About My Credit Card Debt
Newer readers may be alarmed by my high levels of credit card debt. In short, I’m borrowing money for free and keeping it in safe investments while earning me interest. This help me earn some extra income of over $1,000 a year. Recently I put up a detailed series of posts on this 0% game. You can call it stickin’ to the Man, but I just call it profitable 😉
More Thoughts
Another solid month in the stock market led to almost a $2,000 increase in our retirement balances. In early October I shifted my portfolio around a bit by moving $10,000 into my Self-Employed 401k account. Although this has led to a decrease in my liquid non-retirement balances, our mid-term goal still remains to have enough cash to fund a downpayment on a house sometime in late 2007.
I’ve also decided that these net worth numbers are not incredibly accurate, as I’ve tried to account for income taxes as I go, but by this point in the year I know I’m probably off by a good amount. I have to estimate due to self-employment payroll taxes and also because I’m underwitholding taxes on purpose. It’ll all reconcile in early 2007.
I already confessed about my money worries a few days ago. Hmm… not much else? I should start learning more about house-buying again.
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If one owns a home or more than one property, these also would be listed under assets and liabilities. Now, how about life insurance? I thought I read an article that actually included life insurance as net worth. Would this be accurate? Why/why not?
Overall, the calculation of net worth comes down to a lot of personal preferences.
Some people put the estimated value of their house in asset, and the mortgage balance under liabilites. Others just put the principal paid off under assets.
For whole life insurance, there is a cash value I believe that you can include as asset. There may be various fees if you actually want to cash out though.
For term life insurance, I don’t think I’d put anything down in either column. I mean, normally you don’t put down the value of your health insurance or car insurance right?
Agreed. It comes down to preferences. According to financial accounting, property should be recorded at cost (what you paid for it) not at current market value.
I hate that. I’d put my house in the asset line for the current market value and then again what I owe on it in the liabilities line. The difference (hopefully positive) is the profit and that jumps right dont to net worth.
I wouldnt put any kind of life insurance put that’s just my preference again.
Jonathan,
Would you care to elaborate on how you pull cash out at 0%? Do you pull out $ from one and transfer to another?
You have money worries??? you gotta be kidding me! You have about $110k; and, if i’m correct, you are gettting a degree very soon where you will be making that annually? (i making a huge assumptions…. starting mba’s get between 75-100k, depending on location, demand, sign-on bonuses, and probably school.)
What’s striking to me? Your cedit cards’ balance is sadly some people’s real debt. (real debt= does not apply to you 🙂 And, when these people are in that situation, they hardly have enough savings in IRA’s and 401k’s.
Actually Jonathan, disregard my last comment. I saw your posts explaining how to do this.
I have a followup comment – when you do a balance transfer does the CC company _always send you a check_ or do they normally contact the other creditor directly?
If they always send you a check, I can see how it’s easy to just deposit it into an ING savings or something like that. If they contact the other card directly then that’s not the case (I guess?)
If you are looking for a house, why are you putting so much into your IRA and 401K? Don’t you want to make a large down payment on a house to decrease your payments/interest in the future? As it stands, you can only make a down payment of about $35K – everything else it tied up until you are 60 years old.
SavingEverything – I didn’t expect any pity 😉
Jimmy – Oops, linked to the wrong post up there. Fixed it. If you would check out this page, the majority of your questions are answered in there. I spent a lot of time making it, so please check it out 🙂
Eric – That is a perfectly good question, I think I’ve answered it in the comments somewhere. Instead of retyping, I’ll make a post about it later.
Hey Jonathan – I forget are you maxing out both your Roth IRAs? It seems with the future income looking brighter it makes more sense to max those out now vs the solo 401(k) if you had to choose.
Eric,
Monies in an IRA (and maybe a 401(k)?) can be used for a first time home buyer (up to a certain $ limit) with no early withdrawl penalty – only regular income tax.
AFAIK – the law says as long as you’ve had no interest in a property for two years this is considered a new home purchase and you can do it again.
Lots of info here
Yep, this year I did very early in 2006. That’s part of why I am maxing out my tax-deferred stuff this year. Next year we may very likely not be allowed to contribute to Roth IRAs at all.
You can take loans from your 401k to buy a house and then pay that back over time. This can be bad if you take your loan during a bull market but can also be good if the market tanks after your loan and you end up buying back the same equities at lower prices! When I worked for a large automaker, I took out a 20k loan in my 401k in 2000. The stock was around 32 / share. I dollar-cost averaged monthly (paying back the loan little by little) as the stock went down to 6 bucks. So in effect, I shorted the stock and make a boatload on the loan by averaging down with each month’s repay.
To keep it simple – I sold the stock in the 401k for the loan at 32.
Bought it back over the next 6 years at a dollar-cost average of about 12.
So now instead of having 625 shares worth 8 bucks (current price) I now have 1600 shares worth 8 bucks!
Sometimes a 401k loan can really pay off. This market is so high I would highly consider one if you can pay it back over a 5 year span.
Have you looked at the implications of your 0% crediit card scheme on your credit score? Two potentially detrimental factors are that
you are close to maxed out on some cards (it is preferred to be below 50% of your max, 20% optimally),
plus you might also have a large percentage of your total available credit (summed across all cards) used up, which may weigh even heavier on your credit score.
Also, I don’t know when this becomes an issue, but I think one may have too many credit cards and that have an affect on the credit scroe as well. Other than that I love your scheme and am trying it out myself. If you can address the points I made, I would appreciate it as it will affect how much money I end up using after my balance transfer.
Thanks,
Wojtek
My credit is fine 🙂 I’ve been doing this for a few years, and these questions pop up every month. (Which is why I address it in the very first paragraph of every monthly update for newer readers, for you older readers)
Please please first see this HowTo post and the Frequently Asked Question parts for the answers to all your questions on 0% balance transfers. It will contain 99% of your questions. Promise 😀
Not sure whether you know, but even if you make so much money that Roth IRA contributions are not allowed, you still can contribute in a nondeductible IRA and then convert to ROTH IRA in 2010 when this income limitation no longer applies.
Jon,
After reading over all your articles on the 0% money-making idea – and consulting my CPA – I applied for that Citibank card. They didn’t even ask me how much I’d like to balance transfer they just assigned me a limit.
Can I call them and request a higher limit? Or a higher amount for balance transfer?
Adi – Yes, that is a very cool new development, as it effectively removes the income cap for Roth IRAs in 2010. Let’s hope they don’t change the law before then, though.
Jimmy – You can call and ask them, but I don’t know if they’ll give it to you. Tell them it’s because you have a large balance to transfer and that may help. Alternatively, if you have other Citibank cards, you can reallocate your credit limits toward your new card. Good luck!
i just thought of something, can you all imagine if this was onlyn Jonathan’s networth, not including his wife’s?!? i think this is just his. I wonder if Jimmy’s CPA (or CPA’s significant other) is gonna do the 0%BT stuff, too?
I think you are way low in your estimate of how much you need. It isn’t net worth that matters. It’s cash flow. Let’s say you and your wifes combined peak earnings are $300,000 in todays dollars. Now lets balkpark that after taxes and savings you have $175,000 to spend and that you adopt an appropriate life style to this income. Most financial experts will tell you you need a equivalent income in retirement to when your working. So you will need enough income producing assets to provide $175,00 a year. Subtract whatever income you want for pensions and SS, the remainder is the income in constant dollars you will need
to retire. Setup an excel spreadsheet that takes into account, inflation, expected return on investment, life expectancy after projected retirement age, taxes on income and taxes on withdrawals from conventional deferred accounts. If you solve for required income producing assets I’m willing to bet the required amount will turn out to be between 3 and 4 million.