This week’s Friday Financial Foul Up will feature a guest post by new blogger and frequent twitterer Jeff from Deliver Away Debt.  Jeff has found himself with a large amount of debt and has taken to delivering pizzas as a means of paying it off.  For those that follow him on twitter, he shares with us his delivery stories as well as a play-by-play of most of his tips when he is working.  Enjoy his story and his foul up over the past year.

After returning from an overseas assignment in Southern China I needed to figure out a way to replace the $1,950 per month “Hazard Pay” I was receiving.  Before China my wife was working in the marketing field making $2,200 per month.  If she went back to work we would have been fine.  But like all good stories there’s a twist.  We had a one year old son and another baby on the way.  Day care was going to cost $1,800 per month for both kids, so we would still be short on funds.  That’s when I came up with the great idea of taking on a second job delivering pizzas (with Dave Ramsey’s help of course).  That way we could make the money we needed and my wife could stay home and take care of the kids.

The Situation:

On Monday May 9, 2008 I started to deliver pizzas for a newly opened pizza shop down the street.  It couldn’t have been easier to get the job, there was a sign on the door saying “Help Wanted: Drivers.”  I walked in, talked to the manager for 30 seconds, and showed up for training that Friday.  Finally my problems were solved.  I was going to make some cabbage and pay down my debt, all $101,000 of it.

Where I fouled up:

Working a second job to help pay down debt seemed like a great idea.  I was working two nights a week and made some good money.  The money went into the bank and the bills were all paid on time.  Great, I thought, but there wasn’t any money to apply toward my debt. I thought, oh well I’ll just make it up next month.  In June I was able to score another day of delivering. I was now working Friday, Saturday, and Sunday nights pulling in over $300 a weekend working 21 hours. June came and I used that money to pay my property taxes.  No big deal, it was $1,400 I didn’t have before delivering so I’ll make that up next month.  Every month ended with the same story.  The money I was making was just supporting our current lifestyle, NOT paying down the debt I needed to pay down.

I averaged $1,200 per month during this 11 month period.

$1,200 X 11 months = $13,200 WASTED!!!

What I learned:

First - You need to have a plan any time money is involved.  If you don’t think ahead and tell the money “YOU WILL GO TO THE CHASE CREDIT CARD THIS MONTH.,” the money will never get there.  My wife and I finally figured out that a plan/budget was needed, too bad it took so long and cost us so much.

Second - After working the plan/budget for the last 4 months, we have paid down over $13,000.  Just think, we could have paid $26,200 in the same amount of time if we would have started the plan earlier!  ALWAYS HAVE A PLAN DAMN IT!

Third - Never deliver pizzas in a leased H3 Hummer.  The gas will KILL your best efforts.  Besides, people ALWAYS make comments about getting their pizza delivered by a dude in a Hummer.  I currently roll in a Chevy Cobolt and nobody says a thing.

Fourth - You also have to have fun paying down debt.  I know that doesn’t sound right but it’s true.  I make delivering pizzas fun by using Twitter.  I tweet about how much money I make in tips, and give a weekend earnings total on Sunday night.  I also tweet about all the crazy things that happen to me while delivering.  The interaction with people and the things a delivery driver sees are extremely funny.  Follow me at @deliverawaydebt and you too can get an inside look at the world of a great second job.  Deliverawaydebt.com is also a blog I write to help discuss tips and tricks I’m learning during the LONG journey to debt freedom.

May debt freedom be with us all,
Jeff Kosola

Photo by Resedabear

Wow, a month off, a new site, a new perspective on a lot of things. Man, it feels good to be writing again.  That said, I solved one of my biggest issues that I needed to solve over the summer, getting a new car.  When I say new, this was not a “new to me” car, this thing had 4 miles on it when I drove it off the lot.

Some of you that have been reading for a while will remember my post, “Dude, I Totaled My Car” and know that I really needed a friggin vehicle in a bad way.  I really wish I was able to live like some of the commenters of Matt’s post at FCN, and sustain myself without a car.  However, that wasn’t feasible for me.  So here is how this all went down and how I ended up with a 2010 car a week after it came out, surely a personal finance sin if ever there was one.

The Advice Along The Way (good advice I didn’t listen to)

I talked to several bloggers, several friends, and even a friend’s father that is a certified financial planner.  Without exception, everyone suggested that I get a used vehicle.   Now, some people were more receptive to the idea of a new car (Mapgirl being one of them), but for the most part, it was “find a used car.”

I listened to the personal finance hour’s episode on buying a car, I read Ramit’s post about why he bought a new vehicle, I even took some tips from The Millionaire Next Door.

A week prior to purchasing my NEW vehicle I spoke with Baker from Man vs. Debt.  When I started telling him about my plans to purchase a new vehicle he plainly said (and I paraphrase, because it was gchat and wouldn’t make total sense out of context), “It sounds like you WANT a new car.  There are good late model cars out there, it just takes hard work to find them.”  I agree with Baker, I did “want” a new car, but primarily because it was the process of this search that was slowly killing me.

The Process (it sucked)

The process of buying a car should be kind of fun, after all, it’s a big purchase, its something that a lot of people associate as an item that “defines” you.  I don’t really buy into that, but whatever.  I am here to say, the process sucks.  I mean, it really sucks.  Especially if you are looking for a used car.

Maybe its just me, I don’t trust used car salesmen, and a clean carfax report wasn’t going to make me feel any better.  Ebay, well that just took too long and I want to at least see the car before buying it.  Carmax, well that is actually a good option, but all of their vehicles were quite expensive for what you were getting.  I decided at the beginning of the process that if I was going to finance anything, I may as well just get a new damn car.

I tried craigslist.  I really tried craigslist a lot.  I called a ton of people, I saw a bunch of cars.  I trusted no one, and didn’t like a lot of the vehicles I tried out for the money they were asking.  Why would I spend all of the insurance money I received for my Jetta ($4200) on a car that was much inferior to that car?

Finally, I went down to a dealership and practically bought a 2002 Civic.  Something didn’t feel right about the car, but the money was acceptable, and I was a dude that was at the end of his rope.  They pulled a fast one on me and threw away the warranty on the car as I was about to sign the papers.  I walked out.

“Brian, you aren’t going to be happy or comfortable in a late model used car with over 100K miles on it.  Get yourself a new f***ing car.”

A friend who I trust said, “Brian, you aren’t going to be happy or comfortable in a late model used car with over 100K miles on it.  Get yourself a new f***ing car.”  He was right.  I knew which cars were in my price range, and what I would be satisfied with.  Knowing it was towards the end of the year, I wanted to see if I could find what I wanted (2009 Hyundai Sonata) as a used car.

Sure enough there was one around the corner from me.  If I went that route I could have saved a few thousand dollars, however it already had almost 30,000 miles on it from the past year.  I was still close to buying it.  Then I called to find out about all the warranty’s (which is one of the reasons I was going Hyundai) and found out that the 10 year/100,000 mile warranty was void for second owners.  Also, the vehicle was already halfway to voiding out the 5 year/60,000 mile bumper to bumper warranty.  I said screw it, and was off to find a new 2009 car.

Because of cash for clunkers, I wasn’t able to find the exact model I wanted, in the color I wanted (pearly white is a shitty color for a car, if you want a Sonata in pearly white, call any dealership, that’s all they have left).  J. Money from Budgets are Sexy stated advised that if I was going to buy a new car and go into debt to do it, I may as well get all the bells and whistle I want and not compromise.  I followed his advice, found myself a 2010 in the model I wanted, color I wanted, extras I wanted and then started haggling.  The next day, I bought the car.

Why I Went New (and why what was best for me broke the personal finance mold)

I really took to heart what Ramit said in his post a few years back.  I am paying for value.  Also, since this process sucked something big, I didn’t want to have to do it again two years from now if my tranny on my used car blew up.  For the following reasons I went new.

• Dollar for dollar this car is much more likely to last me 10+ years of driving.

• A new car is cheaper to maintain, especially under warranty.

• Time was of the essence.  2.5 months without a car and relying on my friends all summer made me expedite this process.  If I had six months to search for the “perfect used car”, maybe I would have purchased used.

• This is a big enough car that I can feel safe growing into it if my family were ever to expand beyond myself (ie, I won’t need to replace it because its not big enough for transporting kids).

• That smell really is something magical.

• I know everything about the history of my vehicle.  This will be important if I ever have to resell it.  I know where its been, whats been done to it and I don’t have to worry about  previous owners.

• I was also able to get decent financing.  Had to put 0 money down (which may not be advisable based on your situation) which allowed me to max out my Roth IRA for the rest of the year (something I was going to do in the next few months anyway) and invest more money in a marketplace that is likely to rebound huge in the next year or two.  This also allowed me to keep extra cash on hand in case of unexpected emergencies in a bad economy (if I bought used or put a big down payment on the car, that money would just *poof* gone).

To the Naysayers (I want to hear from you guys)

This may not have been a great financial decision for me.  I went $19,000 deeper into debt on a new car.  However, I don’t think this was a bad decision.  It was just a decision that was neither good nor bad.  Before you hit me upside the head too hard, it should be known my financial goals are still intact.  I am still able to save close to $1000 a month.  I still maxed out my Roth IRA for 2009.  I am still able to contribute 20% of my salary to my 401(K).  As for depreciation, I didn’t buy a Benz, I bought a Sonata.  It will depreciate a few thousand the first year, and I am not reselling it anyway.

So what now?  I want you guys to bring it in the comment section.  Give me your thoughts and perspectives.

An informative episode of the Personal Finance Hour this week has me thinking about credit scores.  There will be my recap of the most recent episode posted on the PFH’s website later on today/tomorrow but I wanted to share some information with the readers of this site that I thought would have value.

Credit score myths:

• Having too many accounts can negatively affect your credit score.  This is not the case because of how your credit score is calculated (see below).
• Checking your own credit score will lower your score.  This is not true.  However, if you have a friend at the local bank check your score, it is possible this will be seen by the credit bureaus as you “shopping for credit”.  This can be a red flag to creditors and drop your credit score.

How a credit score is calculated:

The specific calculation methods of your credit score is hidden in a multi-variate model by FICO.  However, we do know some of the major components.

• 35% of your credit score is based on your payment history.  If you have not missed any payments, you can expect this section to be in your favor.
• The next 30% is based on your credit utilization.  To figure out your credit utilization, take the amount of revolving debt you have (credit cards) and divide it by the credit limits of your cards.  That percentage is your credit utilization.  The smaller the number, the better.

How you can hurt your credit score:

• Missing a payment! Missing a payment is one of the worst things you can do to demolish your credit score.  Liz Weston stated that your score can drop as much as 100 points based on one missed payment.  If this isn’t enough of a reason to automate your bill payments process, I don’t know what is.
• Having a low credit utilization percentage.  If your cards are near maxed (even if you pay them off in full) makes the credit bureaus worry.  They will ding your credit score as they think you are starting to over extend yourself and that this behavior may become a pattern.  In reality, you may have just charged a couple of airline tickets for a trip 6 months from now that you have the money saved for.

How you can help your credit score:

• Paying your bills on time.  This shows responsibility and that creditors can rely on you to pay them on time.
• Pay off your installment loans.  Paying off installment loans may not help your score much initially, but the more that are paid off, the larger of an affect they have on your credit score.  Also, it will feel great to not have to worry about your car payments, mortgage, or student loans anymore.
• Get a secured Credit Card.  Using a secured credit card will give you the opportunity to show your reliability to creditors.  Eventually this card can evolve into a normal unsecured credit card.  As Weston put it, if you aren’t using credit, the credit bureaus can’t track your usage of credit and can’t affect positively affect your score when you are acting responsibly.

A saddening tale that Liz discussed on the show was a couple that had driven themselves into such financial damage, that they emptied all of their home equity and retirment accounts in an attempt to avoid bankruptcy.  Unfortunately, when all was said and done, this couple had to declare bankruptcy anyway and lost all of their equity and their retirment accounts in the process.  These things can be protected in bankruptcy court.  It is not advisable to declare bankruptcy, but if you are in that deep of a whole, it may be best to consult financial advisors to see if nuking your credit report is the best way to try and repair the damage you have already done.

This personal finance hour episode was very informative as it discussed something that affects every one of us.  Not everyone deals with debt, not anyone needs tips on retirement accounts, or high yield savings accounts, but everyone does have a credit score, and that score can impact your life drastically be it high or low.  Learning more about your credit score is the first step you can take to ensuring your credit is helping you and not hurting you.  For more information, I suggest listening to the Personal Finance Hour episode for this week by clicking here.

Statistics vary, but regardless of which source you look at, there is over 40% of working adults in the US that are living paycheck to paycheck (these numbers get up as high as 70%).  That is a lot of people that are one emergency or job loss away from being in financial disaster.  Now, if you are here on this blog, it means you want to do something about your financial situation, and you want tactical tips on how to improve your financial health.  I am not going to give you the standard “paycheck to paycheck” advice which is, “spend less than you earn”.  Even if true, the concept is tired, and not very actionable.  Below are some tips on how to maintain your lifestyle, but free up some cash that will help you build your savings, your emergency fund, or increase your debt repayments.

Avoid fees: We are surrounded by potential fees, fines, penalties that end up hurting our pocket book.  If you are going out, don’t use an ATM to get spare cash that charges you a fee (some of these can charge around $3.00 a transaction.  Ouch!)  Pay your bills on-time; don’t incur late fees by being lazy, or by hoping your bills will take care of themselves without you having to open them.  Pay your bills, it’s the responsible thing to do.  Don’t risk a parking ticket, even if you can’t find a spot near your destination; I am as guilty as can be about this.  I used to park wherever I wanted and hope that I didn’t have a surprise at the end of the night.  Most nights I didn’t, but that doesn’t mean I didn’t throw away $500 over the past couple of years by not walking an extra few blocks or taking 10 minutes to find an “actual” parking spot.

Get rid of subscriptions: There is a ton of free media out there for everyone to consume.  Do you need all of those magazine subscriptions when most of the articles or similar articles can be read online?  Do you really need that ESPN Insider subscription for $50 a year?  Do you watch enough movies on HBO, Showtime, etc. to warrant both your premium cable subscription AND Netflix?  Get rid of one of them and you will still have an endless supply of movies.

Find deals online: There are coupons or specials for nearly everything online.  One thing a friend turned me onto last year was Restaurant.com.  Here you can by $25 gift certificates for $10. There is usually fine print, like you need to spend $50 to use the gift certificate, but you can easily save $15 a date by using these deals.  Also, there is a promotion right now through UPromise where you can get $25 gift certificates for $2.  That is great savings if you don’t know what you would do if you didn’t eat out every night of the week.   For specific stores, type into Google the retailer name and the word “coupon”.

Transfer a balance: Take advantage of new credit cards’ specials and transfer your balances to avoid paying interest for a few months.  If you have a high balance and are high interest rate, transferring to a similar rate but with an introductory 0% APR for the first six months could save you hundreds of dollars and allow you the freedom to start savings or building an emergency fund.

Boost your income: Take a part time job.  Knowing how much I work, you can sense I am a big proponent of this.  However, this is the best way to get out of the paycheck to paycheck cycle.  If you are making more money and you don’t change your spending habits, you are going to have a surplus. Furthermore, when you are working more hours that means there are less hours to spend.  Sounds like a win-win, right?

Work from home: In today’s age of technology, this is a legit option for most people.  Working from home has several benefits.  You aren’t paying for transportation to get to and from work (I pay $9 a day in metro costs, that is sizable), and you are less likely to go out to eat for lunch.  This could save you close to $20 a day each time you work from home.   See if your employer has a telecommuting option.  Doing this one day a week can save you anywhere from $50-$100 a month.

Budget: Most people roll their eyes at budgeting, but this is an effective way to cut your spending and build up a solid financial system that works for you and hits all of your goals.  If you are thinking about doing this, I would suggest you take a look at my post about tracking your spending.  Trent at The Simple Dollar had a great post about his one month challenge that can be found here.  Trent’s idea really takes two months, but is a simple way at looking at where your money goes, and at altering your behavior.

I hope these ideas are helpful and provide you with some motivation to cut spending or to find ways to save money while spending that will leave you with a surplus of cash at the end of each month.  Getting started is the hardest part, but if we each work hard enough, anyone can get off of the paycheck to paycheck merry-go-round.

Today’s post is about the strategy I used to get myself out of credit card debt.  Eight months ago I had almost $10,000 of consumer debt.  I knew that January 1st was going to be when I had my personal financial revolution but getting to that date was beginning to become overwhelming.

I had a mountain of debt, and it was slowly breaking my back as well as my psyche.  Things were not going well.   At the time, I had two credit cards.  My Visa had a limit of $1,500 and my Amex had a limit of $15,000.  Surprisingly throughout 2008, Amex kept raising my limit without asking me (I started 2008 with a $4,000 limit).  The Visa had a 27.74% APR (yikes!) and the Amex had an APR of 17.24% (a post on lowering your APR will be coming in the near future).

Carrying debt can be an overwhelming burden

Now, there are always two methods that people suggest for paying off credit card debt.  The first is to pay off the highest interest rate card first.  This makes economic sense as it will end up costing you less in interest fees in the long run.  The other method a lot of people recommend is Dave Ramsey’s debt snowball.  This involves paying off the card with the least debt on it first, allowing you to feel like you are making progress towards your goal of being debt free.   He describes it as building momentum as you pay off your debt.   I really like Ramsey’s method as it involved setting goals, reaching milestones and achieving successes.

What was I doing 8 months ago?  Neither of these methods.   I had studied advanced economics and I wasn’t following simple economic theory.   I always try to use common sense when approaching a problem, and I wasn’t following the common sense method of Dave Ramsey.  Instead, I was playing mind games with the worst possible opponent, myself.  I was desperately trying to get that large amount of debt on my Amex down to help my psyche.  In order to do this, I was letting more debt add up on my visa (with its higher interest rate) and barely making progress on my Amex bill because it was so large.  I was in debt and being dumb about it.

So how do I find myself where I am today with paid off credit cards?  It was by combining the two methods discussed above.  I paid off my Visa quickly, reaching a milestone and stopping the accumulation of higher interest charges.  With only one card left to focus on, I threw every dollar I could at my Amex bill, eventually going from being in debt to having accumulated cash when I received my tax refund for the year.

While it turned out that I was combining the two aforementioned strategies, it was my singular intention to use Dave Ramsey’s debt snowball method.  I feel having several small milestones (paying off one card at a time) on the way toward a larger goal (getting out of consumer debt) is the best way to feel progress as you are trying to climb a mountain of debt.

If you had a similar story, or took a different approach to getting out of debt that you want to share, please comment or email me at bscheur@gmail.com.