Looking to Refinance

I recently called my home mortgage lender (Bank of America) to see what options we have to refinance our mortgage. We bought the house almost 4 years ago and with interest rates as low as they are, I figured it couldn't hurt to ask. My credit as I suspected is not too hot and they were not able to help me directly with a Bank of America loan, but they did say they could refinance me with a FHA loan.

Here's the pro's for going with the FHA loan:

• My monthly payments will go down about $75/month.
• We'll lock a lower interest loan while rates are low
• There are no closing costs or points required to get the rate I am qualified for

Here's the con's regarding the FHA loan:

• Stuck with PMI even if I have a less than 80% loan to value balance remaining. The only way out of it would be to refinance again in the future when my credit is better.
• Bank of America requires a $400 deposit in case the appraiser does not value the house high enough. If they value it high enough that I can do the loan, I'll get the $400 back at closing.
  

We're going to talk to a realtor friend of ours to get her opinion on the value of the house before we make the decision. I'd hate to throw $400 down the drain...

There is also a very tempting option for us to look at, the HUD 203(k) loan. From my brief reading, it would allow us to pay for some improvements on the house (total must be at least $5K) and that will be added upon the refinanced loan. There are items we would like to do on our home (fix first floor flooring and put in hardwood, put tiles in the kitchen, fix the driveway, replace our fences) but are holding off so that we can build our business. I know when I started this blog I wanted to say goodbye to our debt, but this is something that I am struggling with.

Starting A Business

It's official, we've been out of credit card debt for a little while now and are able to look beyond that debt. We still have some medical debt to be taken care of, but they are not pursuing us, so we are going to put them on hold for now. Our priorities are now the following:

1. Be at least a month ahead on our usual expenses (meaning 1 month emergency fund at $2500).
2. Start a business

Back in college I started a software company with a friend from high school, but things did not turn out well with that business. Since then I have wanted to create a new one that becomes successful, but one thing or another has occurred. With all of our debt, it has been difficult to consider starting one, but we feel we can now.

We're going to start an urban farm and sell the produce at farmer markets, through CSA's, and to restaurants. An urban farm utilizes multiple back yards in an urban/suburban setting, reducing the land costs and bringing the food miles down significantly (the distance the food travels to the consumer is called food miles). We are looking at farming a 1/2 an acre, which is about 20X what we have been doing at our home the past 2 years. Out of that 1/2 acre, our financial goal for gross income is $50K. We will be utilizing bio-intensive methods to produce a lot more than what can normally be produced on 1/2 an acre. We will be hiring an agriculture college student on an either part-time or full-time basis during the summer to assist my wife with the manual labor. We plan on starting at 1 farmer market that occurs on a Saturday and expanding to a second one if needed.

The first year of the business our main goal is to break even with our expenses. Our stretch goal is to have a net profit of $20K on $30K of expenses. All of the expenses will be cash-flowed from extra cash in our monthly budget and then the income from the business. We don't want to get into debt for the business as that will mean monthly payments and interest expenses. We are writing up our business plan that will include such things as a 3 year plan, our exit strategy, marketing, pricing, and crop schedules. Half of the profits will be going towards our debts with the rest going towards expanding the business.

P2P Lending Status

I've been ignoring my P2P lending accounts at Prosper and Kiva this year and decided to finally look at them. Here is what I found:

Prosper: One of the reasons I have been ignoring Prosper is because they are in their "Quiet Period", which means basically no new loans. The other reason I had been ignoring them was because 1 of my 2 loans on there had defaulted and not paid. That loan has now been paying consistently since December and my other loan has been paying pretty much like clockwork (there was one failed payment, but resolved 2 weeks afterwards). Those 2 loans from almost 2 years ago have taught me lots. I am pulling my money out of Prosper until they get out of the "Quiet Period" and currently have $71.21 outstanding.

Kiva: I have 1 loan that is delinquent by a couple of weeks, but my other one is not. I decided to use the money I had sitting in Prosper & Kiva to purchase 3 more loans on Kiva, bringing my total amount invested to $100. I know that I don't make interest on these loans, but the benefit of knowing I am helping others with their dreams is worth it.

Next month I may look into lending on Lending Club...Maybe I should change the name of my blog to "Goodbye MY Debt!".

Last CC Payment!!!

I've been fighting some down mood the past month, though I think I am starting to get out of it. One piece of good news is that our last credit card payment will be withdrawn from the bank on Monday! It's been 6 years since my/our balances on them have been $0. We have been so late on paying them that we do not have any active that we can use. That will indirectly help us to not use them again.

The question you are probably asking is "Will you ever use a credit card again?" and at this point of our lives, I will have to say it'll probably be many years until we even consider it. I have seen the benefit recently of having one to smooth out bumps during slow cash flow (we had no dryer for 3 weeks while we waited for funds to become available). Our goals though for the end of the year is to have enough emergency funds to smooth out those bumps instead of risking the chance of holding onto credit card debt.

From here on out, we have a home equity line of credit outstanding and then a bunch of small debts to take care of. Unless we have problems with renters paying, we'll be looking at getting it all taken care of by mid-summer. I can't wait!!!

Evictions & Renters

My wife and I have been having some deep discussions the past couple of weeks about our renters and have done the following:

- Gave a 30 day eviction notice to one roommate now 3 months behind in rent ($1050 owed). He has been struggling trying to find work and he is going to see if his parents can pay his rent.

- Rewritten our house handbook to include our mission statement, roommate expectations (eg: consistent paying of rent), as well as the eviction process.

We are also heavily considering setting into play the following:

- Require 2 other roommates to become current in 60 days or be evicted. After Sunday, both of them are 2 months behind in their rent. If they do not become current in 60 days, they will need to move out.

- If at any point a roommate is more than a month behind in their rent, they have 30 days to rectify the situation or they have to move out.

- If we have to provide 3 eviction notices, the third one is their request to move out.

The problem we're having is that it feels like we're helping them every way we can and they don't view it important that they pay their rent on time. One of the roommates that is behind 2 months just went on vacation for a week to Texas to see relatives. After Sunday, the roommates combined will owe $2200 in rent due. The way we're looking at it is like we're borrowing them $2200 when we barely have enough to pay all of the bills and keep the debt collectors at bay.

Are we being unreasonable?

Debt Status

Last Friday I went to court with my wife at my side and Capital One received a judgment for the full amount owed plus court costs. We paid $2000 last Friday and are looking at doing $1500 in January and the remaining $1500 in February. We should not have purchased the wood stove until this was resolved and are paying for it dearly.

In addition, we have 1 large debt that I've been ignoring from a foreclosure a few years back, but now don't want to have the same problems I had with Capital One. They sent us a letter recently offering a payment plan or settlement amount. I called them and have setup a monthly payment plan of $275/month through April and we're going to do everything in our power to take care of it in April through settling with them. It took a 1/2 hour to convince them I could not do a settlement and that I wanted the monthly payment plan written in the letter they sent. I'll be updating our net worth statistics to reflect this debt and the true balance of the Capital One.

We also received 2 letters about medical debts that are still outstanding with them offering a 50% discount for the next 60 days if we pay it off. Once we are closer to January, we will look at our budget and see if we can fit them in. Our original hopes were to have this all taken care of by the end of the year, but it looks like it will be closer to May of next year.

Not Following Good Advice...

I know the good advice is to keep in touch with your creditors, but it can be difficult when they call you so many times. Our Capital One debt that we were going to try to take care of over the summer (but a consulting gig did not pay me for work performed) has filed a small claim in court, which I need to appear on Friday for. I am contacting today a company that helps to mediate before court and seeing what we can do before Friday. We have $2500 in the bank to work on this, will let you know the results.

Next week I'll contact one other large creditor that I've been ignoring (so much that they're not in the net worth calculations) since they sent me a letter this weekend.

Recent Suprise in the Mail

Due to the newspaper article a few weeks back about us, we had received a greeting card with a Wal-Mart gift card attached. It was sent with no return address, but we are very certain it's from someone in our church. We figured the card had $25 or $50 on it. My wife put it in her purse and life went on.

We went this past Saturday over to Wal-mart to pick up a few food items (and hunt around for a presser cooker to can these pumpkins). At the checkout, my wife took the gift card out and looked at the back of the card to see the value of the card. I wish I had a camera on her at that time, as she was shocked to find out it was a $250 gift and it showed on her face. I was also quite shocked.

Her first comment in jest was "Let's go on a shopping spree!" I joked back saying maybe I should hold onto the card instead. We discussed it some more and we decided it will go towards the Christmas shopping we were planning on cash-flowing next month. That way the cash we were going to spend can be put to our debts.

2 More Debts Paid Off

I made some calls today and was able to get 2 more of our debts settled on. Here are the details:

- Hospital bill started at $1301.63. It was from a few years ago when my wife was having pacemaker problems and we had to bring her to the hospital. Our insurance coverage at the time was not very good and had a large deductible. I was able to settle with them for $700. I had an even older letter from another collection agency for the same hospital, which I called first. They had deemed it not collectible, so they returned it to the hospital and the hospital added another visit to the balance. In the end, I'm glad it's done with.

- Bank NSF bill started at $804.49. It was from when everything started tumbling down in 2006, job lost, electricity out, etc. Automatic items started bouncing left and right and I was hiding from it all. I was able to settle with them for $603.37. There is still some work to be done on this one, as they messed up in their computer systems and have a balance for the same bank NSF in two different departments. The other department was not in the office today, so I will have to call on Monday to get that resolved.

The lessons to be learned is always keep your paperwork, question who you really owe and how much you really owe. In addition, don't ignore your problems, otherwise you will have to pay for that mistake in the future. I'll be calling one more small creditor on Monday to settle with that is the cardiologist bills from the same time as the hospital bills.

Another one bites the dust..

It's been too long since I've called in to pay off a debt, but did so this morning. It was for $400 for orthotics my wife had gotten several years ago. I figured we just threw them out on Saturday, we should probably pay for them right away.

When I called the debt collector, I explained that I wanted to settle the balance. They were more than willing to take the full amount, but I asked them if there was a way to negotiate a smaller amount to settle. Janice (the debt collector), spoke to her manager and was able to bring it down to $320. That was fine with me, though she then wanted to charge me $12 for an "expedited payment" so the debt would not negatively affect my credit. I told her it's already on my credit and asked her if I could pay online or by check without that fee. I was able to online while I kept her on the phone, saving the $12.

Overall, it feels good to say goodbye to one more debt! My wife's latest orthotics that we picked up on Saturday were "free" since they are covered by our health insurance this time (as well as my orthotics).

Roommate Given Notice

One of our roommates was given notice yesterday that she has until the end of November to pay $600 of her back-rent (2 months) or move out. On Nov. 1st she will be $900 behind in rent. She and my wife had a 2 hour discussion about it, mainly the roommate responding that she felt it was unreasonable, that she is trying everything she can do, and trying to get out of my wife that we want her to leave.

Here are my views on those 3 points:

Unreasonable/Reasonable: If we were like other landlords, we would have already petitioned the court for eviction and she would be moved out. Based upon my research, if you are 1 day late in Illinois, you can receive a 5 day notice. If you don't pay that, then the landlord can take you to court to evict you. If she did not pay her cell phone bill for 3 months, it probably would be turned off as well. We are being reasonable.

Trying Everything: I disagree with this one. She told my wife she thought she had to pay us at least $100 at a time, which in the 2 years she has lived at our house has never been a rule or followed. Trying everything includes giving $20 towards rent instead of ordering pizza.

"We want her to leave": This is a lie that she is trying to believe so that it's not her lack of payment as the reason we are having to do this, but that it's our fault. Being behind in rent is not our fault, it is caused through choices she had made. And from those choices, there are consequences. We would love to have her stay, but when the mortgage and utilities need to be paid every month, we need her to cover her portion.

What I've Learned From PF Blogging

I'm being interviewed tomorrow for the Chicago Tribune, so I figured I would write up what I've learned from PF blogging and reading other's PF blogs.

Increase my income

In the past 8 months alone my salary has increased by 43%. This took planning on my part (focusing on an area of expertise that pays well) and being willing to ask for more (told my current employer the amount I wanted to make when I started and negotiated a 6 month review for more money). I don't think I would have gotten where I am career wise without PF blogs causing me to think about these things.

Besides my salary, we increased our income by taking in roommates. A little over a year ago we had 4 rooms rented out, bringing in $1,400/month. That's like working a full-time job making $8/hr. We're down to 3 roommates at $1,000/month, but even that is $5.80/hr full-time.

Decrease my spending

We still need to do some work on this, but have streamlined our budget quite a bit. For a while our entertainment budget was down to $30/month. If we lived in a smaller place that we couldn't rent out rooms, I would have had us move closer to my job(s) to cut down our gas costs and housing costs.

We've been learning how to garden in order to reduce our grocery bills. We also started canning big-time in order to do the same. This year it was a bit expensive due to needing to get equipment, but next year our costs should be minimal.

The wood stove, insulation, and storm doors were also done to reduce our heating bills. We will see this winter if we were successful and if we need to make more changes to cut our costs.

Learn from my mistakes

I've made quite a few mistakes over the years (hence the reason we're working our way out of debt). Those lessons though have helped me make less damaging mistakes. For example:

• I looked at where our debts came from and what can prevent them from occurring again. That taught me to pursue health insurance options, use cash when we notice our spending getting excessive, and not buy on credit.
• When I shop for something that is going to be in our house for a while, I study it to see how durable it is. When picking out tools for our wood stove, I picked the ones that were single pieces of metal since those with joints can break easily. We started our research on the wood stove 6 months back.
• I review how close we were to the previous month's budget and make a new budget based on that.

What have you learned from my PF blog or other PF blogs?

Update: Details on Our Debts

About 6 months ago, I posted details on our debts. I figure it's about time to see which ones are still remaining and which ones are taken care of since then (or about to be).

Remaining:

$308 - Dish Network
$368 - Chiropractor bill
$400 - Foot Dr bill
$401 - Ambulance
$435 - Pacemaker checkups
$517 - Hospital Emergency Visit
$685 - Hospital Emergency Visit
$2187 - My Stupid Mistake
$804 - Bank Fees for closed account
$3629 - Menards (started settlement, will be done by 7/3/08)

Taken Care Of:

$1591 - Cingular canceled account balance
$5333 - Discover
$5774 - Home Depot
$6919 - Capital One (in 3 weeks will be taken care of)

As you can see, I haven't been doing the Dave Ramsey method of tackling debts. I did that initially (hence nothing smaller than $300), but these bigger ones have been more of an annoyance (and higher potential for going to court). If I keep working on Saturdays, we'll see everyone above done by the middle of July, a month and 1/2 sooner than I had originally wanted.

First Draft May Budget

I need your help on my May budget. It is looking like such a crazy month (on the income side), I'm going to put up a draft here for you to look at and then I'll post another on Wednesday at the end of the month. Here we go:

Income:

1330 IRS
1000 Rent
3434 Weekday Job
3000 Weekend Job

Total: $8764

Expenses:

200 Mrs. Student Loans
110 Mr. Student Loans
1130 Mortgage
161 Natural Gas
50 Water
41 AT&T
120 Electric
200 Car Gas
200 Toiletries & Groceries
55 Cell Phone
95 Life Insurance
200 Our Fun Money

Total: $2562

Debt Snowball: $6202

Menards: Start settlement of $640 per month for 3 months.

Capital One: I would have started this one this month, but $1500 was delayed coming from my weekend job, so it's coming in May instead. I'm going to see about settling with them for $1000/week for 4 weeks.

Padding: $1562 as padding into savings.

In June we'll be starting to tackle our smaller debts (those under $1K). Those are the debts listed as Other on our NetworthIQ profile. What do you think?

My Ethical Viewpoint

A reader recently questioned indirectly my ethics, especially due to me making choices recently to tackle other items ahead of debt payments. Here's the points in no particular order:

- Tree removal versus Debt

Yes, for most situations removing trees in your property are luxuries. Here's our reasons besides the "nice to have done" point:

1. Safety: We had 2 trees that were within 15 feet of our house (and our neighbor's house). Like clockwork every July we have had huge limbs come off the trees (20+ feet). They had missed the houses in the past, but the only ones really left were aimed for the houses. I don't need a 5-10K repair bill because I wanted to stay focus on our debt obligations.

2. Timing: The better times to cut down trees is when there are no leaves on them. It speeds up the process, less brush, etc. That prevents us from paying more money.

3. Time of year discount: During the summer months, tree cutters are a lot more busy because that's when everyone thinks of their outside projects. By doing it now instead of right before the storm, it prevented us from paying more money later.

- Replacement car versus Debt

Yes, we are a 2 car family even though I'm the only one that goes to a job during the week. Here's the main reason we decided to replace my car instead of paying more to debt: My wife's emotional well-being. I know my wife, we have fought a couple rounds of depression together. I know that when she does not have a car at the house, she fights loneliness, feeling trapped, unable to get together with others. Say what you will, but my wife comes before any debt.

- Fun money versus Debt

Theoretically, our fun money should be at $0 since we made prior obligations to our creditors. It's a great idea, but in real life it doesn't work too well.

1. We need to keep running the race. I tried the $0 fun money, it was not worth it. I'd much rather work an extra hour or two than be in that situation.

2. Our "free" entertainment items break down sometimes. My wife has her sewing machine that has brought her many days of entertainment, I have my computer. In the past couple of months we have had a power supply need to be replaced on my computer and some parts replaced on her sewing machine. The money came from our fun money.

- Debt settlement

I view it ethically ok to make settlement offers. Here's when:

1. When the alternative is bankruptcy. Almost 2 years ago I lost my full-time job and started working at Taco Bell. They don't pay much, but we had a whole lot of debt. Everyone was saying I should file for bankruptcy since I was unable to pay. I'd much rather give them something than nothing.

2. The debt has become "old". During that rough period of time when we couldn't pay, most of our creditors ended up selling our debt to collectors. The collectors paid pennies on the dollar in the hopes of collecting something more in the future.

3. They are offering settlements or are willing to listen to one.

4. Bringing the account "current" would be equal to the settlement amount. Because of the many months we could not pay anything, the amount to become current kept growing. At this point in time, if I asked them how much to be current, they would pretty much say as much as the settlement amount.

5. You don't have the money in the bank to pay them everything they want.

- Not making monthly payments on all debts

1. To be current is impossible: We went through a time where we could barely pay the mortgage, let alone any debts. Because we couldn't make payments back then, the amount to bring these accounts current is astronomical.

2. What we could give them would not be enough: This goes back to #1 regarding being current. I've only had 1 creditor be reasonable regarding paying them something monthly until we could do more, which we have done fairly consistently the whole time I've had this blog (except for 1 month, which was really tight).

PS: I've been mulling this post over for over a week, there's probably more I could have put in, but I'm wanting to get this up.

Home Depot wants me back...

And they're itching for my current e-mail address. They sent the account to collections and we are about 2/3 of the way paying them off (next month is the last 1/3). I received in the mail over the weekend a short letter from them saying that they want to e-mail me, but the address they have on file is not valid. No description of what was in the e-mail, just asking me to spend my time logging into their site so I can update it and they can probably start sending me junk.

Just what I want!

At the end of next month, I'll be calling them up to make sure they cancel my account. Seems like even if you stop paying them, they will want you back once your current.

Living At The Poverty Line

I am aiming toward the poverty line, not away from it.

I had never thought one of my financial goals in this way, but something clicked recently. If you consider our net expenses after our roommates pay us, we're running around $700/month of basic living expenses. The poverty guideline for our size of family is $1,430/month. Our finances changed this way out of necessity (we were below the poverty line for part of the year, including roommate income) as well as our goals to get out of debt. Our basic living expenses can't go much further down, so our basic goal now is to keep an eye on the non-required expenses and boost up that income as much as we can.

If my only goal was to work minimally, I'd just have to find enough work to bring home $700/month. My goals right now are not just that, but getting out of debt, so I am focusing on the short term of increasing income in order to win long term.

Grandmother & Grandson

I had my eye exam last night and I got talking to the associate about my unique housing situation (6 roommates, 5 adults and 1 infant). She told me a bit of her situation and it doesn't sound good:

- Recently bought a 3 bedroom house, new construction
- Only her and her grandson live there
- Was praying about the housing situation just that day and considering getting renters.
- Concerned that she might foreclose on the house
- Just came back from vacation.
- Doesn't buy her grandson expensive toys.

I talked about 20 minutes about my situation, left her my number w/ my wife's name on it and the name of our church. If she doesn't change her ways soon, I wouldn't be surprised that she loses the house. She is in the same boat I was in, spending too much on the big items and little on the little items. I prayed for her this morning and she'll be on my thoughts for a while.

What I Am Thankful For

Thanksgiving for me has always been a great time of eating, spending time with those I love and having a 4 day weekend. There have been the simple things I've been thankful for in the past. This year though I'm so much more thankful than I've ever been before:

1. God has provided me with plenty of work and roommates to abundantly meet our needs. There was a point in February where I had 5 possible jobs to choose from. I am at 2 right now and that is enough for this point in my life.
2. My beautiful daughter that is full of laughs. One concern I had was that some babies I see just look around or are crying all the time, making me think that's how most babies are. It's been a long time since my sister & brother were babies, so it was hard for me to remember how they were. My daughter does have her grumpy times, but it's mainly due to when she is tired or scared.
3. Over $20K worth of debt taken care of this year, with next month we'll be hitting $25K for the year. My numbers on the right with NetworthIQ do not include January, but there was a nice chunk taken care of in January before I started tracking.
4. My wife has been healthy this year with no visits to the hospital besides delivering our daughter. She has a pacemaker, which makes life a little interesting. It's taken me time to learn to read when she is pushing herself too hard or not taking care of herself, things that have put her into the hospital in the past. "Day of rest" and "Plenty of Fluids" are big at our home to keep us healthy.

What about you?

My Bigest Reason To Be Debt Free

There are quite a few reasons for us to work at being debt free, but sitting right next to me is one of the biggest reasons for me.

It's my baby daughter.

She is a morning person like myself, so we get together at 5 or 6 AM, have breakfast, read some news, talk to each other, sing songs (she does most of the singing). I cherish our mornings together because my evenings when extra work comes around, I don't get home until she is already asleep. When she smiles because she sees me after being away for a while, all the work to take care of her is worth it.

• I want to be able to spend even more time with her with no worries about creditors calling us daily
• I want to make sure her needs are met (and a couple of wants)...
• I want to be a good example to her of a wise steward.
• We are heavily considering home-schooling her, which will require some of my time.

I have noticed that ever since I knew we were going to have a baby, it was put upon my heart to fix the bad situation we are in. If I believed in coincidences, I would say it was. I know it is God working on refining me to be the man of God he wants me to be.