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Author: SaveFarscape Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Umm Did I just do something stupid? Date: 11/4/2003 2:49 PM
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I had a large bank loan (well large to me, about 4k), which was secured by my car (my primary transportation), and had large monthly payments. I just transferred the amount owed to a credit card with the same interest rate, unsecured, and with lower monthly payments. The plan is to take that extra money, and use it to snowball the accounts I still have. So essentially, I'll still be making the same payment, only now I have my car title back.
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Author: mlk58 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172726 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/4/2003 3:03 PM
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Sounds good to me! Just make sure you really do put the freed-up money in the snowball, instead of letting it leak out of the budget!

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Author: agg97 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172727 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/4/2003 3:06 PM
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SF,

That sounds like a smart move to me. The only risk you're taking is the CC company's whim to jack up your interest rate at any point. In the same situation, I would have done the exact same thing.

-Agg97

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172729 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/4/2003 6:35 PM
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SaveFarscape,

You wrote, I had a large bank loan (well large to me, about 4k), which was secured by my car (my primary transportation), and had large monthly payments. I just transferred the amount owed to a credit card with the same interest rate, unsecured, and with lower monthly payments. The plan is to take that extra money, and use it to snowball the accounts I still have. So essentially, I'll still be making the same payment, only now I have my car title back.

No, it doesn't sound stupid. It even sounds a little Foolish.

Now for the tricky question, Is your credit card rate fixed in any way? For instance, is it a promo rate or a good-for-the-life-of-the-balance rate? If it is, then you're probably ahead of the game because you've managed to get rid of the risk of loosing your car if you have to miss a payment at some point down the line.

Even so, making this switch is a mixed blessing. If you miss a payment on a car loan, they will penalize you only for the late payment and perhaps a mark on your credit report; but they can't adjust your rate. With a credit card, the company can adjust your rate if you're late and more than likely they will adjust it to a penalty rate in the 20% range.

Still, if your job is fairly secure and/or you have plenty of savings to cover a short fall, the move is probably a small plus, given the same interest rates. Given my own situation, I think the value of a vehicle secured loan vs. an unsecured loan is worth at most 1-2% in the interest rate. In other words, a 5% car loan is comparable to a 6-7% credit card loan – if the rate is fixed in some manor. However, if there's only 1-2% spread between the rates, then there's not much incentive for me to move the obligation. Change a secured loan for an unsecured loan at the same rate, is mildly interesting if the unsecured loan is on a fixed-rate offer and not very interesting with no fixed rate offer. Changing for a lower rate is mildly to very interesting.

So, I'd say that if you've done a deal with the credit card to fix the rate for (most of) the life of the balance, you're probably well ahead in the transaction. But if you've just transferred the balance to a card at the current purchase rate, you probably need to shop around for a teaser rate just to make sure the credit card company doesn't shaft you.

BTW: I may have mentioned it before – I did the same thing early this year. I converted a 4.95%APR car loan with my credit union to a 3.9% fixed-for-life credit card loan at Citibank. And it sure felt good to pick up the title, even if it was just a used Civic I'd bought my son.

- Joel

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172775 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/5/2003 6:44 AM
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I converted a 4.95%APR car loan with my credit union to a 3.9% fixed-for-life credit card loan at Citibank. And it sure felt good to pick up the title, even if it was just a used Civic I'd bought my son.

Isn't it amazing that the bank can be charging more for such a loan than a credit card account? And that they are paying almost nothing on "savings"? No wonder they're raking in huge profits!

Vermonter

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Author: SaveFarscape Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172793 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/5/2003 11:27 AM
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It's a fixed rate balance transfer, for the life of the balance, and it's the same as what I was paying before. I won't tell you what it is, as your low interest rates posted make me feel like I've got a long way to go! ;) But, I suppose considering about 6 years ago we were doing credit counseling and had tons of collections, we're doing good. We're about to pay the last of our debt off, and we've had no late payments since our CC 6 years ago. Once the last of those collections fall off, I expect to start getting those lower rates too :).

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172818 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/5/2003 6:49 PM
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Vermonter,

You wrote, Isn't it amazing that the bank can be charging more for such a loan than a credit card account? And that they are paying almost nothing on "savings"? No wonder they're raking in huge profits!

Not really... The 3.9%BT rate is considered a promo or teaser rate, even though it's for the life of the balance. They're just hoping I'm enough of a fool to actually charge something on the card once I have this balance there. Fortunately, I'm Foolish enough to know better.

As for the credit card's profits, they're just taking advantage of the adage, A fool and his money are soon parted. As long as there are plenty of fools in the world, they'll continue to make huge profits. They just won't be making them off of me.

- Joel

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172824 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/5/2003 9:21 PM
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SaveFarscape,

You wrote, It's a fixed rate balance transfer, for the life of the balance, and it's the same as what I was paying before. I won't tell you what it is, as your low interest rates posted make me feel like I've got a long way to go! ;) But, I suppose considering about 6 years ago we were doing credit counseling and had tons of collections, we're doing good. We're about to pay the last of our debt off, and we've had no late payments since our CC 6 years ago. Once the last of those collections fall off, I expect to start getting those lower rates too :).

Go ahead and post the rate. No one here will criticize you for it. Besides, it's all relative to what you're able to get in your situation. I don't stand in your shoes, so while I can tell you what I think you should be doing to improve your lot in life, I can't criticize you for things that have happened that have brought you to this point in your life that I know nothing about.

Beware the Long-Windedness...

My own financial history has been far from spotless; but neither have there been anything as major as bankruptcy. I've been struggling with debt off and on for many, many years. Probably a great deal longer than you. It bothers me greatly because I believe I have a great deal of financial acumen. Unfortunately I don't cope with inter-personal (relationship) problems very well. That's probably what brought me to my own financial crisis and why I wound up eventually making some harsh decisions in an effort to bring back financial stability in my life.

It's been almost 8 years since I cut the major financial ties with my wife. She had me wading around in $20-30K of credit card debt, our checking account was regularly wiped out without my knowledge or consent and all our credit cards were always at their limits. I also had a car payment, a mortgage, two small children and a wife who eventually went back to college to cope with.

I separated our finances a few months after she graduated and got her first real job. During the last year of college, I was hemorrhaging cash at the terrifying rate of $1,000/month above and beyond my income -- and that's not even counting her student loans. In fact, if my employer hadn't sacked me in 1992 -- and paid me $12,000 in severance -- I might have had to consider bankruptcy. Thankfully my employer didn't know I already had a job offer when they let me go. Instead the windfall let me struggle through for another couple of years while she finished college. It also probably prevented me from divorcing her outright despite the kids – she kept suggesting BK; but I said it would mean the end of our marriage.

Don't get me wrong. By 1992 I understood intellectually most of the things we discuss here regularly. My education includes a lot of accounting and business subjects and I'd already bought 3 cars, paid for the delivery of both of my children out of my own pocket (I had no insurance at the time) and bought 2 separate houses, though none of it at the same time of course. Well before my wife and I separated finances, I'd already discovered most of the Foolish practices we espouse here and I was forced to apply them regularly in a loosing battle to out-save my wife's spending.

What version was your first copy of Quicken/Money? I still own a copy of Quicken 2.0 for MSDOS from the 1980's. I used it for many, many years even after Windows versions came out. I didn't upgrade until 2000 mainly because it did what I needed well and I couldn't bring myself to spend the money as cheap as it was. Even so, it was my bible at tax-time and when we decided to rent out our first home because I could use it to record and categorize just about any income or expense imaginable.

Before Quicken, I used a spreadsheet. Back around '87-'88, I found a $0.10 error in my checking account register. It turned out to be two separate errors, so it was very difficult to find. One Saturday morning (my free-time was cheap because I didn't have any disposable income) I took in my spreadsheet register/printout and my bank statement and got the branch manager to help me reconcile the two. Instead of being annoyed, he was quite impressed with my setup and we became quite chummy for years after -- until the bank transferred him out of town.

My first credit card was from Monkey Wards in '83 when I was only 18. My first real bankcard was from Bank One in '85. I bought my first home in '85 and my second in '88, even though I was still attending college during both. My father helped me buy my first (used) car in '82 and I didn't buy my second until '89.

We struggled in and out of debt repeatedly during those years together. It never seemed to get much better; only worse. In fact, the more I made, the more out of control her spending seemed to become. Real savings eluded me. She always had some reason why she "needed" this or that and it didn't matter that we had to pay 2-3x the purchase price because of our mounting debt.

Anyway, to cut this story short(er), I was the conservative saver; she was the compulsive spender. If she had cash, credit on a card or even just a blank check in the house, she could find some excuse why she had to spend it. Looking back, I realized I was just enabling this behavior and I was doing so at the cost of my own future, my retirement and the kid's college education.

The first real crisis emerged in the summer of '90 and I reflected on this for a good long time -- mainly because she had stranded me in California alone on a work assignment without any money to buy food or entertainment (I received no per diem). My solution was a plan to separate finances over the coming years. Unfortunately it panicked my wife. In response she insisted she had to go to college if I was going to cut her off. Ultimately she forced agreement.

As I said, after college we finally separated finances. But during the mid 90's I had discovered balance transfers and teaser rates and began shuffling my debts. By the time my wife and I separated accounts, I had already done BTs and even called and had my rates reduced several times.

Despite years of experience shuffling that deck of cards, I was still amazed at getting the entire debt paid off in just over a year. Looking back, I think my wife was nothing short of bitter over it. I think she felt I was shorting her somehow. Of course, she had over 50% of my take home pay with her first job. I was paying for literally all of our essential living expenses, plus that $20-30K in debt. She on the other hand was paying on a new car, about $12K in student loans, her work expenses and her own personal entertainment.

The truth of the matter was she had as much or more disposable income, not counting credit card debt service as I did. After CC debt, my disposable income was much lower than hers. Despite that, my debt went down and hers went up.

In '93 I had maybe $500 in the bank and started my first 401(k) with only 2% of my gross pay. By '97 I'd paid off my debts and incurred new ones -- I didn't have an efund, so a credit card had to substitute when we had some major medical. I paid that back the same year. In '99 I paid my wife cash for her '94 Accord and helped her finance a new CRV. I also opened my first brokerage account and refinanced the house for a second time.

In '00, I'm ashamed to admit I borrowed money from a card to boost my brokerage account -- though I paid almost nothing in interest on it. Also my wife (SO) left me that year, so I now call her my XSO. And toward the end of that year, I joined The Motley Fool -- originally because of the stock boards. I was also reached 10% on my 401(k) contributions.

In '02 I bought/financed a car for my son and paid the cost of repairs on an old pickup truck to make it serviceable for my daughter. I also started playing the BT transfer game again. This time it was for profit and vengeance. I also opened an ING savings account to maximize my savings. I started taking a more serious interest in my cash-back cards and began searching for ways to maximize my rewards. In that vain, I switched to Juniper for a 2% rebate; but Juniper later decided they couldn't make a profit on me so they cancelled the rebate. In '03 I moved most of my savings/checking to Presidential Bank (2.75%APY). (Today, MBNA drafted that account for $24,575 to pay off my latest 0%BT exploit.)

This year my credit report was dinged for a medical bill that was my XSO's responsibility. (Lot's of Fools here seem to think it's still mine just because my XSO is on my insurance; but so far the CRAs have actually sided with me. :-) Despite this hanging over my head, I'm probably going to refi the house again if I can get a 10yr note at less than 4.5%APR.

Arguably I'm doing well financially. I'm not divorced yet. My kids are both in junior college. I contribute to my 401(k) almost as much as the IRS allows in a year; but I still have less than 1 year's salary in retirement assets. I have 3 vehicles in my name, though I really only own one; but it's paid for. The house has appreciated some in value; but I have huge maintenance and repair expenses I haven't dealt with that threaten to wash away half of my equity, were I wanting to sell.

But all in all, I'm doing ok these days. After I've met my commitments to the kids and divorced the wife and fixed up the house, I hope my personal savings rate may actually reach 50% of income. If things go well, I might be able to consider retirement by the time I'm 55. Things probably won't go that well; but at least getting old isn't quite as scary financially as it was just 5 or 6 years ago.

- Joel

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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: 172834 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/6/2003 2:31 AM
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{{{{{joelcorley}}}}}}

You're going to be okay, Joel. You're too ornery not to be. :-)


--Booa (manages to have more left in my bank account some months than my dad, who makes 100 times what we do, so I know that "How did you do that?" look)

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172838 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/6/2003 5:08 AM
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Joel:

Not really... The 3.9%BT rate is considered a promo or teaser rate, even though it's for the life of the balance. They're just hoping I'm enough of a fool to actually charge something on the card once I have this balance there. Fortunately, I'm Foolish enough to know better.

Right.

Sort of like when I inquired of AmEx about their "blue card" offer of 5% kickback (or whatever you want to call it) for charges. I asked if I could use the car, maybe for LARGE expenses (as for our home addition, lumber, etc.) but PAY IT OFF EVERY MONTH. Her reply made me stifle a laugh: "Oh, we expect you to carry a balance, of course. If you don't, then your rebate at the end of the year will be something, but a lot less."

In other words, if I charge a lot and do NOT pay it off monthly, presumably then also paying several percent interest/finance charge they eventually levy on me for the balance, they'll turn around and give me 5 percent later!?

Ummm... lemme think now: If I run up a $5,000 tab, pay a little monthly, and pay THEM maybe 12% interest, they then pay ME 5% rebate later? Gee -- such a deal!

Yeah, you hafta wonder sometimes if they assume we're ALL stupid or what! ;#)

Vermonter



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Author: Kestrel2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172839 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/6/2003 5:16 AM
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Sort of like when I inquired of AmEx about their "blue card" offer of 5% kickback (or whatever you want to call it) for charges. I asked if I could use the car, maybe for LARGE expenses (as for our home addition, lumber, etc.) but PAY IT OFF EVERY MONTH. Her reply made me stifle a laugh: "Oh, we expect you to carry a balance, of course. If you don't, then your rebate at the end of the year will be something, but a lot less."

Wow, hard to imagine American Express saying that. I guess they've gotten addicted to the high interest rates of the balance carrying "dark side." :)

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Author: exeter17 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172846 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/6/2003 11:33 AM
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Joel,

If she is your XSO why would you say you are still married? Are you referring to the legality of being wed with the reality of separate beds?

Brian

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172853 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/6/2003 12:30 PM
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exeter17,

You wrote, If she is your XSO why would you say you are still married? Are you referring to the legality of being wed with the reality of separate beds?

Yes. Legally wed but separate beds, separate homes, separate cities, separate lives. Texas doesn't recognize any form of separation. Here you're either married or your not. But since we've gone our separate ways, it's difficult to call her my Significant Other (SO), since she's not -- thus the term XSO.

BTW: I asked this board what to call her a couple of years ago. Some of my own suggestions were not very complementary. XSO seemed to be consensus, mainly because it was both reasonably polite and fairly accurate.

- Joel

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172855 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/6/2003 12:51 PM
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RetiredVermonter,

When discussing your inquiry with AmEx about their 5% rebate card you wrote, In other words, if I charge a lot and do NOT pay it off monthly, presumably then also paying several percent interest/finance charge they eventually levy on me for the balance, they'll turn around and give me 5 percent later!?

Ummm... lemme think now: If I run up a $5,000 tab, pay a little monthly, and pay THEM maybe 12% interest, they then pay ME 5% rebate later? Gee -- such a deal!

Yeah, you hafta wonder sometimes if they assume we're ALL stupid or what! ;#)


Calm down, step back and think about what they're asking you to do. There are usually loopholes to be found if you only look for them.

The AmEx Blue card is potentially the most profitable rewards card available, if you only know the key to leveraging the maximum reward from it. However, you have to be clever about how you pay them back. Here are a couple of discussion threads about strategies to maximize AmEx Blue rewards:

http://www.fatwallet.com/forums/messageview.cfm?catid=52&threadid=100210&
http://boards.fool.com/Message.asp?mid=19585358

Personally, I find AmEx Blue some what undesirable because at least 50% of my current purchases are made with merchants that do not accept AmEx. That doesn't mean the same is true for everyone though; nor does it mean it will always be true for me.

- Joel

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172864 of 308881
Subject: Re: Umm Did I just do something stupid? Date: 11/6/2003 5:13 PM
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Joel:

Personally, I find AmEx Blue some what undesirable because at least 50% of my current purchases are made with merchants that do not accept AmEx. That doesn't mean the same is true for everyone though; nor does it mean it will always be true for me.

Agreed.

We started discussion with our building supply place today about our addition, which we are about to start, and HE said HE was doing the same thing with a HOME he is building -- charging materials for it on Blue and then paying them!

He said "Why not get that little extra, especially on a big thing like an addition or home?"

Yes, they DO accept it, so we may do it, too -- especially with the 6-months with no interest period.

Vermonter

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