Monthly Archives: May 2013
The following is a guest post.
Life gets in the way some times with unexpected expenses or a job loss, and often the result is the family budget being compromised. When these situations arise, and bills outpace income, it’s easy to incur a lot of personal debt. Even as income increases, and spending decreases, it can be difficult to get caught up and reduce household debt. Here are 4 ways you can pay down your personal debt and keep it under control.
Surf Credit Card Offers
Used properly, this can be a great way to pay down your credit card debt. Credit card companies want your business, especially if you pay your bills on time. In an effort to attract customers, many companies offer low introductory rates, often well far below the maximum annual percentage rate (APR) allowed by law. Typically, these rates last between 6 and 12 months, before jumping up significantly, often to the allowable state maximum. Over the years, savvy consumers have taken advantage of these offers and transferred balances off of one card onto a competing one with a lower interest rate. The most effective way to employ this tactic is to transfer that balance and then pay as much as you can on it each month. Remember, you’re still paying interest, just not as much. Also, credit card companies have tried to scare people into thinking that their credit score will be affected by doing this. Hokum. Recent activity accounts for only 10% of your score. However, if you surf too many times it will become apparent in your credit report, and you may simply be denied credit at some point, leaving you high and dry with a high APR. The key: pay it down and don’t charge anymore.
Find a better deal
Not only can you find a better deal on credit cards, you can also get better terms on your mortgage, phone service, cable TV service, and more. Start with the bank that’s carrying your mortgage. Find out if the current rate is lower than the rate you are paying now. Call other banks and lending institutions and see if they can offer a better deal. Call your phone service provider and see what special offers might be available, or what features you can eliminate and consider dropping your land-line. More and more people doing it, and it can save you upwards of $50.00 each month. Also, cut the cable. High-definition (HD) TV is available for free over the air. If you’re favorite shows are on a cable network, consider a cheaper alternative like Netflix, Hulu, or Amazon. You can also borrow DVDs from the library.
Get Another Job
An extra part-time job, even one that brings in just a few hundred dollars a month can make a sizeable dent in your debt. Many part-time jobs are flexible, so you can work hours that are convenient to your schedule. For greater flexibility, find odd jobs in your neighborhood. Cut grass, clean out gutters, or paint a deck. If you’re time is already at a premium, try selling things you don’t need any more. It’s a great way to de-clutter and raise extra cash. Anything you can do to increase your income will help you decrease debt. Most importantly, if you’re working and making money, you’re not spending money.
Draw up a budget
And stick to it. It’s very easy. Take your income and divide it into spending categories. Include a column for debt reduction. If you’ve never drawn up a budget, it might take a month or two to get some of the figures settled. Concurrent to putting your budget together, or in advance of doing so, keep track of everything you spend money on. This will give you a great idea of how much you’re spending on necessities like food, fuel, and utilities. It can also give you an idea of what frivolous purchase you’re making and where you can cut down on discretionary items like entertainment, clothes, and transportation. Cutting up your credit cards is helpful, especially if your debt is high. Often though, people want to keep one in case of an emergency. If you plan on doing that, stick it in the freezer, or someplace else that will make it difficult for you to gain easy access.
Barrett, Jennifer. “Credit Scores: What You Need to Know.” The New York Times. Web. 24 April 2013 http://topics.nytimes.com/your-money/credit/credit-scores/index.html
 “Five Steps to Reduce Your Credit Card Debt.” KMOV.com. Web. 22 May 2013 http://www.kmov.com/news/slideshows/Five-ways-to-reduce-credit-card-debt-126651883.html?gallery=y#/news/slideshows/Five-ways-to-reduce-credit-card-debt-126651883.html?gallery=y&img=3&c=y&c=y
 Barr, Tracy “How to Create a Monthly Budget.” Dummies.com. 22 May 2013. http://www.dummies.com/how-to/content/how-to-create-a-monthly-budget.html
I haven’t read much about how people manage their daily cash flow, and it’s hit me that this topic needs much deeper analysis. MUCH! Here’s what I am talking about: I know where most people fall in the large liquid savings account (or emergency fund) that sits around doing not too much discussion, some people like the safety net feeling and others abhor the idea of money that’s just sitting around and not working for you. But besides that, what do you do with your money each month? Because I am a newly minted member of the responsibility club and I am not used to having any “extra” money, I haven’t decided yet what is the best way to handle paying all of the normal but not monthly expenses of life. Option 1 is to continue as I have been doing, which is:
- Paying/budgeting for all of my regular bills in cash
- Throwing the rest towards debt (eventually that will get thrown at building assets)
- When expenses come up outside of that, pay them on my credit card until the statement comes, and
- Pay the bill in full.
I have a credit card and I am not paying any interest, which is cool, but there is also more potential for error and I might overspend and not be able to pay the bill in 30 days. So Option 2 is to create an operating capital fund (AKA my checking account):
- Before moving all extra money towards debt again, build up $1,500 to $2,000 in the operating capital fund
- This money is not for rent, bills, food and gas that have already been budgeted for, but other expenses that come up like that 6-month car insurance premium, registration fees, tuition for a class or training, or even a small vacation.
- When I take money out of my operating capital, put it back in within a month.
Companies need operating capital for day-to-day expenses like payroll, reimbursements, maintenance. We have the same kind of stuff as individuals, and it seems like a good way to manage your regular affairs without getting stressed out about the $129 you need to charge to your credit card for a new Macbook battery. All of a sudden, the battery seems frivolous because it wasn’t in your budget, even though you use your computer every freaking day.
It seems like a basic idea, but this is brand new to me. I am not used to having any money that is not accounted for, and the most I will leave in my account for “whatever spending” is $100 to $200. Operating capital of $200 is pretty low though, even for me.
So tell me: do you immediately allocate every dollar when you receive it or do you have a little operating capital to keep you in the black each month?
We’re approaching two years at American Debt Project. I told myself that two years would fly by, and yet I can’t believe that they have flown by! I can see the past year all in one condensed frame, and it’s amazing and scary. I am going to wake up one day and be 60. But I don’t mind at all, because I have seen some smoking hot older ladies these days, and I plan to be one. Pilates does a body good. Anyways, less than a year ago, I wrote the following sentence:
I just realized that at some point in the not too distant future, I will have a month where I am not accruing interest charges. Each month I am taking a step back of at least $200 in interest charges. This amount is decreasing, but I just realized how pleased I will be to look at all of my accounts and know I didn’t incur a single fee in a month.
Ladies and gentlemen, that day has come. I paid the last $0.06 of my student loan and I am now down to just one debt, at $5,708 on my 0% interest (until February 2014) Discover card. For the first time in many years, I am not shooting myself in the foot each month financially. I am not paying any interest to anyone! What a feeling!
Which made me realize that, even though I am so close to paying it all off, I now have the responsibility of being responsible. Here’s what I’m talking about: if I pay my car insurance premium up front for 6 months, I pay no additional fees. I can split it in two payments, and pay $20 extra, or do what I’ve been doing since I got car insurance, which is pay it monthly for an extra $10 per month, or $60 each 6-month period. But since my credit card debt has no interest, and my insurance would cost me $60 and is due next week, I’m paying the whole thing at once. I owe it to myself to not incur this $60 charge when I have incurred thousands in fees over the course of the past eight years. I’ll continue to pay everything else towards my debt, but that nice chunk that would have gone towards debt is going towards my car insurance premium to lower my costs. Even though I’d love to come on here tomorrow and announce my debt is well below $5,000, it will just have to wait.
Being responsible isn’t all that glamorous, but I’m feeling pretty good about approaching my money logically.
A lot of writing about money is being curious about money, business, wealth, what money can buy, what money cannot buy. What the characteristics of a man who makes a lot of money are, what the character of a man who makes a lot of money is. These topics have made some of the greatest novels of the 20th century. F. Scott Fitzgerald is one of my favorite authors, and he captured the ease and neuroses of being fabulously wealthy, the peculiar aspects of being born into wealth which then makes one entitled but is at the same time completely innocent of the “dirtiness” of working for one’s money. I like writing about money because money is taboo. The size of your friend’s bank account might make you uncomfortable and you would never ask someone what their salary is out of the blue (plenty of other cultures do, but Americans and many Western cultures generally don’t). Socioeconomic status is also taboo. Sometimes, certain NPR segments that cover topics on poverty just rub me the wrong way because even though it is supposed to be sympathetic, they strike me as completely insincere and are looking at poverty from the outside, as the “Other”. Ugh. Those segments are meant to be helpful, but this article does a good job explaining why we sometimes are looking at the whole thing ass-backwards.
A healthy dose of money curiosity goes a long way. It will make you want to focus on an aspect of your life that will, without a doubt, bring you the most ability to make good decisions and have the freedom of choice. You will understand that many people are motivated and fueled by money, but that it has been masked under a few different layers and it is not always obvious, not even to them. But when you understand money, are curious about it and get it good at making more of it, it really is true that money matters less, because you have already mastered it. Money curiosity means you are interested in the difficult questions money brings up and can accept the challenge of figuring them out. Or it could mean you like analyzing your spending, investments, and even your career, and can then make better choices because you considered the money, and didn’t nonchalantly act like it didn’t matter. You can understand business, government, society, even relationships and power dynamics when you are curious about money. It’s seriously fascinating stuff.
I like money curiosity. But I am also a money voyeur. This might not be as healthy. I want to know how much stuff costs, even when I have no intention of buying it (Valentino Rockstud heels: $1,075). I want to know how much you paid for your house and what the mortgage payment is on that, and if that’s affordable for you. It’s good to have a general idea of your peers’ salaries so that you are not getting shortchanged for similar work, but I also want to know all kinds of detail: how often do you get a raise? What kind of bump do you expect when you get promoted? Switch jobs? If you post your income or net worth online, I’ve probably read it. I used to read articles like this and think, Well at least I’m not the only one. And now I read them with a little self-congratulating and say, Hey, you’re actually a little better than average! I know I’m being a voyeur. It’s easy to do. I just try to balance it with a little more money curiosity and not get too wrapped up in the comparison and competition game, as TeacHer Finance so eloquently put it.
Are you money curious, a money voyeur or both?