I found a credit card that gives me a 0% APR on my balance transfer amount for life, as long as I make two charges a month on it (anything over $1)

Ummm. Does this mean that you have to buy at least two things each month and put it on the card? Then when you make a payment, it comes off the initial amount transfered (not the new purchases) and you pay interest on the new charges each month, which add up over time?

Otherwise, it seems like free money. There has to be a catch.

Yes, that's right. I'll have to be careful about charging $2 a month on it. I figure paying interest on $2 ($4, $6, etc) a month is still cheaper than my balance on any other card, unless I keep card-hopping to 0% intro APR rates every 6 months, which I don't want to do.

Their catch is for people to charge regularly on the card, and collect interest on those charges. I have another card that I will be using due to the rewards associated with it.

$35,000 can seem like a huge amount of debt but for that you have your education and vehicle and a start in life. Not bad. Your choices from here forward will drive what happens down the road. Sounds like you know the right choices.

Do be absolutely sure your loan interest rates cannot go up.

Knocking down that 10k in cc debt by 500 a month is impressive. You will be out from under that load in 20 months. It is critical that you not run up any more cc debt. Only you know if you have the discipline for that. (Kind of sneaky how they keep you from cutting up the card by mandating a couple purchases a month. Interesting tactic.) Otherwise the 0% is a great deal as long as there is nothing missing from the picture. Keep the card in the freezer, not in your wallet. Seriously. And schedule those two minimum purchases religiously on your calendar.

Debt is debt. Interest rates vary for each of your debts so a case can be made to knock them off in order of highest rates: car, then school loan, then card. But the card is symbolically the worst as it is past purchasing power (vs the car and education you use every day). And you run the risk of missing a purchase or payment and facing mercilessly higher rates. And the risk of more purchasing. Tough one.

Consider extracting another 50 or 100 from your paycheck drafted before you see it and squirrel that away. Put something, anything, of that into a Roth to get you started. At age 23 you have time on your side and for all that growth *never* to be taxed...Wow. Long term, that would be very, very smart. Adjust that automatic deduction with every raise and every debt elimination.

Your goal of a house may need to wait until your debt load is less and your income is higher. Not much to buy at 100K right now anyway, especially in parts of Florida. Depending on where you are, the housing market may head into a pricing correction, so waiting could be in your favor. No one knows for sure.

But you can position yourself and "testdrive" a house payment by combining your rent, CCpayment, car payment and this new seed money (the split into Roth vs house down payment is your call) into a figure. What you can stomache there is the limit of any mortgage debt payment you should take on.

Again you sound smart. Just keep paying down debt aggressively, start a Roth ASAP, and keep watching the housing market. Most important, don't increase your spending when money gets less tight - keep your spending the same and save the difference.

Good luck to you.

What are the possibilities that some of those interest rates may be increased without your later assent?

What happens if you don't buy two things monthly?

Do you lose the 0% bonus interest rate?

What would the interest rate become? If a regular credit card (probably) most likely somewhere in the neighbourhood of 15-18%. Not too great.

Make a chart on the door of the bathroom, inside a cupboard door, on a calendar, etc. of having made those *small* purchases monthly - and several days ahead of the billing date, just to be sure. So - should you become incapacitated for a month, make sure to send a completely dependable friend out to make those two purchases!

Speaking of disability/unforessen problems that sometimes crop up, I would feel more comforatble if I were you with some more money available to meet such emergencies without breathing hard/losing sleep (pulling out hair, maybe?). Maybe something like 3 - 6 mos. worth of income, depending some on how secure you judge your employment situation to be.

It is nice to have some options, and it looks to me as though you have things in pretty good order.

I agree with celtic moon, mostly.

Good wishes to you as you start out in life. Good idea to learn more about money and its uses, plus tax considerations, as you go along. Those hobbies pay well.

ole joyful

WOW, I'm very impressed with Celticmoon's information, read that for sure, in fact read it over and over, what great advice!

Kind of you to say, Realyn.

Been thinking more about your situation, Chi83. Joyful makes a very good point about having an emergency fund - I did not mention that. Makes it even more tough. Now there is that need, as well as debt, retirement and house funds all competing for your dollars.

I didn't have the numbers at hand on how huge time is as a variable in long term savings so I looked them up. At a 10% return (stock market average over many decades) say you can squeeze out $2000 and sock it away in a Roth retirement fund from age 25 to 35. Don't put another penny in. At 65 you have $556,000 to draw tax free. Nice. Or wait until you are 35 to start, and put up that same $2000 every year for *30 years* until you are 65. You will have only $329,000 to draw. I'm posting a blog link here with the predictable arguments that stocks may not earn that, it is easier to save later when you make more money, blah, blah, blah (blog, blog, blog?). The point is still worth taking.

It is all about compound interest and all about time. (Nice coincidence that you will be 25 when you unload that cc debt. Perfect for the example)

I remember I cashed out a small retirement account when I went back to school at age 25. Sure wish I'd left it there for the last 30 years.

The second thought I had for you is that you might invest in a means of track your spending very carefully. Like Quicken or Money or some other program. Information is power and knowing exactly where every dollar goes and exactly where you are in your long term plans provides you with the knowledge you need to make decisions along the way. It is also an eye opener to see spending patterns so clearly. And heartening to play with long term scenarios.

There is always a way to shave another dollar or two. Nothing wrong with driving an older car, biking instead of driving, or buying shirts at Goodwill. You have youth and believe me that is worth more than money. Make living below your income a habit and you will make out very, very well.

Again best of luck to you Chi83.

Here is a link that might be useful: saving now vs later numbers

Thanks everyone for the great advice. I really appreciate all the time and effort you put in researching and responding to my questions.

I just found out some news that complicates the situation a little bit. I was approved for the new credit card, but they only gave me a $5,000 limit. It's a little surprising since my current card is 4 times that amount, and I would think they would want me to transfer over as much as possible. I've never had a late payment on anything in my life but I guess that's not enough. I'm going to call them and see if I can get it raised. If I can't get it raised, I'll have to start paying interest on the remaining balance on my current card. I believe my interest rate is about 10%.

I was researching some Roth IRA's last night. I think I'm going to go with a mutual fund. I have time to be a little more risky...it may pay off. Can anyone recommend a good company to go with? I was looking at Fidelity. They require $200 a month. I think I could swing that if I discipline myself a little more. I'm expecting a promotion in the next few months and I should get a nice bump in pay, but you never really know.

I already drive a used car. I don't own a bike but work is only 3 miles away. Car insurance is killing me (even though I have a squeaky clean driving record) so I'm looking forward to the discount when I turn 25/26. I hardly ever buy clothes, as I have too many already.

By the way, I live in Boca Raton, FL. The real estate is horribly overpriced for most of south Florida. It hasn't gone down yet, but it has stabalized. The first wave of foreclosures are hitting, as all of these "creative" mortgages are proving to be too much for many people to handle. I'm going to save as much as I can. Hopefully I can make a move sometime in the future. I think my lofty ambitions are partly because I'm renting out a guest house in a multi-million dollar neighborhood so I'm surrounded by excess. :)

Thanks again for all your help and advice. I really appreciate it.

Chi83, too bad about the cc limit news. Seemed too good to be true. Could you maybe split the debt into that new card and the lowest interest other you can find?

For fund families, I was going to reccommend Vanguard, but they raised their IRA minimum to $3000 last November. (link below) Only remaining option with Vanguard now is their STAR fund. That is a balanced fund and possibly more conservative than you want long term. But the way the economy looks, being a bit conservative on stocks the next few years may not be so bad. The market has been stomache churning lately. Hate to see you lose money right off fully invested in a volatile stock market. Monthly deposits (dollar cost averaging) rather than a lump sum will protect you a bit. Early losses are not very reinforcing to saving.

Fidelity is also a very good fund family. Research and pick whatever index fund is broad and has the lowest fees.

For your emergency fund money, you can tuck that into CD's with rolling maturity dates. Lets you get at chunks of the money if needed as each comes up for renewal, but makes it hard to spend it impulsively like you could in a savings account. Rates are good too, nearing 5%.

If you can maintain your current spending once your cc debt are clear, you will have $6000 a year to split between your IRA snd your housing fund. Excellent! Future raises and losing the car and school loans eventually will allow for even more saving as well as ratcheting up your lifestyle. Allow yourself some fun (a bike?). You don't want to turn into a nutty miser. Money is a tool, not an end in itself.

Just get through the next couple years with discipline, and your future looks great.

Here is a link that might be useful: Vanguard IRA minimum change discussion

celtic moon's right on, again, from where I sit.

Your fund companies charge a much lower management fee than do our Canadian ones, but that chews up a major portion of your annual return.

I don't know whether you can put individual stocks into an IRA, but there are some of them that hold a variety of assets and are somewhat like a mutual fund. Of course, they have admin. costs, as well.

A guy who retired at 34 up here was writing about some U.S. stocks the other day and referred to one that had paid dividend annually since 1890, plus mentioned several that had increased dividend annually for 30 - 44 years.

My shares in a major Candian bank paid about a nickel or a dime 39 years ago when I bought them, several years ago 80 cents, then $1.00 - now are about $2.60/share.

Sorry that the 0% thing turned out to be less attractive than you anticipated.

Learning how money works is a great hobby, if it interest one - and pays well.

Good wishes for a bright future - I think you have a good start. Keep it up.

ole joyful

There is a lot of great information here. I have just a few thoughts to add if you don't mind.

First, if you don't have enough funds to open a Roth IRA with a mutual fund or brokerage house, start at a credit union. The key is to START saving for retirement NOW. Many CU's have lower minimums but they also have fewer investment options and potentially lower returns. Compare returns, minimums and CLOSEOUT fees that you will pay when you eventually roll your Roth to a mutual fund.

Also, a quirk that is unique to Roth IRA's - since you have already paid taxes on your contributions, you can take a distribution of your contributions at anytime with no penalities or taxes. Distributions from traditional IRA's don't allow this because any distribution is part growth, part earnings, and part contribution. With Roth IRA's your distributions come out contributions first and since you have already paid taxes on those contributions there are no taxes or penalities. So, you can "kill two birds with one stone", open a Roth, fund it to the max you can afford or can legally put into one, continue to do that until you are ready to buy a house in several years, take a distribution of part of your contributions to make a downpayment, and let the remaining contributions, growth and earnings continue to grow tax free until you retire. This also works as a way to fund a child's college education.

Now, I normally would NEVER suggest that you take money out of a retirement account of any type until you are ready for retirement, but this is a "creative" way to generate some tax free income IF you wait to take a distribution when you retire.

For those who don't believe me, the information on this is on page 60 of the link below.

Here is a link that might be useful: Pub 590 IRA's

You may already be aware of this, but watch that "0%" interest rate on your credit card very carefully. Many credit card companies will take any excuse to raise your rate, including your being late on any other bill. If anything shows up on your credit report at all, they'll take it as an excuse to crank up the rate. I'd hate to see you get caught out by a huge jump!

Thanks again everyone for your great advice.

I contacted my bank today (where my current card is) and I found out that my 0% APR ends next week. I asked what my interest rate would be (it was about 10% 2 months ago) and they said it was a whopping 17.99%. I almost died. I tried talking to managers, but they said they couldn't do anything since I was still in my 0%. They said to call back later this summer and see what they could do after they see my payment history. I told them I'm going to transfer my balance, thinking they would try to save my business, but all they said was that they didn't blame me. I asked how much my finance charges would be, and he said about $150 a month. Not acceptable! Not with the kind of competition out there today in the credit card market.

So I then contacted Discover to see if they could raise my limit. They have to re-pull my credit report. I don't like having all those inquiries, but I thought it was the best chance. I have a feeling they won't be able to do anything.

I guess I'm going to have to find another credit card with 0% interest. Here's to hoping that Discover pulls through for me.

Thanks.

Well, looks like that has made the decision for you--pay off the credit cards first, and aggressively.

I would also suggest looking into your 401(k). Even tho your company doesn't match (boo on them) it comes out before taxes, and you can make small deductions every month. So, for example, you can put in $10/pay. Doable, yes? And that costs you less than $10, because that money isn't taxed.

Another thing I like to do is to split the difference between Roth and regular IRAs. I don't trust the govt not to renege on their promise of not taxing roth accounts. And, I hate giving up the tax deduction. But what I do first, at tax time, is run the numbers w/o any deductions. Then see what my tax will be under various scenarios--$x into IRA, $2x into IRA, etc. Keeping in mind that the tax tables go in increments of $50--so if your AGI is $35,017, you can knock say $15 off your taxes by lowering your AGI to $34,999. This can be done by putting say $518 into an IRA.

But, that will have to wait until next year. My advice for right now is
1. Pay off those CC as fast as possible
2. Start contributing to your 401k--even a little is better than nothing. Time is on your side.
3. Put off an IRA until you've made a dent in your debt. That $200/month will earn 17.99% if you use it to pay off the cc, which is way more than you'll make in the stock mkt.
4. Start a rainy day fund. You could open an account w/ an online bank--I like ING Direct, but there are others--and have money automatically deposited from your paycheck, or transferred from your regular account. Choose a bank w/o minimums or fees. Start small, then increase the amount as you're able. It will add up. Eventually, you'll be able to use this money to fund IRA contributions so you don't have to avoid funds with initial minimums.
5. Educate yourself. Take magazines out of the library, or read their online versions. I've read Kiplinger's and Money for years, and am basically self-taught as far as finances. You'll learn about saving, investing, budgeting, and so on. By the time you have enough money to invest in the stock market, you'll be knowledgable enough to do it well.
6. Don't use the cc any more. Put them in the freezer, in a block of ice (i.e., a ziploc baggie). That way they're there in an emergency, but you have time to think about whether it really is an emergency. [Maybe you can skip the transmission job and walk to work for a couple months.] When you've gotten rid of the balances, you can start using them again, but only for as long as you pay off the whole balance every month. This is now easy to do online--you can even schedule what day you want the payment to post.

Good luck!

Last fall, I wanted an instant $5000 interest free loan to get my drive paved. I didn't want to pull money from investments.

I applied for a 0% interest (for one year) card, and when I received it, it had a credit limit of $500!

I called and asked why it was so low. They explained that it would increase as I used it and paid faithfully, blah, blah, blah. They also noticed that I had $5000 limit with 'another' citicard account. By contacting that company they were able to transfer the available credit to the 'new' account. The new account then advanced me the $5000, and I have it set up to make automatic payments (from checking) for $250 a month.

By the end of the year I will have enough additional ($2000) put aside to pay it off b4 the 0% expires, or I will find another silly credit card company to give me free money for 6 months or a year.

Additionally, no monthly purchase is required on the new account. That card is stashed 'somewhere' and won't be used ever again probably.

is transferring some 'credit available' an option for you as well maybe?

Sue

So, for example, you can put in $10/pay. Doable, yes? And that costs you less than $10, because that money isn't taxed.

Maybe I'm missing something here, but making that contribution should cost $10 before taxes, especially since the OP's company does not match. It does cost you less to contribute this way, though, because if you contributed after taxes, it would cost $13.33-$16.10, depending on your tax bracket (25%-38%).

Start a rainy day fund. You could open an account w/ an online bank--I like ING Direct, but there are others--and have money automatically deposited from your paycheck, or transferred from your regular account. Choose a bank w/o minimums or fees.

Or choose a credit union. Credit unions typically offer lower fees, lower minimums, and better interest rates. Many people are eligible to join a credit union based on who employs them; what they do for a living; where they live, work, or go to church; etc. In some cases, you can join a credit union if a close relative of yours is eligible to join that credit union. (For example, my parents and siblings could join my CU because I belong.) Might make being a small-time saver more worthwhile.

"Maybe I'm missing something here, but making that contribution should cost $10 before taxes, especially since the OP's company does not match. It does cost you less to contribute this way, though, because if you contributed after taxes, it would cost $13.33-$16.10, depending on your tax bracket (25%-38%)."

You're right--I said it backwards. Oops. :)

Well, all the above advice is fine and well, but here's my "outside the box" thoughts.

About an emergency fund: As long as you have some available credit, you already have emergency funds. Just put every penny you can on the 17% cards, an it is simultaneously like building an emergency fund and paying off debt. Just be sure you don't use it unless it really is a true emergency. Once you've got it paid down to zero or almost zero, then start a real emergency fund, that is, with an interest bearing savings account or money market (not a checking account - too accessible, and not enough interest to even keep up with inflation). Anyhow, that advice only applies if you have rock-solid self-discipline... and no offense, but if you ran up $10G's on plastic while in college... well, here's hoping you've grown up since then. If you don't have the discipline, then cut up the cards right now - you can still transfer the balance if you find a better offer.

What to pay off: If you can refinance the cc debt at zero again, and if there's no bait and switch this time, I'd next go for paying off the car. It would be your highest-interest debt, and paying extra principal on the loan might let you get to the point where you owe less on the car than it is worth - which is a great place to be in if you ever have a wreck and total the car. Owing more on the car than it is worth is a crummy place to be if you have a wreck or just need to trade it in on a different car.

As for the 401(k): I'd go for it, even without a company match. You'll still get the tax savings. You don't have to jump in with 20% or whatever, you can start with 3% and just increase it by 1% every six or twelve months until you reach 12% or 15%. By doing it gradually you won't notice the increase. Those 1% increments aren't hardly missed. If you get any raises over the years you should put at least half the raise into the 401k, that way you won't miss the money. By foregoing the 401k right now you are missing out on the power of compound interest: You have to save twice as much per month if you wait until age 30 than you would have to save if you started at age 20, to retire at 65 with the same amount of money. I know right now it seems like you need the money for more pressing issues than retirement, but when you're in your thrities those larger payments are a bummer, or if you're in your seventies eating dog food its a crying shame.

Anyhow, I don't mean to negate the above posts, but with financial advice, always remember that one size does not fit all.

Thanks again for all your advice. mfbenson, I wanted to respond to your post in particular. Thanks for the different perspective, but I do want to defend myself a little bit. I do have solid self-discipline. I had a few credit cards in college and I never got into debt. I paid them off every month. Then last year I had to unexpectedly move into an apartment. I had to pay $2,500 to move in, which drained my checking account. I would have been okay as I had no credit card debt, but shortly after moving, my cat who I've had for 11 years grew very sick. Long story short, I paid over $2,000 to save her life, which I had to put on my credit card due to the cost of moving. She ended up passing away anyway, and I adopted two new kitties. I didn't know at the time that they were also very sick from the shelter, so it was a couple thousand more to fix them all up. (I have numerous posts over at the Pet forum over the last few months about these cats). Anyway, at the end of it all, I had little money in my checking account and significant vet bills on my credit card. This was about 6 months ago, and I haven't been able to get ahead yet. Almost everything I purchased afterwards had to be put on my cards.

Anyway, I just wanted to clarify that it wasn't a bunch of shopping sprees that caused this debt. It started out innocently enough with trying to save a life, and just spiraled. I'm trying to remedy it now before it becomes too big of a problem. I actually think that running up these bills has caused me to "grow up" a lot more. I knew when my cat was sick that I was ruining my financial situation by these vet bills, but how do you tell your childhood friend that money is more important than trying to save her life? I think I learned a valuable life lesson.

Thanks again for all your advice.

Let me be sure I have your situation straight:

$15,000 in student loans, 2.8% rate.
$10,000 car loan, 5.6% rate.
$10,000 credit-card debt, 0% rate,
so long as you make tiny charges each month.

I'm not a financial advisor, so you shouldn't trust me--but here is what I'd do in your situation.

1) Make the minimum payment on all your debts.

2) Be sure you have enough of a cash reserve to tide you over in case you lose your job or something else bad happens.

3) If anything is left over, start the 401(k) and put in as much as they'll let you.

4) If anything is left after that, start a Roth IRA and put in as much as they'll let you.

5) If anything is left over after that, invest it. I have found a good source of investment advice in the website of Paul Merriman, a Seattle-area financial advisor. Basically, he advocates widely diversified no-load index funds with as low an expense ratio as you can find. Which for most people probably means Vanguard.

The reason to invest rather than paying off your debts is that your highest interest rate is 5.6%, and it is likely that a reasonable investment strategy will make a lot more than that over the years. For example, the Vanguard Value Index fund (VIVAX) made more than 21% in the year ending 9/30/06, and returned an average of 9.6% per year in the 10 years ending 9/30/06.

There are, of course, no guarantees--but there are also no guarantees you won't get hit by a truck tomorrow. However, if you're sensible about how you invest, the odds are that over the next decade or so (and you said you expect to have many earning years ahead), you will make more on your investments on average than the 5.6% rate on your highest loan.

I've learned a lot from reading Merriman's site. He is pretty clearly putting it out there as a way of attracting clients, but the advice on the site is free unless you decide to buy a copy of his book ($16 from amazon.com), and it makes a great deal of sense.

Here is a link that might be useful: Paul Merriman's website

I have some equity-based mutual funds, bought a number of years ago: some have a good growth record, but several don't.

About 40 years ago, when I practised as a liberal Protestant clergyperson, some of my parishioners wondered how come I subscribed to financial periodicals.

I told them that bread cost me the same price that it cost them, so learning how money works was important - perhaps especially so for me, as my annual income was quite likely lower than theirs.

Further, since I lived in a church-owned house, when I retired, became disabled, or fired ... I'd have to provide my own housing - and that at a higher price than it was at that time.

Personally, after over 20 years as a personal financial advisor, during the first year of which I sold mutual funds, but after that selling no financial products, I prefer to see people invest directly into stocks, when someone becomes knowledgeable about the markets, and has some asset base built up.

It has been my understanding that markets usually average more like 7 - 8% over the long term, and if U.S.-based fund managers charge 1.5%, that's about 20% of the growth.

A number of managers in Canada charge over 2% for basic equity-based funds, higher for some kinds: which is more like 25 - 30% of the average rate of growth.

It is my understanding that Merriman, referred to above, is primarily interested in mutual funds - is he involved in selling them?

There was a guy in this area that used to publish a book annually evaluating mutual funds, who doesn't any longer, I think, as he felt that there were more effective ways to fly.

Some advisors have a system of buying stocks based on the Dow-Jones Average (e.g. "Dogs of the Dow" - high dividend payers, at low stock price) which has, over many years, provided a better rate of return than most of the mutual fund managers have achieved.

I've not followed those results relative to the Dow - but a person who has evaluated a similar system based on the Toronto market has done better than 90% of fund managers, back-checked almost 30 years.

Which means that I can put the fund manager's fees (and the trailer fees that they pay to the fund sales people) into my own pocket.

Tonight I'm to attend a monthly meeting with about 20 other local subscribers to a major Canadian personal money management magazine, which carries no ads, so is totally subscriber driven. The local meeting has been in operation for over 10 years - I've been attending for about 6 or 7 years, I think. They approach money management from a variety of viewpoints: I've learned a lot there.

Plus the course that stockbrokers take (over 20 years ago) and six courses leading to Chartered Financial Planner (only passed 5).

Though they are a bit tough, would be useful for many individual investors, I think.

Every one of us has a part-time job: learning how to manage money.

Some do it much more effectively than others - and most of the others suffer for their ignorance/shortage of knowledge.

Good wishes for effective management of your money - think of all of the extra hours of work you'll have to put in to build a comparable lifestyle, if you don't. I dislike seeing folks flush $50. bills down the toilet, so to speak.

ole joyful

Merriman gives out advice on his website for free, in the hope of attracting clients. If you are his client (which I'm not), his fees range from 1% down to 0.25% per year depending on the size of your account. What he claims you get for that is access to mutual funds issued by Dimensional Fund Advisors (DFA), which he argues are enough better than any other index funds on the market to be worth paying his fees to get at them.

As far as I can tell, this claim is not entirely hype. DFA's expense ratios are very low, and they have funds that give access to asset classes that are difficult to obtain elsewhere (such as international micro cap). But they do not sell their funds directly to the public, so you have to go through an advisor who will charge you for the privilege.

If you don't want to pay for access to DFA funds, his website has lots of concrete information about his approach, and you can use that information as you like without paying him a penny.

That's what my wife and I have been doing, using mostly Vanguard index funds, though we have a couple of non-Vanguard funds for international small-cap because Vanguard's international small-cap fund is closed to new investors.

Merriman is very big on index funds because they don't underperform the market (by definition!). Indeed, Merrriman claims that index funds consistly outperform most actively managed funds in the same markets over the long term. He likes Vanguard and DFA because they both have very low expense ratios.

Just as a reference point, the equity portion of our fund portfolio returned 16.07% in the 12 months ending 9/30/06, including reinvested dividends (and after all fees). The S&P 500 returned 10.74%. Yes, I know this doesn't prove anything, but I think it's interesting anyway.