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Author: y00perman One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308446  
Subject: Impact of a derogatory-FICO Date: 10/28/2003 12:29 AM
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I did not realize, until I pulled credit scores for both my wife and myself, the impact that ONE derogatory factor can have on a FICO score. We have 8 joint accounts(CC), besides the mortgage, and all showed up on both of our reports. I have 2 other accounts, one which is paid off monthly and another which is a 0% balance transfer for 50% of my credit limit and will be paid off before it expires.Her FICO score was 761 and mine was 679. I believe that the difference was the one negative factor that is on my report but not hers. That was a $97 veterinary bill that was not paid for 6 months due to a conflict between myself and the doctor about the pet treatment. He reported the nonpayment but I paid it off the next month after it went to collections. That was in 1997. It will remain on the report until 12/2004. A difference of 82 points for one negative! For all of you newbies on this board please make sure you avoid the derogatories. It really hurts your FICO score. I would also like to report that since I joined this board in early 2001, I have reduced the $41,000 CC debt to $23,000 so far. I have also established an E-Fund that was $0 in 2001 to $14,300 as of today. That might seem like an E-Fund that is excessive but once I started it I could not not stop. I know I could wipe out a lot of the debt with it but I am reluctant to do so because my APR's are so low. Average APR on all CC's is 1.79%. My highest is 4% and my lowest is 0%. I owe it all to you people on this board. You are all intelligent and well-versed in financial matters and I have listened to everything that was important. Yes, I have a good paying job, but I have had one for 20 years! I can't believe I wasted 18 years of my life wasting money! Anyway, I have a question for anyone that is still reading this. My E-Fund is spilt 90%-10% between ING-Direct and Virtual Bank at 2% and 2.2% respectively. Should I take a chunk of the E-Fund and really cut into the debt or keep the E-Fund stable and redirect the savings I put away each month($500)towards the debt? I am having a very hard time NOT adding to the E-Fund! Maybe I should just be doing a happy dance. I hope this board never dies while I am alive. Thanks for your replies in advance.
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Author: xraymd Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172463 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/28/2003 12:36 AM
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Greetings, y00perman, you are doing a great job no matter what you decide to do about wiping out remaining debt vs fattening your e-fund, given that your interest rates on the remaining debt are so low.

A question I do have, though, is what are you doing about saving for retirement? I did not happen to see anything in your post about tax deferred savings or tax preferred savings like an IRA or a Roth. And do you have any contributions going to a 401(k)? Actually, I think that if you are lacking retirement funds, it may be more important to get these going vs either paying down debt faster or plumping up the e-fund.

xraymd

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Author: y00perman One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172465 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/28/2003 12:53 AM
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Thanks for the thought. I am a teacher with a state supported pension plan which will be available to me in 3 years if I so choose. I also have a tax-deferred annunity plan which I have had for 10 years. No 401K. I can retire in about 5 years with about $2000 a month. I realize I will probably have to wait until I am 66(9 more years) to retire to get the maximum. No problem. How many older people are going to have to keep on working in these times? That credit card debt, before I joined this board, really screwed me up. Thank God, there are places like this and people like you to help out with dimwhits like me!

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Author: numbrel Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172468 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/28/2003 8:47 AM
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A pension is good, but I would start putting $3,000 a year into a Roth. You are paying taxes on your emergency fund. Putting money away tax free is an even better idea. Besides, you can never have too much money when you retire!

Barbara

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172470 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/28/2003 10:09 AM
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<<Yes, I have a good paying job, but I have had one for 20 years! I can't believe I wasted 18 years of my life wasting money! Anyway, I have a question for anyone that is still reading this. My E-Fund is spilt 90%-10% between ING-Direct and Virtual Bank at 2% and 2.2% respectively. Should I take a chunk of the E-Fund and really cut into the debt or keep the E-Fund stable and redirect the savings I put away each month($500)towards the debt? I am having a very hard time NOT adding to the E-Fund! Maybe I should just be doing a happy dance. I hope this board never dies while I am alive. Thanks for your replies in advance.

>>


Congratulations on your success! It's always wonderful to find people who are in control of their own lives and taking their lives in the positive diorections that they want to go.


You have listed two options--- increasing your e-fund further or paying down your debt. I'd like to add a third that you will begin to need to consider ---investments that will pay YOU.


When you are in debt, every dollar you pay in interest usual;ly reduces the amount you will have available to spend over your lifetime. When you make investments, they will tend to pay you incomne that will add to the amount of money you will have available to spend over your lifetime.

For someone who is used to being in debt, that transition from debt to investments can be a difficult one. You are at about that point, I'd say.

Perhaps you have a 401K plan you can fund, or it's time to open a Roth IRA. Perhaps you might want to consider buying rental property to add income and assets, or some other kind of investment.

You seem to be able to summon up a lot of motivation to carry out goals that you have set. Perhaps it's time to set a goal of acquiring investments that will add to your wealth and income over time.




Seattle Pioneer

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Author: DBAVelvet74 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172471 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/28/2003 10:19 AM
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Congrats on coming so far.

On the e-fund, I would say that anything more than 6 months living expenses is exsessive.

If you put that towards the card at 4% you get a much better return that holding it at 2% or 2.2%.

Just my $0.02 worth.

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Author: Booa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172480 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/28/2003 4:05 PM
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Congratulations, y00perman, you've done a great job. I love my efund, but I do think that maybe it's time to take the $500 you were throwing at it and do a few things.

1) How much of your CC debt is at 4%? How much is at rates that will expire sometime? $23K of CC debt would make me nervous. I would aim that $500 as a snowball towards paying off the 4% at least, and any debt that is at rates that will go up sometime.

2) Roth IRA for you and your DW. I would look at additional retirement investments. You can't have too much money for retirement.

I might even be tempted to take some of that efund and pay down CC debt with it. What are your bare-bones six months of expenses? It might be $14300, but I would feel better with a $1000 efund and zero CC debt...

JMHO.


--Booa (I love me my efund...)



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Author: y00perman One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172486 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/28/2003 10:32 PM
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To all who responded,
Thanks for the suggestions. I am really afraid of investments right now so I think I will take both Booa's and Seattle's advice together and cut down that 4% CC and open a small Roth. Does anybody have a suggestion of where to go to open one? That $500 savings a month will be cut down to $100 just to satisfy that savings addiction. I will snowball $400 on the 4% card. I think that I should not do any investing until the last CC is paid.
Booa:
The 4% is prime for life which is one-third of the total of what I owe.
About one-third is at 0% which will be paid before they expire in May and Sept 2004 respectively. I have already figured that out and at $900 a month it will be gone. I really don't want to touch the E-fund but I will if I have to.
The last third is at 1.9% which expires in 6 months. Then it balloons to 9.9%. I should be able to handle all of that very quickly after the others are paid off.
Just so you know; my take-home pay is about $4400/mo (2 teaching jobs-days and nights). My bare-bones existance is about $2000/mo. That leaves a good amount to do what I am doing. I have been putting out about $1900 a month on those dammmmm CC's. I can't wait 'til they are GONE!

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Author: xraymd Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172491 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/29/2003 1:55 AM
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Greetings, y00perman, your debt retirement plan sounds like it will work well for you. I just want to add a few thoughts about a Roth.

A common misconception is that you have to "invest" to open a Roth (or a traditional IRA). This is not so! What is a Roth (or a traditional IRA)? Simply a specific account that is designated for special tax treatment. It can even be a passbook savings account. There are good reasons why someone might wish to invest from within a Roth but that is not in any way necessary to open and fund one.

So what makes a Roth (or a traditional IRA) "better" than a savings account? The tax advantages. In a regular savings account, your interest earnings are taxed at your highest tax bracket and that cuts down on the advantage of compounding. So instead of keeping your retirement savings in a plain old savings account, it would be better to place them into a Roth (or a traditional IRA). You are allowed to contribute to both a Roth and a traditional IRA, up to a total annual maximum which could be apportioned to both types of accounts, but it may turn out that the Roth is the better vehicle for you (as it is for most people). Here are the particulars:

A traditional IRA reduces your taxable gross income by pulling the contribution from your income pre-tax. This has the immediate advantage of lowering the amount you pay income tax against in the year of the contribution but the disadvantage is that when you pull money out of the IRA later, you will pay tax on it then. The theory is that you will be in a lower tax bracket at the time you pull it out and the taxes should be less of a hit, but those taxes are owed later and that may not compensate for getting the tax break at the time of the original deduction. Also, inheritance rules for a traditional IRA are tougher than for a Roth. Further, you must stop your traditional IRA contributions once you hit a certain age even if you are still working.

The Roth came along in 1998 to address some of the difficulties with the traditional IRA. A Roth is also a form of an IRA (Individual Retirement Arrangement) but it has certain advantages. Unlike the traditional IRA, Roth monies are taxed in the year of the contribution, so Roth contributions do not lower your taxable income. BUT the HUGE advantage to the Roth is that from thenceforth, once the money is under the Roth umbrella, neither the original contributions nor their earnings are taxable when finally drawn upon. The rules for inheriting a Roth are also far kinder than for a traditional IRA. And you DON'T have to stop contributing to a Roth beyond a certain age.

The real key to this kind of plan is that you can't go back in time to fund it. So although the best time to start a Roth (the better plan, in my opinion) may be as young as possible, the next best time is RIGHT NOW. Since the earnings from a Roth are also sheltered, that is why so many people who have one go ahead and try to aggressively invest within one. But it is not required! Though you can open a Roth for 2003 up to the tax date in 2004 (generally April 15), the sooner you open one and the earlier each year you fund it, the more time there are for the earnings within it to grow under its tax advantages. If you are under 50 (someone correct me if I am wrong), at present you can contribute up to $3000 a year to the Roth. If you are over 50, you are allowed an extra $500 a year to "catch up" your contributions.

Since you save anyway, why not make part of your savings Roth savings and maximize how much you are sheltering your retirement money from taxes? You could likely even go to your current bank or credit union to open a Roth. The years prior to 2003 have passed by but 2003 is a good year to start a Roth and keep it going. You could even take $3000 (or $3500 if you qualify) of your current e-fund to open it. Check it out!

xraymd

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Author: windyelliott Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172494 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 10/29/2003 10:15 AM
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I would take most of it and pay off the debt. More then likely you are paying a higher percentage of interest on the debt then you are getting back in the emergency fund. Also, if you lost your job and needed the efund, most of it would have go toward paying the debt monthly at any rate. So if you pay off the debt, you could actually get by with a smaller efund.

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Author: DizChick Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172633 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 11/1/2003 11:06 AM
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I have been putting out about $1900 a month on those dammmmm CC's. I can't wait 'til they are GONE!

With a $1900 monthly payment, you should be making great progress on paying off those debts. Are you snowballing (concentrating on one debt at a time, while paying minimums on the others)?

As you get debts paid, be sure to come back here and do a Happy Dance! :-)

DizChick

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Author: llamalluv Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172657 of 308446
Subject: Re: Impact of a derogatory-FICO Date: 11/2/2003 3:20 AM
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Is it Foolish to invest while still in non-mortgage debt?

Maybe I'm mixing up the 13 steps to Foolish investing with Dave Ramsey's baby steps, but I thought both started:

1. Small e-fund
2. Pay off non-mortgage debt
3. Fully funded e-fund
4. Start investing

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