Borrowing against the end

I had a little trouble coming up with a suitable title for this entry.  “Borrowing against the future” didn’t make a lot of sense, as you’ll soon find out, so I went with the other ‘side’ for lack of a better term.  You’ll see why as I get further in.

I’ve been paying into a life insurance policy since about 1995.  At that time I’d been working with my last previous employer for about 2 years and for whatever reason they contracted with the company Mass Mutual and sent in a rep to talk to all the employees about life insurance.  Specifically about buying a whole life policy that would have the payments taken monthly out of our paychecks.  Certainly it seemed at the time a harmless venture, the policy wasn’t going to be used for at least 40 years (or more hopefully) and as long as I kept up the payments, I wouldn’t have to be concerned that there was going to be a lapse and I’d lose the policy entirely.  So I, like many of my co-workers, signed on.

Going ahead fifteen years, when the company got into financial straits, they decided to part ways with Mass Mutual and everyone that still had a policy got a letter in the mail saying that if they wanted to continue their relationship, the payments were no longer going to be deducted monthly from our pay, that we had to come to some sort of arrangement with MM to have the payments come from our personal checking accounts or some other method of payment.  So I went with a quarterly which wasn’t terribly inconvenient and continued paying into the policy religiously.  At some point, I apparently took a loan against the policy for about $800, but never paid it back.  Every quarter I’d get a statement in the mail, letting me know the current payment was being deducted from my checking account and on the back it informed me that a paltry sum was being added onto the loan I’d taken out many years ago.  The loan interest was merely 3.5% per year, so the interest was never very large on what remained.

Over the last ten years, I’ve been incurring credit card debt.  And like so many people I’ve been interested in getting out of that debt and have been attempting to use the ‘baby-steps’ method created by a guy named Dave Ramsey many years ago.  The only problem is, I haven’t been able to curb my spending enough to stop using the damned cards that caused the debt, and many of them have such crushing interest rates that the amount I’ve been plowing in for the last couple of years is always offset by the interest that is added on at the end of the month.  So (for example) if I pay the minimum on all cards and then the rest of the amount I’ve set aside on the one card with the largest interest rate, the interest on all the smaller cards adds up again and negates that balloon payment on the largest one.  I just don’t seem to get ahead.  If anything, for the last six months or so, I’ve been backtracking incrementally.  And when you’re in hock for 5 figures, that adds up over time.

So, getting back to the insurance policy, I hit on an idea.  Even though I’d started paying off the loan again, the amount of payments I’d made into the policy was fairly substantial.  Considering I’m currently paying about 5 times what I’d be paying in interest on a loan against my life insurance policy, it made sense to max out the loan possibility and pay off almost all of the credit card debt at once.  I’d end up with about $1800 on the lowest rate card, and I could have that paid off in about 2 1/2 months.  At that point, so as not to decimate my good credit score, I’d start cancelling the larger interest rate cards I have, and just keep the lower ones.  Then I could be paying the money I’d set aside for CC debt into the life insurance policy and make damn sure I didn’t get into hock again.

So that’s what I did.  It took about a week for Mass Mutual to send me a check, and another week for my credit union to clear it.  As of this morning, I’m going to be setting my plan into motion.  I just have to make sure not to get into any miscues in the meantime.  Fingers, toes and eyes crossed.

Tackling Debt

One of the main problems most people have these days is debt.  In that, I’m pretty much no different, though there have been times in my life when I was for the most part debt free.  Having been lax over the last 10 years, that’s no longer the case, and I’m in the process of doing something about it, since I have retirement coming more into view with every passing month of work and life.  I don’t have a lot in the way of assets, the way my wife and I have structured our ‘things that have great value’, by and large they’re not really in my name per se, so I don’t have full ownership of them.  We own a house (with a mortgage) and we lease our vehicle.  Consequently, we don’t ever have large bills to pay insofar as car repairs, since all the vehicles that we lease are brand new, only ever get to three years in age before they’re turned in, and are completely under warranty for all the time we’re driving them.  And its fully covered by our auto insurance policy.

Over the years I’ve made some really dumb decisions with money, and that’s contributed to the current hole that I’m in.  Too, I have several credit cards with sizable balances, and rather sneakily, the banks that own them have been inching up the interest rates little by little, making it harder and harder to pay them off in an easy manner.  Where at one time one of the lesser interest rates was around 11%, it’s now been jacked up to 13.25% and so on.  My worst interest rate card is about 26%, and I’d really like to cancel that one, except it carries a balance.  So while watching YouTube videos instead of doing things around the house, I stumbled upon a method that seems to have a pretty good following, as well as many success stories.

It’s called the Seven Baby Steps, and it seems to be pretty straightforward.  Now granted, the originator of this system posits that the best method to start with is saving $1000 for some sort of family emergency, but I’m forgoing that since I have sufficient funds already socked away that can be accessed if there was some sort of dire need for it.  The second step is what’s called the Debt Snowball approach.  Listing all of your debts that have interest rates, regardless of what those rates are, just list the debts from lowest to highest in terms of balances.  Start paying off the lowest amount first with as much as you can afford to throw at it, remembering to pay off the other debts with the minimum payment.  Once the first one is paid off, add the amount that you were putting towards that to the next one in line and keep going until your debts are paid off.  It doesn’t say anything about cancelling credit cards, since every one you cancel has an effect on your credit score.  So you need to be careful about that.

For the past several years I’ve been maintaining a database with my credit card debts so I can keep track of what the interest rates are, when they’re paid every month, balances, and so on.  I’ve steadily been able to put about $1000 towards the debt every month from what I make, but it hasn’t been doing very well because I’ve been torpedoing my efforts through spending on frivolous things, lending people money and so on.  Which just means I need to get a little medieval with my spending, with my saving and with my dedication towards getting out of debt, not adding to it!  I have to admit I’ve tried a similar sort of plan for the last year or so, trying to pay off the higher interest rated card first, the so-called Avalanche method, but it’s had only limited success.  Again, when I run low on my checking account balance, I tend to go to the credit cards, and generally the ones that have the larger interest rates also have the bigger credit lines.  So it can be a trap of sorts, when you borrow more than you can really afford, and are paying high interest as well as putting it out over time.  I can easily see how people get to the point where bankruptcy seems to be the only logical option.  Large financial institutions get forgiveness easily, your average borrower, not so much.

Either way, I’ll be revisiting this issue more in the months to come.