Showing posts with label APR. Show all posts
Showing posts with label APR. Show all posts

Wednesday, June 25, 2014

How Did I Get Here?

  In "Facing the Numbers", I calculated up my debt, detailing where some of the money had been spent. Since that day in late 2012, I have asked myself these questions: What led me to spend like that? Why did I think it was ok? Was there something behind that?  I can't completely dismiss it as only foolish stupidity spurred by the impossible ease of plastic.  Why did I do that?
  By the time I applied to borrow for my graduate school, I already had significant credit card debt.  In 2010, at age 31 (with no debt but my car and mortgage), I had poured thousands of dollars into a national beauty pageant. Yeah, that's right, thousands.
  I had set my mind to win. To do so, I needed a gorgeous dress, interview suit, fashionwear and swimsuit.  I also hired a personal trainer, make-up artist and interview coach.
Had my competitive nature led me to spend? It was only a small part.  I wanted everything to appear perfect. I coveted an impeccable swimsuit body, flawless walk and interview charm. I couldn't get a second-hand dress-someone might notice! I needed to appear not only beautiful, but incredibly successful. Not to be seen as such would be, well... embarrassing.
  Of course I had reasons for thinking this was ok.  I had never just "had fun" with my money.  Everyone has to have a time to splurge on something, right? I was expecting a large payment from the Air Force for travel expenses/allowances from my recent deployment. I told myself I was spending that money.  Deeper still, I had structured my pageant platform around an enduring emotional pain that I still carried. If I could speak about this, I could make a difference and perhaps find healing for myself. Wasn't that worth the expenditure?
  I failed to achieve my ultimate goal for which I had mortgaged myself dearly.  I did not win, finishing below the top three.  I received the Director's Choice Award for the "spirit" I displayed, but I saw myself as a miserable failure. I felt stupid, ugly and rejected. Crestfallen, I returned home.  
  I was painfully reminded of my brief foray into modeling. At age 25, after losing over 25 pounds, I had been contracted by a local modeling agency.  The major drawback to my getting jobs (I thought) was my skin. I had suffered from severe acne as a teen and bore the scars.
  "Just work on it." I was told.  I went to various plastic surgeons, undergoing painful chemical and laser peels. I never achieved perfect skin. Wow! How realistic! I had entered modeling in pursuit of glamor and status. I left a little over a year later. I had been a model but I felt hideous.
  What I did not understand was that I was seeking irrefutable evidence of my own self worth: if I could prove I was beautiful, I had value as a human being.
  How had I come to be so emotionally bankrupt? So devoid of self-love and self-worth? Each of us must face our demons but mine were many. I traced them to a series of events beginning at age seven. Over a period of two years, I was molested on multiple occasions.
  As a child, I did not understand a piece of my soul had been stolen. With the years came the realization, engulfing me with it's unspeakable pain and shame. Pain became anger, deepening into rage. I turned that rage onto the safest (and nearest) victim present-myself.
  I think as children, we do our best to make sense of an unpredictable world. If we know why something happened, it is far less frightening. When people I loved and trusted harmed me, I concluded it could only be my fault.
For the better part of 17 years, I tortured myself with bulimia and self mutilation. I mercilessly pushed myself to not just succeed, but be perfect. Receiving a "B" on a test or being criticized left me devastated, scourging myself for "being so f-ing stupid".  Sometimes, I truly hated myself.
   As an adult, I met an older man I came to trust as a father figure.  Unfortunately, I discovered too late that I had opened the door to another predator.
   Although I was successful in my career, I kept my distance from people, fearing to trust. I dated men occasionally but would quickly break it off: Men were too frightening! I was desperately lonely. My animals and food were my only companions.
   In a required class for graduate school in 2012, I met a classmate, Noel.  Cautiously, I allowed him to befriend me.
I now pursued a title in bikini competitions. I followed a rigorous diet and exercise regime. I was also spending again, dropping money on collagen and Botox injections. I won a local competition and shelled out almost $1500 to compete for a national title in Las Vegas. I finished last.
  Devastated and humiliated, I made my way through the shabby casino to my stale room. I lay there, my body aching. What was I doing? 
   The truth hit me like a bolt of lightening. I was seeking validation. I sat up in the darkness, watching the city lights flicker. I was 34 years old, awash in a sea of debt and completely miserable.  How foolish I felt, how pathetic. I texted Noel.
"This has all been a fool's errand. I came looking for self-worth."
"It's ok, Em."
"I've been so utterly stupid."
"Do you ever stop abusing yourself?"
  The tears began to fall. I was that frightened little girl again, sobbing in her pain and confusion. I just wanted to be held, to be loved by someone who gave a damn about me.  Yet I was alone, abandoned in a strange place.
   Who was I anyways? Underneath the carefully crafted exterior, what constituted the authentic Emily? I had always tried to "adjust my personality" to the situation I found myself in. I could be outgoing, reserved, funny or stoic at will. What did I honestly feel? I didn't know. I was floating through life in numbness and detachment.
  For a graduation present, Noel had paid my tuition to the Weekend, the first of the Core Trainings offered by Pathways, a non-profit organization in Irving, TX. The Pathways curriculum is designed to increase emotional intelligence, and its trainees are challenged to critically inventory their lives, habits and relationships.
    Skeptical and defensive, I was confounded by a simple question: what do you want?. Money, beauty, respect, right? No. These answers were all rejected. To know, I had to feel again. I needed to unlock my poor broken heart I had hidden for so long. I had to acknowledge what I pretended didn't exist: the pain, the shame, the rage. Only then could I truthfully answer. I wanted peace. I wanted to feel worthy. I wanted to love me.
    It has been a very long, hard road that still winds before me. I see now that my debt was only a symptom. I was trying to fill the hole in my heart.
In George Eliot's classic tale, Silas Marner is cruelly betrayed by a trusted friend. Embittered, he exiles himself to a distance village. Silas lives as a recluse, caring for nothing except a collection of gold coins hidden beneath the cottage floor. One day his money is stolen. In his feverish search, Silas instead finds an abandoned child. He raises her as his own, discovering with her innocent love the lasting peace of forgiveness.

Psalm 147:3 He heals the broken hearted and binds up their wound.



Thursday, June 19, 2014

Robbing Peter to pay Paul (and getting some breathing room)



As I wrote in "Tiny Steps," I had started making slow but steady progress. I watched my
budget carefully and worked hard, applying everything extra to my credit card with the
lowest balance (Visa, starting balance of $9,900). With credit counseling and loan
consolidation eliminated as options, I looked to my dwelling.
Recovery of home prices in north Texas after the 2008 housing bust had been fairly
rapid. My one-story brick ranch, purchased for $165,000 in 2005, was now worth
$182,000. Thanks to a 15-year mortgage at 5% APR, I only owed $129,000. Prime
mortgage rates had dropped to just under 4% in the summer of 2013.
I didn't have stellar credit anymore, but I managed to qualify for a loan for 4%
APR. Not bad. I was allowed to borrow 80% of my home's value ($145,600) in
September 2013. After fees and closing costs, I received $14,000. I used this to pay
down my car ($5,800) and to shrink my credit card debt to
just under $30,000.
Doing so gave me the biggest bang for my buck, freeing up over $350 dollars in my
monthly budget. Additionally, my mortgage payment dropped from $2,050 to $1606. In
under a year I had reduced my unsecured debt by 25.4%. I could now make ends meet
and slowly discharge the debt without working overtime.
While I was still willing to work hard, I was starting to buckle under the strain, falling
ill frequently. Early in 2014, I was diagnosed with a chronic illness.
Rolling debt into a mortgage is not "getting out of debt.” It is simply a reallocation
(Robbing Peter to pay Paul because Peter charges lower interest).
Huettner Capital president Todd Huettner manages a mortgage brokerage firm that
specializes in debt consolidation. Huettner suggests homeowners answer three questions
before combining debt with a home mortgage:
1. Why do you have this debt? As I mentioned in "Stopping the Bleeding,"
consolidation must accompany a change in spending habits (living on a sound
budget). Failure to do so only results in a bigger mess.
2. What are the costs of consolidating the debt? As I noted above, I needed to pay
nearly $2600 in fees and closing costs. I'm now paying that back (with interest of
course). Because I was able to finance to a lower interest rate, I will save money in the
long run (five years-plus).
3. Is there a more effective way to eliminate your debt? If you have less debt, or when
cash-out costs are high, stick with paying the old-fashioned way. While failing to pay on
credit cards may bring a lower credit score and some nasty phone calls, your house can't
be taken. Defaulting on a mortgage or home equity loan is a different matter.
All things considered, this was the best option for me. I needed some breathing room. I
needed to work fewer hours. I needed to take care of me.
Personal finance experts and their proscribed debt fixes are many: Jean Chatzy's “Debt
Diet,” Dave Ramsey's “Financial Peace University,” Suze Orman's “9 Steps to Financial
Freedom.” etc. Rolling debt into a mortgage is not high on the list of recommendations of
any of them. Overall, however, their principles are the same: Reduce your debt and
increase wealth through budget discipline and living within your means. I have taken tips
from each, with Dave Ramsey being one of my favorites. It is my life and my money.
Ultimately I have to do what works for me.

Tuesday, June 17, 2014

The Amazing Credit Offer

Dear Emily Becher,
 Its easy to save on interest with Balance Transfer checks that come with your Chase Amazon.com account.  
   - Save on balance transfers-Use this offer to tranfer higher-rate blances from other cards to your account.  
   - Save on purchases- use these checks to pay for big expenses or emergencies
   - Of if cash is most convenient- Just write a check to yourself to deposit in your checking account.

Awesome! That sounds great, right? Not so fast. 
I examined the offer closely.  Two blank checks payable through JP Morgan Chase Bank, NA had been supplied. 

   "Promotional 0% APR through billing cycle that ends 08/2015. 

 WTH is APR? I honestly didn't know until I  did a Google search, wading through articles until I found one I could substanitively understand. APR = annual percentage rate of interest, also the cost of borrowing.  That's just another fancy term for interest, right? 
  Well, that's why I thought.  Credit card interest or APR has a number of nuances. Generally, different types of credit applications- Balance transfer, Purchases and Cash  Advance-  have different APRs.  

  "After that, your standard Balance Transfer APR will apply, currently 17.24%."  Currently? So this is a variable rate?    This particular offer sported a generous 0% introductory APR after which an APR of 13.99 % + Prime would apply. What?!!! Prime? Prime Rib? Primetime? 

Prime Rate or Prime Lending Rate - Prime rate is the interest rate charged by bankers to the most credit-worthy borrowers and refers to the Wall Street Journal Prime Rate which is published monthly. This, in turn,corresponds to the Federal Funds rate which is set by the Federal Reserve (Prime Rate is generally about 3% higher). This is why it's SUCH a big deal with Federal Reserve Chairman, Ben Bernacke opts to change interest rates. 
   Let's assume for I used those checks to transfer a balance of $5,000.  I make no payments on the balance until I'm required to do so in August 2015.  Let's further assume that the APR of 17.24% applies and hasn't' fluctuated much over the past 15 months.  What is my current balance and minimum payment? To calculate this we first need to understand the principle of revolving interest. 

 Credit card debt is like a Merry-Go-Round that never stops, with no happy music or Dramamine.  One of the reasons plastic is such a boon for lenders is revolving interest.  Most people are familiar with installment loans (car note, mortgage ect): you borrow a set amount, have a certain interest rate, monthly payment, repayment schedule..blah blah blah.  The payment is calculated by the balance owed, the length of loan term and interest rate. Each payment contributes to the balance, though early in the term a significant portion goes to interest.  
 Revolving interest is slightly different.  The term is unspecified.  The Borrower is allowed use of credited funds up to a certain limit.  A monthly payment (of pure interest) is calculated  by multiplying the balance by the correct (fluctuating) APR and dividing by 12. 
  Er- I think I just made that more confusing! Suffice it to understand that, per theory, you 
could be paying "to infinity and beyond" and never discharge the debt. 
 So, back to my calculations.  With my balance of $5,000, lets find the monthly interest.
  I will multiple by 0.1724.  $5,000 x 0.1724 = $862.  I will now divide by twelve (we're only calculating for one month from an annual percentage rate). $862/12 = $71.83.  Let's then add that to the original balance ($5,000 + $71.83 = 5,071.81) and we arrive at balance of $5,071.83, with $71.83 as our minimum payment, right? Wrong!  
  Looking further down on the credit offer, I noticed a stipulation in much smaller print at the end of the page. 
  "We will begin charging interest on these transactions on the transaction date." Oops! That changes things a bit, huh? Our paltry sum of $5,000 has been collecting interest for 12 months.  So, provided Mr. Bernacke hasn't changed interest rates much, where are we now? Twelve  months of interest on $5,000 at 17.42% APR is $862.  Our current balance is $5,862.  $5,862 x 0.1724/12 = 84.23. 
 Awesome way to save, don't you think? The only way to win at this game is to actually pay it off in full during the introductory period.  Statistically 75% of people fail to do so. 
   I was one of the foolish ones.  I moved my balances among different cards.  I was always planning to pay it off, but without a change in habits, that didn't happen. 
  Getting out of debt is not all about income, expenses, payments and budgeting. I am also working to forgive myself for my foolishness. It's hard to not have regrets. Even though I failed to read that brochure mailed with the credit card (you know, the one with the really teensy print written by the credit company's lawyers and filled with the mumbo jumbo I've tried to translate here), I can't say I didn't have a basic understanding of debt.  I still marvel at how easily I spent money I still don't have for things I never truly needed. 

I Timothy 6:6 "But godliness with contentment is great gain."