Frugal Fridays: Economic Stimulus

Welcome to Frugal Fridays where we share money saving tips, discuss living frugally and generally talk about personal finance issues.  I heard a few unrelated news stories this week, and they made a connection when I started thinking about these economic stimulus checks that the government will soon be issuing.   Thoughts about how we approach debt and spending, how we should approach them started percolating around in my brain, and they are just going to come out here today, I can tell.  If you are interested in a meandering discussion of debt, savings, spending and charity in our society keep reading.  If you don't care about any of that, but just want some straight information about when these checks are coming and how much you can expect to receive, follow me below the jump, but skip to the end.

In the end, the most important thing to remember is that it's your money.  Don't let anyone else, including me, dictate what you do with it.  It's good to listen to different sources of advice and see different approaches, but it's your decision ultimately.

It all started when I heard as story on the radio explaining that what typically happens with economic stimulus packages is that most people use these windfalls to pay off existing debts, such as credit cards.  That's not the surprising point.  I would expect that because most people are struggling right now, they aren't going to take the money and go blow it.  The surprising part was that a few months after the checks go out, consumer spending goes up.  It's almost as though people are comfortable with a certain level of credit card debt.  If they pay down their balance far enough, they have no compunction about buying things on credit and running up a balance again.  As someone who thinks that credit card debt is something to always be avoided, I found this attitude distressing but then, before I got too deep wallowing in my own sense of smug superiority, I realized that in a sense I'm not so different.  I'm not comfortable with any credit card debt, but I am comfortable with a mortgage.  I feel no need to pay it down any faster than I have to.  A few years ago, when our house had drastically increased in value, we even felt comfortable refinancing and taking more money out to invest in other instruments.  Not to mention the fact that in order for this influx to successfully stimulate the economy (which will help all of us raise our standard of living) it needs to be spent on something that will generate new jobs.

So who am I to condemn those who carry credit card debt?  Shouldn't we let he among us who is neither a borrower nor a lender cast the first stone and people like me should just shut up?  No, I don't think so.  (Oh, like I'm ever going to shut up.  Be serious.)  Just because the issue of debt is not black and white doesn't meant that some shades of gray aren't significantly darker than others.  Although simplistic slogans like "just say no to debt" are not really helpful, there are some parameters you can evaluate when determining whether a given debt is one that is wise for you to take on.

Secured vs. Unsecured  
In general, I think it's a bad idea to borrow money to buy something that does not retain a value greater than or equal to your loan balance.  This would include things like consumables (meals, entertainment, travel) and also include hard goods that depreciate in value quickly (clothes, CDs, most electronics and furniture).  While real estate is the classic example of a purchase worthy of securing a loan, recent events have illustrated that that is not always a good choice.  Real estate is not guaranteed to hold its value in today's market.  

The one exception I might make to this rule is educational loans.  It may be wise to borrow money to pay for school, but only if that degree can reasonably be used to help you pay off those loans in the future.  If you are going to borrow tens of thousands of dollars to get a degree, try to be sure that you are not going to be spending much of your adult life working at a low paying job, or worse yet a job that you hate, to pay that off.  

Interest Rate and Fees
Look carefully at the interest rate you are being charged before you agree to any debt.  Consumer lending agencies, such as department stores, credit cards, and car dealerships,  often go to extreme lengths to distract you with other numbers such as the monthly payment or the payment-free term.  Don't let them bamfoozle you and ferret out the annual percentage rate you will pay before you sign.  Then be aware that after you have signed up, they can often change that rate to something higher, so be sure to monitor your statements and notice if anything changes.  Right now, I'd say if you can borrow money at less than 6% APR, that would be a great rate and less than 9% APR would probably be acceptable.  If you are being offered anything higher than this, shop around, you can probably do better.

Debt to Income Ratio
No matter how great an interest rate, you shouldn't take on more debt than you can comfortably repay in a fixed amount of time.  I've read that "experts" suggest your debt payments should be less than 36% of your gross income, but that seems pretty high to me.  I would aim for much lower than that.  Keep in mind that the term of your loan will vastly affect this number.  You might be more comfortable increasing your payment in order to reduce the term of your loan.  In fact, this would be a really good decision to make for high interest debt.  You want to pay that off as soon as possible.

This beings up another reason I am so leery of credit card debt.  Since the balance is constantly in flux, it's sometimes hard to tell how long it will take you to pay off the balance at your current payment rate and so it blurs the line between "paying down debt" and "taking on new expenses".

The Best Option For Your Stimulus Check
One last point I wanted to make before I go into the details of when and how much you will receive. There was another article that caught my attention this week: Money can buy happiness — if you give it away.  It turns out that according to new scientific research, spending money on others usually brings individuals more happiness than spending it on yourself.  So taking that check from the government and giving it to a charity (preferably one that will go out and spend it immediately) may be the best option of all.  Best for yourself, best for the economy and best for society.

Blah, Blah, Blah, I don't care.  Just tell me when I'll get my check and how big it will be!
First of all, to get an economic stimulus check you need to file a 2007 return.  If you don't file a 2007 return, but you do file one in 2008, you may get a check then, if you qualify.  Your qualification is based on your income in 2008.  Yes, it is only March, so how do they know what your income will be for the rest of this year?  Well, they don't, so if you file now, they use your 2007 income to determine the level of stimulus you will receive.  (For all of you who think that sounds dirty, please pull your minds out of the gutter, I am trying to have a serious discussion here!)  If, when you file in 2008, it turns out that you deserved more, you'll get an extra check then.  If it turns out you deserved less, you don't have to repay it, you get to keep the bonus.  The IRS has a simple calculator you can use to predict how much you will receive.  You need to have completed your 2007 tax return in order to use this calculator.

If you file your return by April 15, you will receive your check on a schedule that depends on the last 2 digits of your social security number.  If you are married filing jointly, it is the first social security number listed on your form that will be used.  If you use direct deposit, you will get your money much earlier than if you request a paper check.  Here are the schedules:

DIRECT DEPOSIT
If the last 2 digit of you SSN are 00 through 20, the deposit will be transmitted May 2
If the last 2 digit of you SSN are 21 through 75, the deposit will be transmitted May 9
If the last 2 digit of you SSN are 76 through 99, the deposit will be transmitted May 16

PAPER CHECK
If the last 2 digit of you SSN are 00 through 09, the check will be mailed May 16
If the last 2 digit of you SSN are 10 through 18, the check will be mailed May 23
If the last 2 digit of you SSN are 19 through 25, the check will be mailed May 30
If the last 2 digit of you SSN are 26 through 38, the check will be mailed June 6
If the last 2 digit of you SSN are 39 through 51, the check will be mailed June 13
If the last 2 digit of you SSN are 52 through 63, the check will be mailed June 20
If the last 2 digit of you SSN are 64 through 75, the check will be mailed June 27
If the last 2 digit of you SSN are 76 through 87, the check will be mailed July 4
If the last 2 digit of you SSN are 88 through 99, the check will be mailed July 11

Frugal Tip of the Week: If you are looking for software to help you track your expenses in real time, I've heard good things from other bloggers about mvelopes which will connect to your bank account and credit card and keep track of your spending daily.  If you are interested in trying them out, they have a 30 day free trial, but if you don't want to be charged, you must cancel before the 30 days is up.  There is a link from this blog that will let you sign up at a discounted rate.

I'm rerunning a slightly modified version of the poll I used the last time I did a diary on Bad Debt and Good Debt.