted for this and I should be able to fund the savings account in July and restart debt payments in August.

Starting amounts (with one added as I forgot it in the first posting):

Citicards Credit Card $4290.33
 Rewardzone Mastercard $686.50
 CapitalOne Card  $534.82
 Kohl’s Card $276.69

 Sallie Mae Student Loan $10,893
 Stafford Loans  $20,260.34

 Auto Loan  $6126.09

 Total   $43,067.44

Amounts as of today:

Citicards Credit Card $3550.41 (paid down $739.92)
 Rewardzone Mastercard $0.00 (paid down $686.50)
 CapitalOne Card  $429.46 (paid down $105.36)
Kohl’s Card $241.43 (paid down $35.26)

 Auto Loan  $5905.16 (paid down 220.93)

 I am going to ignore the student loans for right now… the Sallie Mae does not go down very much each month, for now, and the Stafford Loans are currently in deferment.

When I started out, I had to first get all of my credit cards at least under the maximum credit limit, so I did pay over the minimum payment on each.

The Citicard has the highest interest rate and with the highest amount that interest is a very significant amount each month. For that reason, I began by focusing on paying it off first. However, this month I changed that strategy and paid off the Rewardzone Mastercard in full. It felt really good to get rid of one altogether… I could completely delete it from my Excel spreadsheet which was a great feeling.

I had planned to pay off the Capital One and Kohl’s cards in July. However, last week Citi offered to enroll me in a program to help me pay off my balance. Basically, they will credit me back 20% of every dollar I pay down over my minimum payment, up to $550. Because of this, I now plan to go back to paying down the Citicard first.

I feel like I am making good progress in debt reduction. I have paid down a total of $1788 from my debts in 2 months.

I have been working from a budget for the first time in my life. I still need to get a hold on discretionary spending (mostly eating out) but recently have made some strides in that area as well.

Parts I and II of how I got into debt.

From October to February I worked full time trying to find a job. In those 4 months I had one interview. I didn’t get that job. I sent out countless resumes and filled out hundreds of applications.

Thankfully, I was able to barely scrape by doing work for my father’s office. I could make my minimum debt payments for the most part.  But….

During this time I stopped paying one of my student loans. Actually, I stopped paying seven of my student loans. I had 7 separate Stafford loans through Wells Fargo. They were seven separate accounts that I would pay one lump payment to every month. For 4 months I didn’t make a single payment. I ignored the constant phone calls. I ignored the bills. I ignored everything. Finally, in January, I called Wells Fargo and Sallie Mae both and communicated with them about my situation. They both agreed to defer my loans while I remained unemployed. 20 minutes of phone conversation was all it took. Unfortunately it was way too late. I’ll get back to this issue in a second.

In February I gave up trying to find a job in the city I was living in. I took my tax refund and moved back to the city where I had attended college, in another state. Due to an incredible amount of luck and hard work I was able to find a job after arriving here.

Even though I was still flat broke, I made the impulsive decision to drive home for Easter to be with my family for the holiday.

This is what led directly to me hitting financial rock bottom.

I didn’t have nearly enough cash to make the trip. I did have about ten dollars wiggle room on two of my credit cards. In order to pay for the gasoline needed to make the 750 mile trip, I overmaxxed both. I knew if you had even one dollar available, you could prepay for gas. That’s exactly what I did and overmaxxed my cards by about 30 dollars each.

At this same time, I had an issue with my Citicard. During the previous year they had raised my limit to about $8700. For a reason unknown to me at the time, they suddenly lowered that to $4120. I had $4200 worth of charges on my card.

In May, I got my credit card bills. I saw the damage I had done and the fees I had taken on on each one. The Citicard bill, however, really upset me. I felt it was highly unfair to lower my limit and then charge me for being overmaxxed. I called to argue my point. Citi actually agreed with me, and removed the overlimit charge… but they had also taken the occasion to raise my interest rate up to 29.99%. They would only agree to lower it to 24.99%.

This incident finally proved to be too much for me. I hated the feeling of having to argue with a customer service rep over what was clearly ultimately my own fault. Yes, I finally realized the situation I had gotten myself into.

I started to assess the damage. It was worse than I imagined.

I ran a free credit report. It turns out having 7 delinquent accounts for over 180 days is a very bad thing. It turns out being overmaxxed on every credit card is a very bad thing. It turns out my credit score is VERY POOR.

I had had enough. I knew I had to fix this as quickly as I could. I started to pore over personal finance blogs, I read a Dave Ramsey book, I put together all the information I needed in an Excel spreadsheet. I started obsessing over getting out of debt and trying to salvage my credit score.

So that is how I got here. Next I’ll post about the things I have done so far and update my progress in debt reduction.