Hope for your financial life and beyond

Is Your Credit Score Simply a Measure of How Much You Love Debt?

credit scoreIs a high credit score really just a measure of how much you love debt? Seems like a tough question especially when you put the words “love” and “debt” right next to one another. I’m sure you are cringing right now just reading that.

The financial services industry pounds the table on how to have a high credit score. In fact, I’ve read in multiple places online that a high score is “crucial” to one’s financial success. Without one you can’t get ahead and live the life you want. Hmmm…interesting.

So what does a high credit score look like?

Scores range from 300 – 850 with anything over 700 being considered a good rating. Excellent level ratings kick in around 750. The higher the score the more likely a lending institution will consider providing you with a credit card, mortgage or other loan.

In a credit driven society a high credit score seems like a must. The only problem is that to get a high credit score you HAVE to go into debt and stay in debt over time. There really is no way around that fact.

How Is A Credit Score Calculated?

Credit scores take into consideration five categories as this image from MyFico.com shows:

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Confessing a Really Stupid Money Mistake

Stupid money mistakes. We all try not to make them. Fortunately I’ve done a decent job of avoiding them in my life.

Longtime readers know I’ve been preaching against debt and the use of credit cards since the early days of this blog. I know some people believe in their use, especially for the reward points they offer. For some reason, we were never able to get credit cards to work in that way. All they created for us was overspending.

stupid moneyDebit cards and cash became our salvation, as we learned to only spend what we earned each month. Taking that step away from credit, coupled with our budgeting efforts were big steps in moving us toward financial freedom. The journey, in the past five years especially, has been a wonderful ride, one that has allowed us to pay off our mortgage earlier than expected.

It would be easy to let my head swell and the buttons on my shirt pop with pride at our financial success. Funny how life has a way of keeping us humble. It did to me this past week when I received a curious and infuriating letter in the mail from Bank of America, informing me of a stupid money  mistake:

The letter read:

“Your above referenced account is currently past due. If you’ve already scheduled a payment, thank you. If not, your current balance is $299.56.”

Pardon me?

My Stupid Money Mistake

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A Singular Focus of Paying Off Debt Leads to Peace

Today I’m guest posting and commenting at the personal finance blog The Frugal Farmer. Click the link below to read about what distracts people from paying off debt.

sunset in HawaiiEarlier this summer, my family and I took a weekend excursion to the Bahamas aboard Royal Caribbean cruise lines. We were fortunate enough to walk into an incredible offer Royal Caribbean was pushing where the third and fourth occupants of a cabin sale free. For a family of six already looking for a short getaway, that’s an offer not to be passed up.

For those who have never been on a cruise I would highly recommend it. And when you go, consider upgrading to a balcony room. Lounging with the calm ocean breezes in your own private zone is one of the most relaxing experiences around.

Balconies are about peace. They produce it because there are no distractions, unless your kids are screaming on the balcony next to you. Perhaps some playful dolphins catch your eye for a moment and there is the occasional enemy cruise ship passing in the distance. Mostly though, there is nothing there to distract you. It’s only water and sky for as far as the eye can see…

Click to Continue Reading at The Frugal Farmer…

Next Post: 5 Life Changing Moments That Lead to Lifestyle Inflation

Prior Post: Rethinking the Definition of Success

The Fear of Spending Again Once the Debt Is Gone

fear of spending“Can We Ever Step Off the Gas With Our Finances?”  That’s a question I asked just over a year ago on this blog. That post looked at when it might be appropriate to loosen the reins on the budget and relax the tightfisted control we have over our spending as we pursue certain financial goals.

My answer left open a great deal of room for debate. I concluded that “it depends” on many factors, such as:

…the depth of the person’s dreams.

…the levels of debt still to pay off.

…if a person is facing an expensive medical issue.

…if there is some form of crisis on the horizon.

…how large the bank account/investments have become.

…how old a person may be.

To reach any financial goal requires intense focus and discipline. The debt payoff journey may be the hardest of them all. When you are waist deep in it, the finish line may as well be half a world away.

With perseverance the day will eventually come when all the debt is gone. When that happens so many choices open up. One of the biggest is how to spend all the freed up money that was going towards debt.

Having recently paid off our mortgage early, I can attest that the “no debt world” is a great place to be. However, something else is at work that was totally unexpected.

I’m finding it difficult to relax my spending.

The Fear of Spending Again

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How We Are Paying For Summer Vacations With Cash

summer vacations

Niagara Falls

Our school is out for the year, so for me that means summer has arrived. I know the official start date of summer here in North America isn’t until June 21st. The astronomers and weathermen can push that date all they want. Once the kids start sleeping until 9 am or later, I know something has changed.

Summer brings with it summer vacations, which our family thoroughly enjoys. We usually take one big trip (a week+) and one short trip (3-4 days) each summer. This year will be no different as we will be embarking on a week long trek from Atlanta to Niagara Falls and back, followed later in the summer by a weekend cruise to the Bahamas.

Neither of those trips will be cheap, although we did get an incredible deal on the cruise (more on that in a moment). Nevertheless, we won’t be going into debt for either of them. All our vacation expenditures will be paid for in cash (through using our debit card).

How are we doing that?

Two words: “planning” and “saving.”

Summer Vacations With Cash

Here’s how we pay for all our summer vacations with cash:

Early Planning Leads to Deals

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Goodbye Mortgage and Lender B.O.A. Hello Baby Step 7!

finished paying off the mortgage

My reaction to paying off the mortgage

Remember the feeling of those significant milestones in your life?

That time you moved away from home.

That day you said, “I do.”

That moment when your kids finally grew out of diapers.

That big job promotion or beginning a new career.

All of these and many more have occurred in my life and in our household. The one we experienced recently surely ranks in the top ten in matters of earthly importance.

We’ve Paid Off Our Mortgage!

Goodbye Bank of America. It’s been…uh, “nice” knowing ya. Hello Baby Step 7!

This event actually occurred in February. I walked into our local BOA and received the deer in the headlights look upon mentioning I wanted to pay off our mortgage. They appeared happy for me but I knew better. What was really running through their minds was “Rats…lost another one.”

They thought worse than that when learning I also wanted to close all my accounts. The only reason we opened a checking account there was because they purchased our mortgage from Countrywide years ago. It made it simpler to pay down our mortgage as we could transfer money to BOA from our main bank at PNC.

Uncharted Financial Waters

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This Debt Relief Practice Was No Scam

Hidden Nuggets Series #36 – “At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord’s release.” Deuteronomy 15:1-2

letters on small tiles that spell out the words "Debt Relief)How would the world be different if creditors were required to release the debt of individuals every seven years?

This actually happened in the Old Testament of the Bible as you can see from the verses above. God required the Hebrew people to release the debts of the poor every seven years. That’s right…if they still owed money at the seven-year interval, their debt was cancelled.

Sign me up for that program!

If this seems like an odd thing, consider God has always had a special place in his heart for the poor. There are many verses in the Bible related to the proper treatment of those less fortunate. I see this as God’s way of giving them a fresh start and squashing any potential exploitation of the poor at the hands of the wealthy to carry on indefinitely.

Whatever the reason it’s clear God did not want his people staying in a perpetual state of debt.

I’ve often wondered how this practice impacted their feelings about borrowing and lending.

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7 Unfortunate Reasons People Spew Hatred at Dave Ramsey

Dave RamseyIt could be argued that Dave Ramsey has become the most influential financial voice of this generation. His radio program draws nearly 8 million listeners every week, placing him third in the talk radio genre behind Rush Limbaugh and Sean Hannity respectively. Clearly he has developed an enormous following and has helped millions of people develop restraint, follow a plan and get their financial lives back.

Count me among those people.

Despite his influence and popularity, I continually read of people skewering Dave Ramsey for the message of hope that he brings. I’ve tried for the life of me to figure out why someone who has been so helpful would be the target of such outrage. In some cases, I’m sure it’s simply people taking a contrarian opinion to draw some attention to themselves. However, I think the main issue is much bigger than that and it’s something everyone says when it comes to the area of personal finance.

The Reasons People Hate Dave Ramsey

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Why I Value the Advantages of a Debit Card

advantages of a debit cardDebit or credit?

It’s a passionate debate in the personal finance world as to which type of card people are better served carrying.

I’m of the mind that both can be used responsibly to assist people with their money management and achieve their financial goals. The key word in that last sentence though was “responsibly” and of these two options, credit cards are by far the tool with the most potential for spending abuse.

I was one of those who succumbed to that potential for abuse. Consequently, my wife and I closed all our credit card accounts years ago and moved strictly to cash and debit cards. That little decision did more to change our spending habits and boost our success with money than anything else.

Advantages of a Debit Card

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Is the Debt Snowball Method the Best Way to Pay Off Debt?

debt snowball methodSnowballs are fun, except when it comes to debt levels snowballing out of control. Credit card after credit card, loan after loan, missed payment after missed payment and the debt skyrockets upward, seemingly with no end in sight.

Until one day, a light bulb flashes and you wake up to realize that debt is creating a stranglehold on your life. It’s decreasing your chances of retiring wealthy and living a stress free financial life. So you decide to focus with intensity and develop a plan that will get you out of debt.

But which debt do you pay off first? You’ve accumulated so many.

Two Methods: Opposite Sides of the Track

There are two basic methods to paying off debt, the Interest Rate Method and the Debt Snowball Method.

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Beating the Credit Card Rewards System

credit card rewardsFive years ago, my wife and I were killing it with the credit card rewards we were receiving. That’s right…free stuff! We exchanged our rewards for airline miles, countless merchandise items and even received cash back in our pockets on some cards. It felt great! We were really beating the credit card rewards system at their game.

However, through a series of personal events and some advanced education, I realized I could do even better. I found out there was (is) a way to get more cash back into my pocket and really stick it to the credit card companies. The best part about this system was that it also improved my monthly budget and helped me save more in the long run.

What was the system I used?

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