How Not To Handle Money

I was listening to the Dave Ramsey talk show recently and a lady called in and had done the following financially…

She took out a home loan to consolidate her $8000 in credit card debt. Fairly normal. For reasons undisclosed she chose a new 1st mortgage instead of a 2nd mortgage or some other type of home equity line of credit. Which meant she had to pay closing costs (though you can usually get a lower interest rate). Since her credit was bad, she had to pay $7000 in closing costs and still only got an interest rate of 9% (which many people have on their credit cards). This $7000 was, of course, added to the new mortgage — since if you had $7000 you could all but pay off the credit cards.The best part is that she actually took $15000 of equity out of her house (and only increased her loan by $22000) and so she had $7000 left over. She then decided to called Dave Ramsey the king of “get out of debt at all costs” to ask how she could best invest that $7000. Nice.

For you number crunchers out there: When you consider the closing costs her effective interest rate was actually 10.8% on that $15K and that’s spread across a 30 year loan…. it’s actually much worse spread across, oh, say 10 years… then your at a 20% effective interest rate. Ouch.

Credit Averages

While reviewing my credit report, I found some interesting numbers on the national credit averages. I found some of them surprising. The average American consumer has 5 open credit accounts and 1 late payment on their credit report. The average mortgage balance is $106,782 with an average payment of $1,020. The average auto balance $12,141 with an average payment of $416. Meanwhile, the average total debt in America is $79,884. Uh, do that math… (yeah, I know)

Those numbers don’t seem too out of line to me. What struck me is that the average credit card debt is $1,006. A GRAND! A grand? I don’t know anyone that has a credit card balance of $1K. People I know either DON’T carry a balance on their cards or they owe ten, twenty, THIRTY thousand dollars to Mr. Visa. I guess that just shows how averages can be deceiving. Still these averages can give you a hint as to how enslaved you are to “the man” or your stuff at least.

A Ramsey Moment

Dave Ramsey is the self-proclaimed King of Debt… well anti-debt, actually. His methods are a bit extreme for the financially savy, but they are sound advice for the average American. If nothing else, he offers a great place to start your journey to wealth/retirement.

Anyway, I thought of old Mr. Ramsey when I got an enthralling letter from Discover Card. Credit card companies hate it when you don’t have a big balance and love to make bad deals sound good. This one just made me laugh… The offer? Transfer your balances and save with a low, low rate of 2.9%!!… The catch? Well, a small transaction fee and the low rate only lasts for 4 months…So here’s the math: For a 3% charge you can reduce your annual interest rate by 9% (the average credit card interest rate is about 12%) for 1/3 of a year… great deal eh? Ah, credit card companies… always looking out for us.

Quarters For A Cause

So a mystery economist has partnered with Glenn Beck to bring you “Quarters for the Cause”. I have to admit that this idea is GENUIS. Using an army of kids to sift and collect quarters for the Red Cross is great. I think their projections of $7 Mill/day is unrealistic. I would say this idea in full swing might hit $7 Mill/week, but even that is a tad optimistic.

Here’s how it works:The US Mint now prints individual states on the backs of quarters. There are over 2.8 billion quarters in circulation from the Gulf States that have been affected by the hurricanes (Florida, Mississippi, Louisiana, Alabama, Texas). If we were able to get just 1% of those quarters donated, it would mean $7 million in additional funds.

But, here’s the twist…once these quarters are donated they will be spent and put right back into circulation. So, if this concept were to catch on, $7 million would be donated EVERY SINGLE DAY. That?s over $2.6 billion a year.
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