About My Credit Card Debt
If you’re a newer reader, you may have some concerns about my high levels of credit card debt. I’m actually borrowing money for free at 0% interest, putting it in high yield savings accounts that earn me 5% interest or more, and keeping the difference as profit. Along with other things, this helps me earn extra side income of thousands of dollars a year. Recently I put up a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the balances off, I choose not to.
Commentary
Retirement and Brokerage accounts. Last month’s update was right before the drop in the Fed Funds rate, which resulted in another big jump in our account values this time around. In addition, I made a large $10,000 contribution to my Self-Employed 401k at Fidelity.
I’m glad to get our retirement contributions back on track since we haven’t done very much in that department this year. I still have to figure out how much more I want contribute this year, as I do have a some flexibility with the account due to the ability to add profit-sharing contributions. Another thing on my mind is whether to contribute to a Non-deductible IRA this year.
Cash Savings. This actually didn’t go up as much, due to the big contribution to our 401k.
Quick summary. Our non-retirement funds went up slightly to $85,605, which puts us at almost 86% of our mid-term goal of $100,000 towards a house downpayment. Total net cash is at $79,707 (+$1,475 from last month). Take a look back at our previous net worth updates here.
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I thought I was a cash horder! 🙂 Are you saving up for a down payment also?
My idea was basically to focus on saving (and earning) as much as possible throughout this year, and then deciding on what to do with it afterwards:
A) Leave it in cash towards down payment / other startup costs for a new home
B) Save in retirement funds
I’m still not sure how to best balance between the two. Most likely I’ll max out the 401k at least, and then maybe put $4k in the non-deductible IRA. But for me “maxing out” the 401k is dependent on business profit/self-employment income.
Jonathan –
I was thinking it’d be great if we could track your credit score along with your monthly net worth. Maybe just a line item below the total. You could probably get freecreditreport.com or someone to sponsor it. And it would probably curb some some of the “Why don’t you pay off your credit cards” questions too.
I’m interested in where your score is/goes after you pay them off.
Thanks,
R
Wow, when I started reading this blog back in April, my net worth was $20k higher than yours. Now you’re beating ME by over $20k. I guess the fact that you’re earning a ton more than us (we’re earning $62k for a family of 3) helps =p I’m just wondering why it took so long for you to get the ball rolling on these ten-thousand-a-month net worth increases w/your high income!
Oops, I read your net worth wrong — I thought your assets line total was your net worth. I guess we’re about equal now … you just overtook me this month =/ Once we get our 2nd income stream back, I’ll have to see if I can play catch-up (not that this is a contest or anything)!
Ya……..Why so long?? Slacker!!!!!!! 😉
Well, at least I can revel in your mediocrity this month for “cash savings”. $1,143 is definitely a little more normal……….(though you kicked butt on retirement w/ that $10K lump).
Heck, forget the house……….shoot for an even Mil in the bank & scope a nice single-wide somewhere in the Sacto area………LOL!!!
Jonathan….Nice job to you. Like Mike, when I first started reading your blog THIS YEAR my net worth was more than yours. Now you’re way past me and not looking back. I guess that will happen since your household income is 3x mine.
Jonathan- Just curious, but since you moved, have you looked into your new state’s income tax laws? I’m not a big fan of giving the government a free loan, but I know in my state I have to pay additional estimated quarterly payments due to the extra interest and investment income to avoid paying penalties and interest.
I agree with Robert… Infact if you let us know by how many points you credit score dipped when you started credit card arbitrage … That would help too..
Mine dipped to 712 (from 738) when I applied form some new cards in March.. and the scores havent increased at all.. And I’m paying $14.95 to truecredit.com just to see the same freakin score month after month.
I would have loved to do some 0% Balance Transfers.. cept Im scared that my credit score will go down even further… especially when I require a student Loan next year..
love2ruminate-
738 down to 712 is nothing! 712 is an excellent credit score. I wouldn’t worry about that tiny drop at all.
Also, those credit monitoring companies are not worth it. Just space out your 3 free credit reports each year so you can check your credit report every 4 months to make sure there aren’t any errors. If you want to pay the small fee for the credit score at that time, at least it would be less than $14.95/month. It’s really not necessary to check your score every single month. It will usually always change by a little bit here and there depending on your revolving balances and credit lines and any inquiries.
Jonathan’s mentioned here before that if you have a WaMu credit card (formerly Providian) you get your score for free every month. Nice perk.
wow….so u guys are able to save about $15K AFTER taxes. thats just awesome. you can be millionaire’s in about 7 years.
Fun to watch your progress.
Great motivation for the rest of us.
I guess you noticed that Presidential Online dropped its savings rate to 4.90% & checking to 4.00% — decreases of 0.35 & .50% respectively. Still pretty good rates but does anyone know of better ones for now.
WAMU is still 5%
just curious, where did you get the $10000 to contribute to IRA, I don’t see any area has significate dropped. not at saving account, not at credit card loan portion. does mean you are making more than $10000 a month and you can save $10000 a month?
Hey- Wondering if you have ever graphed/tracked your monthly % change in assets over time. What is a “good” month? What does this average to annually, and how does this change over time? (Obviously harder to maintain a high % increase when you have a very large base). What are your thoughts on this?
Jonathan: I noticed that you said your mid-term goal of $100,000 will go towards your house downpayment. Will you have any cash reserve left after putting down? And what is going to be your price range for the new house?
Just curious…
It seems like most of the bloggers that post their net worth had a good month in September. Of all the blogs I read regularly, looks like you had the best month.
Jonathan: Not sure if they are related, but your mid-term goal is $100k and you have more than $100K in your cash savings and brokerage accounts. Should you revise your goal?
– I really don’t want to pay for a credit score, it’s such a huge ripoff. Everyone also has 3 credit scores from 3 different bureaus, and everyone has a different formula. If you don’t get it from FICO, it might be a good approximate, or it might be off by a bunch.
– Last time I checked, I am in the low 700s. Without any credit card debt, I am looking at mid to high 700s.
– It took us a long time to get started because we were either in school or in a training program. Now we finally both have full-time jobs.
– The 10,000 is technically pre-tax money, so you could treat it as $7,000 post-tax. There is definitely some play in there, which will be figured out at tax time.
– Our income has gyrated so much from month-to-month, and I’m also not sure about how good % change matters in the long-term picture. The main reason I use it is to approximate the market’s effects on my net worth vs. the effect of earnings.
– Derrick – I don’t know, to be honest. We are looking at everything from 2-bdrm condo to 3 bdrm detached houses.
– Thanks for all the support!
Jonathan,
I’m floating 30K based on your advice on this blog.
I have a question. do some credit cards NOT give you the cash (but rather, they absorb the balance from another card directly into their account, so that you can’t make use of this strategy?)
Sun – It’s actually $100k in net non-retirement assets. I can’t count the cash that is from 0% balance transfers, now can I? 🙂
curious – Some of them write you a check directly, others write you a check for your positive balance, and finally some just reject and return large overpayments. See which do what here.
I am surprise that you can actually make money from credit cards
Jonathan – Its great to see you moving into a new job and growing your net worth. Perhaps this would be a good time for another post or two on charitable giving and/or volunteerism as a way to get more personal satisfaction out of accumulated wealth. It would be great to see you pick a local non-profit in your community, for example, that you would donate a certain % of annual income and/or investment gains to and then to track their success and impact on the community. Just an idea.
PDXer, forget it dude. One man’s meat is another’s poison. If i dont donate to charity, that doesnt make me a bad guy at all.
I occassionally give money to the beggar on the street. I occassionally paint orphanage homes in other countries.
PDXer- Ironically, by contributing this blog, Jonathan has had a tremendous impact on the community. I am sure that you have some excellent ideas to contribute on the topic. Perhaps if you started your own blog on this topic, you could inspire people to volunteer or donate more through the example you set. It’s much more inspiring to hear about someone else’s life than it is to hear them tell you what to do with yours…
Mike –
+1
Great response!
PDXer – I think giving back is great, but it is also kind of personal. I like writing about new opportunities to give, like ModestNeeds.org and Kiva.org, but I don’t blog about every single charitable contribution I make, as I don’t really see it as a necessarily helpful topic and I don’t want to get preachy or anything. I figure people will give back what they feel is warranted.
I don’t set percentages, just as I don’t budget anything else that strictly, but I have already given more in the last few months since moving that I did all of last year. There are all to very local organizations, so I can’t tell you which one without giving up my privacy 🙂
jonathan,
definately dont use that $100k as a downpayment on a house unless you are planning on buying a $500k-$1M home and it is required to put down that much. only put down as much as you need so that you can get near the lowest 30year rate at the time. you may only have to put down 10% of the purchase price, which could be 20-40k. mortgages are about the cheapest long term loans available so why not take advantage and invest the rest of your cash into something that will yield much higher returns- a business, income real estate, stocks, even put more into retirement accounts. if you get to deduct it, i look at it as an automatic 25% savings/gain over putting it elsewhere that isnt deductible. just my opinion…
I have to ask, do you include income from your blog in your Net Worth Update savings? All forms of income or just from your job? Thanks and great blog! I read almost daily.
Jonathan,
Shouldn’t the net worth be inflation adjusted ? With the Feds cuting .5% and the value of $$ going down as compared to other currencies, OUR net worth has actually gone down !
How does one calculate the “Net Worth” in a not $$ value? Something maybe of discussion.
Jonathan, how do you calculate your non-retirement fund? cash saving – credit card + brokerage account + ??
The number seems doesn’t add up to me.
wow – you guys are hostile. I gave him a congrats and then asked to hear about his giving. Then some guy named after a banana accuses me of calling him a bad guy, and Mike claims I’m telling him what to do with his life. i know he gives, b/c i’ve seen the other posts – just wanted to hear what his thoughts were after getting a new job etc. what a joke.
fitzpa – Net worth includes all personal income, including the portion from this blog, and the offers I partake in the blog. Lots of different sources.
Mobile – I’m not that anal about it. Inflation is always a concern, but it’s also very hard to quantify.
crazor – Non-retirement = cash + brokerage + 529 – credit cards. Leave out IRAs and 401ks.
PDXer – Thanks for reminding me to check on my Kiva loans, they are 40% repaid right now 🙂 I actually tried to volunteer over at the hostel in Portland a couple of years ago, but they never got back to me.
Jonathan,
Just curious… how did you get so much money into your Roth IRA? As I understand it is limited to $4000 per year (age 49 and below)
So you didn’t suggest he give a percentage of his new money to charity then? I stand corrected.
John – Good Question !
Jonathan – Isn’t the Roth IRA contribution cut off @ 160K AGI for 2007? and as u mentioned that you “both” are now earning 6 figures, you won’t be able to make contribution to Roth. Right ??
Re: Large Roth balances:
401k to Rollover IRA, then converted to Roth IRA while income was under limits last year. Also, values are for both of us.
This year, no more Roth.
i want to set up a free account!!!
If I made up my net worth grid would I put equity in my home as an asset and existing mortgage as a liability? If so it would be pretty yough to be in the black especially living outside Boston.