Exactly 465 days from my first blog post here about how I was going to whip myself into shape and start paying off debts – I have completed my original goal. I have to admit that I haven’t given an update to the budget on purpose for quite some time (June 3rd, 2010 I believe was the last one) and at that time I had 82% paid off my consumer debt. The reason that I didn’t give an update was simply that I wanted to post one with a final update since I was so close!
I would like to now show you a screenshot I’m very proud of:
No, in case you’re thinking it.. I do not have any other credit cards 
What you’re seeing is the result of some very disciplined spending and a lot of hard work. I’m going to have a few extra drinks this weekend in Mill River to celebrate it this weekend! I don’t think I ever mentioned exactly how much money I was in debt, but it was a VERY large amount of money.
With this goal accomplished, I am now starting another goal. That goal is to set up an Emergency Fund. Obviously the pressure is off as I’m no longer paying interest on lines of credit or credit cards – but if something were to happen and I needed some money, I would be back in debt. To me that’s not a great idea. My plan is actually stolen from Gail’s book “Debt Free Forever”. I plan on saving up 6 months worth of my crucial “need to live” items – and I plan on having a checkbox system to accomplish this. For example: I need food during an emergency. I have proven that myself and Liz can live off of $200 worth of food a month (a lot less last month) – so I setup a list with 6 checkboxes. As I save up money (going to be putting it into a TFSA) – I will check off a box once I reach that plateau. So after I have $200 saved up, well I only have to do that 5 more times to cross the food box off the list. Now this may seem excessive, and I likely will stop perhaps at 4 months or even 3 – but the main idea is that it’s important to have an emergency fund setup that you can get money from fairly easily.
In the meantime, I plan on calling my bank and getting them to lower my credit limit on my line of credit to $2000 as well. If you recall I did this for my credit card where somehow my first (and only) credit card that I owned which started at a limit of $500 (student) had increased automatically to $16,000. I had them reduce that to $2000 a few months ago. The reasoning is two-fold. One, I don’t want to ever over the amount that I did ever again, and two – it helps the credit score if I ever did want to get a loan or something else of that nature. If you have a credit limit of $10,000 – when you apply for a loan, the see that 10,000 as money spent (even if you have no balance!).. reason being? Simple.. you could just as easily walk out of that loan application office and go get a cash advance for the full $10,000. I wonder if anyone has ever done that?
Unfortunately for me, I’m REALLY fighting the urge not to buy the iPad. I’ve already told you how much I love my iPhone and once I get some more free time on my hands I’d love to sit down and read some of the great magazines that I’ve downloaded and books in pdf format. Plus it’s REALLY cool Items like this don’t go on sale at all so I’d have to pony up the full $549 for the one I wanted.. *sigh*. Then of course there’s the fact that I bought this really kick ass computer at home which can run Mac software, Windows 7 and Windows XP all at the same time, but I only have one monitor! Time for an upgrade perhaps?? Maybe!! Buy.com has a great looking Samsung BX2440X LCD Monitor – 24″ – LED one on for $279.99 so I could get one of those eventually..
Ok ok, I have to stick to my guns.. if I want something, I’m going to have to save up for it.. end of story.
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I was checking on my credit rating/score and found out that having a high credit limit is not a bad thing as I thought it was. Turns out, what they look at moreso is how much credit you have available. If your credit card is always at your limit this negatively impacts your credit rating. One of my friends is a personal banking manager, one of her clients kept lowering her limit as she paid off her credit card, she had to tell her she was destroying her credit rating instead of making it better. They do a calculation of the ratio of credit available vs credit used. So if you have a $10,000 credit limit with $2,000 on the card, you are in better shape then if you had $2,000 credit limit with $1,000 used. That whole analysis is stupid in my mind, but that's what I discovered…
That is odd, I've been told by a banker that when they do the credit lookups, they basically consider the credit cards/loans at max value since at any time you can go in and get that money which is certainly a credit risk. I wonder what the truth is..
The truth is somewhere in-between. The lowering of your credit limits may improve your chances at obtaining good credit products from your bank, but it's known that it will adversely affect your credit rating. Perhaps since credit ratings are only calculated periodically, it would be advisable to keep your credit limits (and thus your credit rating) high as long as you don't need other credit products, and lower them at such point that you do need to apply for something different.
The best course of action is still to stay in good standing with all your creditors. If you really want to tweak your credit score, subscribe to a credit alert service and try to spot trends as your credit score changes over time. For example, my available credit ratio tends to be the healthiest around March each year, and my credit rating reflects this.