4 Things to Plan for Before Doing a Balance Transfer

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In my experience there are advantages and disadvantages of getting a balance transfer. Of course you can save interest on higher end of the card if used correctly, but there are things to take into consideration before you go through with the credit card balance transfer.

1. Introductory Rate Period / Balance Transfer Period

In balance transfer, you will have an introductory rate period / balance transfer period.  You will need to make sure that you pay off your transferred balance before this period ends. If not you will be charged the current rate on remaining balance on the card. The balance can be anywhere from 10.99% to 19.99%. Typically the balance transfer period will be anywhere from 9 months to 15 months.

The interest rate free period is to lure new customers so that they use their credit card. This is so that the credit card company can collect interest on the balance of the card.

2. Plan to Pay off the Balance

Make sure to have a plan and stick to it. You will want to take your balance transfer amount and divide it by months when the 0% rate is active. This is so that you can stay on track to take full advantage of the balance transfer period.

If you don’t plan your payment schedule, you may end up paying more interest than you had thought. If you don’t feel confident that you can stick with the payment for 9 to 15 months don’t go through with the balance transfer.

3. Fees

Fees can come in different ways when completing a balance transfer.They can come as a minimum fee of say $10 and or a percentage of anywhere between 2% to 4% of the balance transferred. It also can be a combination of the two.

To make sure that you’re getting a good deal on your balance transfer, make sure you calculate the fees that you may incur and what you would have paid by paying down the credit card normally. You can easily go to Bankrate.com and use one of the credit card calculators to find out how much interest you would pay on your credit card.

4. Will you be Using the Card?

If you plan putting using the credit card you are that the balance transfer is going toward, think again.

Generally you lose normal benefits that you have with your credit card. The one that is most important to me is the credit card grace period. This is  where you are not charged interest if you pay your balance off in full every month on normal expense.

Another kick in the pants is when you make a payment on your credit card. Your payment will go to the balance transfer first before being used to pay the principal amount on your most recent purchases. This means that you will be charged interest on your purchases, and the interest will continue to grow as long as you have a balance on your “transferred amount”.

Side note: If you do have an personal loan or a debt that is not on a credit card, you can still do a balance transfer. All you would need to do is enter your checking account information and the credit card company would send a check to your checking account. I recently did this and received the funds after about two weeks.

Be careful before you take advantage of a balance transfer. Until next time.

Personal Finance in Paradise – Debt Elimination Series: Part 2 – 5 Steps to get a handle on your debt

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This is part two of the personal finance in paradise debt elimination series. The focus of today is to set a step-by-step process of getting your credit card debt down, and to be able to set up plan to follow so there is no wiggle room..

The major thing that holds people from investing and building wealth is credit card debt. If you are getting charged anywhere from 12.99% to 24.99% on credit card debt, it is going to be an uphill battle to building wealth if you’re losing money by paying interest.

This is a simple detailed plan of what to do and how to get out of debt so you can begin building wealth.

1. Find out where you are: in scientific studies, it has been found that people are really bad estimators. When it comes to managing their time or estimating the amount of debt that they owe, people tend to underestimate the amount of debt they really do have in their accounts. For instance, a person may think that they have $10,000 worth of debt, when in reality it can be anywhere between $12,000-$15,000.

There are online websites such as CreditKarma.com, credit.com, and mint.com that’s are good resources which I have used in the past. These resources can access your account information and give you an overall picture of the types of debt that you have.

CreditKarma.com and Credit.com both have access updating your FICO scores as well. These may not be completely accurate at the time, but it gives you a good idea of where you currently stand.

Think of it as your adult report card. It gives you a snapshot of how well you are doing. If you have a negative net worth you can be doing better, and if you have a positive net worth, what can you do to invest more.

2. Negotiate Interest Rates: one of the ways to pay less on your credit cards is to lower your interest rate. It’s pretty easy to do, all you need to do is call your credit card company to ask for a lower interest rate. Give them a compelling reason, like you been paying on time, you have been a longtime customer with the company, and or you have also been struggling with payments. It may not work the first time or with the first person that you speak with, continue to call and ask for manager if necessary.

I personally have called the credit card companies when I have missed the payment, and my interest rate shot up from 9.99% to 24.99%. They were very lenient and they had told me that I needed to pay on time for six months or my interest rate would shoot back up to 24.99% if I miss another payment. It’s worth a try, you may get shot down, continue until you are able to get that credit card breakdown.

3. Stop getting credit card offers: when I began college, I got stacks upon stacks of mailers from credit card companies to sign up for their cards. To prevent being enticed by the credit card companies stop the credit card offers from coming to you.

One way to stop credit card offers is to contact one of the three U.S. credit bureaus three credit bureaus, Equifax, Experian, and Transunion, and have them remove you from all pre-screened credit lists. When you contact one of the credit bureaus they must contact the other two to let them know that you do not want to receive any offers from credit card companies.

Another way of doing this is to go to optoutprescren.com and click on the bottom link that says “Click Here to Opt-in or Opt-Out”, and fill out the the form and mail it in. I sent in the information, and I do not receive any other offers.

4. Choose Your Strategy: Use the debt snowball strategy, popularized by Dave Ramsey, which lists your debts in order from smallest to largest. You start to paying off the smallest debt with all the extra money you have while paying the minimums on the rest of your debts. Once the first debt has been paid off, take the money you are putting to the smallest debt and use that money to pay down the next debt on your list. Continue doing this until you you are done paying off your debts.

5. Track Your Progress: Make sure to log your progress. It’s easier to keep going if you know how well you have been doing.  You want to be able to create good tracking habits so that you can focus on the rest of your life.

One good habit is to put reminders on your phone calendar every month to update your accounts, or piggy back a habit on something that occurs regularly.

Personally, I track my information on Quicken and I forecasts my expenses for the month on an Excel sheet. I get paid on the 15th and the last day of the month. I update my accounts and prepare for the next month on payday.

it doesn’t matter how you track, just find a system that works for you.

 

Personal Finance in Paradise – My Story

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I thought about chronicling my debt story into a book, and thought the background of how I got into debt would be interesting.

I found myself being college student who seemed to go back and forth between wanting to stay in school and feeling that it wasn’t the right place for me. Hearing all of the stories of Bill Gates and Bill Wozniak fascinated me about what they were able to do in business and in life. Hearing the stories built a strong desire in me to find something to invest in. I didn’t know what I wanted to do so I began searching. I started to read self development books, and how some of the writers were able to pull them out of poverty and build great wealth. I continued to read business books and came up to the subject of real estate investing, becoming a stock market millionaire, and building businesses from nothing into multi-million dollar corporations.

A friend invited me to a weekend seminar in the summer of 2005 where you would get a feel for real estate investing, find out if investing in real estate was the right choice for you, and if it was even plausible to make money in it. It was my first time going to one of these events and all you could see were rows and rows of chairs. At the front of the room we heard the music pumping as the eight hour day began. A short blond woman with glasses walked up to the front and introduced herself. She began talking about how she had used other people’s resources get into her first real estate deal. I was mesmerized because she said that you didn’t need to have much to start your real estate empire. You just needed to make the right contacts, buy some houses, and resell them to investors.

It was the height of the real estate boom. She asked to the crowd “does anyone know what hard money is?“ I thought I had answer, so with great and utmost confidence, I threw my right hand into the air and stood up. One of the volunteers quickly grabbed a mic, and began rushing toward me. When he got there, I took it, and in front of 500 people I said with my with the greatest bravado and confidence I said “hard money is money that you need to work hard for.” The crowd laughed so hard that it reminded me of the stories of Santa Claus’ belly shaking. I was thinking in my head “that probably wasn’t the right answer, but at least the crowd was happy.” I was embarrassed, and I sheepishly gave the mic back to the volunteer and sat down. The speaker looked at me a little awkward at first, and she smiled. She said hard money is hard to work for but in this case that’s not what I meant. Hard money is really the money that you borrow from a hard money lender. A hard money lender is someone who lends their money for short period of time with a high interest rate to investors in real estate. The speaker’s voice started to fade out and at that point in time something in my mind clicked, I wanted to know more, and I thought I could build an empire.

Later that weekend I picked up a book and I found myself gorging on a book about real estate. I found myself being sucked in, and the information felt so fascinating that I just wanted to finish the book as soon as I could. I felt as if this was the right path for me. Greed had gotten to me. At another meeting that weekend they revealed the the tuition which was $30,000. I thought if I can buy and turn around I real estate property for thirty thousand dollars I would make up the cost of my tuition. All I could think about was building an empire.

Two months later, I found myself traveling to Arizona and learning about real estate acquisitions, business theory, and trying to get deals done. Then I found myself in a room, a conference room filled with hundreds of people trying to do the same thing. Little did I know that all of these people were broke, and there were not very many success stories from this pool of people. All I wanted to do was become wealthy by any means and have fun while doing it. I was beginning my life as a wannabe entrepreneur that chose not to go to college.

It took a while for the blinders to come off, but they finally did. January 2010 I found myself with $66,504.69 of debt. A bulk of this debt was a student loan $29,242.86 and the rest piled into three credit cards amounting $37,261.83 in three credit cards. I didn’t realize what I had done to get in so much debt.

I could have done a lot of things like complain about my situation. I realized that I created my own reality. I violated all of my values of being prosperous, saving money, and paying for things when I only had the money. I chose not to complain about the situation. I chose to buckle down and get to work. Many people put stock into worrying of what cannot be done. If you choose to focus on the actions that you can control you will be better off.

Personal Finance in Paradise – Personal Disclaimer

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I want to be up front and let you all know that I am not a financial expert. I do not have a degree in finance. I chose not to go that route because of the the politics of the educational system and that I felt that the education I would have received would not have helped me learn how to manage my own personal finances.

I’ve always felt that the media chooses what’s best for their own ratings and feeding people propaganda to continuously take advantage of consumers by fear.

My education is ranges in many ways. I am always burying myself in books about personal finance and business, and entrepreneurs continually teach me weekly. I have made mistakes along the way, and I can’t say that I won’t make mistakes in the future.

Please use anything I say on this site to your own discretion.

I’m looking forward to share a couple of great ideas soon. See you then.

Personal Finance in Paradise – How to develop a Financial Plan

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“If you were to show me your current financial plan, would I get so excited by it that I would go across the country and lecture on it? If the answer is no, then here’s my question: ‘Why not?’ Why wouldn’t you have a superior financial plan that is taking you to the places you want to go?” — Jim Rohn

Many of us have never been taught how to develop a financial plan, and we walk through life guessing what is the next financial move that we should make. It’s possibly the main reason why people are live paycheck to paycheck.

It took me a year or two of research and testing to figure out what I wanted in my life. One thing I recommend is the worksheet from Missouri State University which is provided in the link. The worksheet is a good start point.

The process

1. Determine your current financial situation

One of my mentors told me that your net worth is your adult report card. We lose sight of how we are doing financially, and one way is to measure how we are doing is by looking at your net worth. My financial plan started out with me being $66,500 in debt in 2007 and no savings. I started to track every purchase, and it helped me to clarify where I wanted to go in the future.

Begin with how much you have saved up (in savings accounts, Roth IRAs, and other investments), and then subtract your liabilities (all of your debt from credit cards and loans). Begin tracking your expenses and organize your financial records.

2. Develop your financial goals

I wanted to get out of it the fastest way possible and not lose any of the activities that made me happy. I asked the following questions. It helped me find out where I wanted to be in the future.

  • What do you want for the future?
  • What do you want to achieve?
  • Do you want to save a certain amount of money a month?
  • Where do you want to travel?
  • What are your financial values?

3. Identify alternative courses of action

Seeing that my purchasing behavior and spending got me into trouble, I knew that the behavior was the first thing to change. I thought to myself “there’s nothing wrong with making mistakes with money. Learn from the experience and move forward.”

Remind yourself that there is no reason to beat yourself up over the situation that you’re currently in. Your circumstances can change. It’s a learning process and it’s alright if you don’t know everything now.

4. Evaluate alternatives

Because the $66,500 price tag was looming over my head, there needed to be a major decision to be made. How much could I put toward paying down the debt. After running numbers in my budget, I decided to put $1,250 a month to the debt and that was the first thing to come out.

Of course I had to give up a few luxuries like being able to eat out often. As I learned and searched for alternatives, I gained respect for money, and relearning delayed gratification. The choices you make now get will get you closer to your goals in the future.

Weigh the costs of the choices that you make. For instance, Can I make steady payments of $650 to my debt per month? What better choices can I make with my money so I can get to the $650 goal

5. Create and implement your financial action plan

After I decided to take action, all the stress and emotion was taken out of the decision making process. It ended up becoming a game of how could I make better decisions to pay the debt down faster.

Once you have made a few decisions on what you want, and the direction you want to go, it’s time to make that plan work. This is the testing phase to see if you are able to work with your plan, and if it will work for you. The hardest part of gathering all the information and planning is complete.It will be hard at first, and the process will be worth it because you are beginning to change habits that you didn’t know you had before. You are on the road to becoming better with money.

6. Review and revise the financial plan

Your first plan isn’t going to be your last. As you move along in life, your financial situation is going to change. My financial situation changed many times over the years. Yours will too. Trust in the process, adjust when you have to, and restart from the beginning when you have to.

For more detail go to wikiHow to get deeper into the planning. Let me know if this helped you, or if you have any suggestions please let me know. See you again soon.

If you go to work on your goals, your goals will go to work on you. If you go to work on your plan, your plan will go to work on you. Whatever good things we build end up building us. – Jim Rohn

Money Moves October 2015

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Welcome to Money Moves for October. This is the section for review and to reflect on the things I have done and what could have been done better for the month. I hope you find it interesting. Hopefully it will help you make better decisions for yourself.

Let’s begin with what the end of the month with my my financial report card. It looks something like this:

Net Income from Work  $2652.99
Expenses $2652.99

Reoccurring Monthly Expenses:
Rent: $1045 1 bedroom 1 bath. It’s Hawaii, rent is expensive
Car Payment: $316.97
Student Loan $202.05
Life Insurance $187.51
Extra to debt 130.98

Assets:

Cash value in 2 life insurance policies $16,276.48
SEP IRA $11,630.85
Total: $27,907.33

Liabilities

student loan $20,023.06
Car loan $10,015.61
Chase credit card $3448.54
miscellaneous loan $6312.88
Total: ($39,800.09)

Current Net Worth: (11,892.76)

A few things to note, I had my credit card paid off, but  I had an idea a few months ago that  I could do a balance transfer and continue to use my credit card without paying interest due to the CARD Act. I wanted to continue using my credit card to take advantage of the 1% cash back, and it would benefit me as long as I continued to pay my balance off in full. I confirmed it with a representative, and he confirmed that I could use my credit card and not be charged interest.

When I got the statement the next month, I found saw that I was charged interest. I had to talk to two different managers to find out that the initial guy was wrong. I have nothing against with balance transfers, if you have a plan to pay it off and get the right information. To say the least, the idea bombed, and I get to have a nice conversation with my credit card company to reverse the interest charge.

 Another thing you might notice is that my expenses are exactly what I make in a month. I pay for all of my purchases in the same month that I charge them, and I am paying more toward the principal balance of the loan. Essentially, I am using the debt snowball method of paying down my debts.

My checking account is attached to a personal loan account where an overdraft amount is taken out to cover any charges that I make beyond what is in the account. There is no fee charged if I use the overdraft amount, which is really nice, and I am able to pay down my balances on my debts a little bit faster.

Using the debt snowball method and using all of the money in my checking account; I save a little bit on interest charged daily.

I have cash value in my whole life insurance policy (actually it’s 2 policies) that I use as a bank. Cash value life insurance has many living benefits, and being able to use the money in your policy as a “banking system” gives a person a lot of flexibility when purchasing something and being able to grow and get dividends on the amount in the policy as well.

The last thing to note is that I received income from my employelr in a retirement fund. As you can see above income, from the SEP IRA, has been into the 70% stocks and 30% into bonds. Using Fidelity as the brokerage firm, the money is invested into a few stocks of Netflix, a total stock index fund from Vanguard, and a total bond index from Vanguard. I did that so that I would have the ability to have growth in the stock market and pay the least amount of fees possible. I’ll talk about fees and how it hurts the growth of your investment in the future.

Plans for the Next Month

I’ve finalized how I am going to pay off the debt in the most efficient way. I’m going to pay off the remainder of my credit card balance with cash that is in my whole life policy. That way I won’t have to pay any interest on my credit card, and I no longer have to call my credit card company to reverse the interest charges.

Paying myself back for the loan balance I have taken out at my insurance company. The policies do not accrue interest on a daily rate like credit cards, and interest is only charged to me when my premium is due. That means that I pay my premiums in in July and October, and if there is an outstanding balance, I pay interest then. Also, I’ve got it set up where I don’t have to pay interest at all on the loan by filling up my policies before the billing statements come out.

Setting up this website and making it look presentable. I’m doing my best at getting this website started with a little mishap of setting up the domain and host of the site. As this site begins to grow, I hope that I can add more to it in the future.