Ugly Numbers for Financial Health – MDTM Monthly Report for July 2016

As I got back to updating my blog here recently, I realized that I haven’t completed a monthly report since the end of 2015. So here is an overdue update on the current state of my massive debt and financial situation for July 2016.

This blog is more for me and what I need, rather than something that I want others to read. Wait, that didn’t sound right. Don’t get me wrong, I love the interaction that a blog can bring with readers, but the primary focus for me is to have something that helps hold me accountable. When I put my business “out there” on this blog, I am compelled to keep up with my stated goals and plans.

I defined the basic financial metrics that I will be tracking, but those may change over time.

With that said, on to the show…I mean, the numbers. Percent change is from last month…

Total Non-Mortgage Debt: $129,055, -2% Grade: F

The current debt situation is still in the “massive” category. Despite efforts, we have not made any significant headway in cutting down our debt. We took out a large personal loan at the beginning of the year that allowed us to consolidate credit card debt…BUT…we then ran up balances on credit cards that we had just paid off. That’s a huge setback.

We need to fix our habits that created the debt in the first place. We made changes for exactly that this month…wife no longer uses credit cards and I only use 1 card that we pay off every month. The wife also gets a new debit card with a set weekly limit in the account. Time will tell, but it feels better already.

Credit Card Debt: $79,892, -0.5% Grade: F

If I were to try and focus on the positive here, I would say that we hit $80,000 in credit card debt last month but we reversed the trend and brought it down this month. Any trend reversal here seems like reason enough to throw a party…but I can’t afford one. If this goes down again next month, then I know I’m heading in the right direction.

This is where our high interest debt lies and is the place I’m attacking first. Highest debt first and working on down, the debt avalanche method.

Net Worth: -$255,825, +1.6% Grade: F

The net worth is still well below zero. It’s so far below zero and has been there since I started tracking it, that I wonder why I bother tracking it at all. It only went up this month because of a calculation change (added additional asset that I forgot). Obviously, I need to reduce my debt and start acquiring some assets. I’ve never really thought about finances as acquiring assets, but who teaches that to you when you are growing up?

This might go down with a refinance of our house, but it depends on how much debt we are able to wipe out with that move. After that, the focus will be on building the asset portfolio with investment accounts (eg. Stocks, Lending Club) and real estate.

Debt-to-Income: 33.8%, down from 41.3% Grade: D
Credit Capacity: $39,608
Credit Used: 66.9%
Liquidity: 2.1

The debt-to-income is a good gauge for me to track while we have significant debt and will help moving forward as we look to add real estate assets, especially if we look to use leverage (aka mortgages). Income didn’t change but I was able to get rid of two minimum payments on credit cards by making large payments on them. So the reduction is artificial and will go back up next month when the minimum payments come back. I made the two large payments in order to get the balances below the credit limit on each credit card. I don’t know why or how we were allowed to exceed the credit limit, but I found that being over the limit is one of the red flags that bankers look for when checking your credit. So, back below the limit we go.

The credit capacity and credit used are metrics that affect the credit score. We want the capacity to go up and the credit used to go down, showing that we have the ability to use lots of credit but choose not to use it. Need to see some changes here.

Liquidity is a measure of cash or assets that can be converted into cash quickly as compared to monthly expenses. It’s basically how many months we can go on at our current expense level. Our current rate sucks and barely qualifies as “emergency” funds. I want to get this up over 3 months.

Change Over Time

With any efforts at improvement, we must track the metrics over a long time. This helps show us trends and smooths out the peaks and valleys of short-term tracking. With that said, these percentages are the changes in financial metrics from the beginning, November 2015…

• Total debt = 32.2% uggh!
• Credit card debt = -0.2%
• Net Worth = -10.3%
• Debt-to-Income = -22.8%
• Capacity = 18.0%
• Credit used = -5.5%
• Liquidity = 178.7%

Basically, I’ve treaded water since tracking started. The significant move was the debt consolidation loan, and I destroyed the positives from that. But then again, I wasn’t really tracking these things every month. It’s been sporadic tracking this year, at best. Need to change that and track continuously.

Goals for Next Month

Apply for a cash-out refinance on my home.

Initially, I was looking to get a Home Equity Line of Credit (HELOC) from the equity in our home, but we were turned down. Apparently we are a little too risky for banks, and I guess I don’t disagree.

Then I found another way to get the equity out of our home and put it to use, with the cash-out refi. We will lower our mortgage rate significantly and be able to pull out significant cash for debt payments.

The great benefit is that we purchased our house as a foreclosure, so there was equity built in when we bought it. Took me years to understand that and finally see it. Now I hope to take advantage of it.

Hopefully we qualify for a cash-out refi. We’ll see.

Drop me a comment and let me know what you think. Or join me on Twitter for more of my financial ramblings. Thanks for reading.

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