Category Archives: Debt Elimination

Debt Elimination

I Did Something Crazy…

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Finance Financial Paid Account Payment Money Pay

Getting out of debt is hard, but it’s doable… I know this because I’ve done it now several times over.

The first time I got in over my head, I took out a loan to pay it off, and then I buckled down and paid the loan off. It took me two years.

The second time, with a lot more debt, I did the same. Three years later, I was again debt-free. So, of course, I turned right around and dug myself another hole, not quite as deep… but, still… I spent a year-and-a-half paying it down for a third time, without any loans – just old-fashioned stubbornness.

So then, just for good measure (or out of sheer stupidity), I did all of that one more time: dig a deep hole, panic, smarten up a little bit, pay it all down, and take years to do it…

And then…

Yup.

Did it again.

Dig. Panic. Pay. Swear to myself never to dig another hole.

So, I’ve pretty much mastered getting out of debt. I just have to train myself to stay out of it.

This time around (#5!!!!!), I bailed myself out all at once with a crazy idea. Are you ready for this?

I cashed out my Registered Retirement Savings Plan (RRSP).

I took a hit and lost a couple of grand for closing it out 15 years early, and I’ll be paying a lot more income tax for the 2017 tax year than I’d like.

But…

There wasn’t a lot in there and the gains sucked. I had stopped paying into it years ago upon discovering that the yearly tax savings didn’t do a lot to help the finances of a person like myself, living on minimum wage.

RRSPs are designed to be a tax haven for people who earn enough money annually that the savings at tax time make a bigger difference, and their plans earn waaaay more money because higher earners can sock more into them on a yearly basis. They have more money to invest, and they are entitled to feed a bigger percentage to an RRSP, as well.

RRSPs are also designed for those folks that expect to earn quite a bit less in retirement than they did during their working years.

When I learned this, I was disgusted with the idea of continuing to squirrel away several thousand of my hard-earned dollars annually for a really very crappy return. I could use that “extra” money to pay down debt, after all, right? So, I quit paying into it and my already-paid-in money sat there for decades, earning its really very crappy return.

Meanwhile, I continued to max out my credit cards and then pay them down… max ’em out and pay ’em down… over and over and over (and over and over), while also paying monstrously high interest fees. On a big ticket item like a couch or a washing machine, I likely paid the value of the brand-spanking new purchase three times over.

So I decided to take my early buy-out penalty and my kick in the teeth next tax time. I’m preparing for it. Since I had been spending about $500 a month toward debt, that $500 will now be split and be put away against that tax hit as well as my “Pre-Paid Living Account” (more on Pre-Paid Living in upcoming articles).

Will I stop using my credit cards, though? Weeellllll…..

I will not be carrying a balance. If I don’t have the cash in my checking account to pay for something, then I won’t be using a credit card to purchase it, but some things – important things – are set to “autopilot payment” through a credit card, and that works for me. The bill is automatically paid, I get a notice in my email, and then I go to my online banking site and pay the balance.

Now.

For realz, this time.

5th time is the charm. 😉

Debt Elimination, Money Challenges, Penny-Wise

Extreme Gaming…

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How little can you live on?

Me? Very little. This is what my monthly bills work out to:

Rent: $ 400.00
Groceries: 150.00
Vehicle Insurance: 95.00
Life Insurance: 15.00
Bank Fees: 15.00
Phone/Internet*: 100.00
Netflix*: 8.00
Automatic Savings: 50.00
Gas: 100.00
Money Challenge: 115.00
(Averaged)
Van Maintenance: 25.00
(Averaged)
_________
$ 1073.00

That’s it – bare bones.

So, that’s all well and good for me, assuming I bring in more than $1075 (or approximately $540 bi-weekly). Easy Peasy, right?

Yes. So long as I’m not in debt.

Which I am. Again.

(but “just a little bit”) LOL! Listen to me; trying to make excuses!

I assume, generally, that if I’m working full-time, even at minimum wage, that I can bring in an average $750 in take-home pay bi-weekly – or $1500 a month.

My debt is with 2 credit cards. 1 card has substantially more debt than the other; it also has a much higher interest rate.

According to The Rules of the Credit Card, I can’t use either of these cards – at all – until the debts are paid down. Then, I can only use them as a “money tool” – they can’t cost me money to use, they should save me money in some manner by using them, and/or, better yet, they should earn me money somehow.

All of my “extra” money – money earned that is not ear-marked for bare-bones expenses (stuff I can’t or won’t live without), will be thrown at that debt until I kill it.

So, if I take home, on average, $1500 monthly and my bare-bones expenses total $1075, my so-called “extra” money comes out to about $425. This is what I’m going to throw at my debt every month: $300 will go on the card with the lowest balance – because it will be paid off really quickly, and that will make me feel like I’m getting somewhere. It helps to feel like you’re winning when playing The Money Game, believe me.

Check out this screen shot:

CreditCardCalculatort-2015-

So I’m looking at 9-10 more months paying this debt down and then I’ll be moving on (again) to investing in Pre-paid Living. That is a whole ‘nother kind of Money Game!

***

P.S. That Credit Card Calculator is available to use for free HERE.

P.P.S. *I WILL NOT live without Netflix OR the Internet!

Debt Elimination

Rules of the Credit Card

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credit cards
Tread Carefully…

If you’re in debt with credit cards, it’s time to make some hard and fast rules that will not only help you pay that debt down faster, it will turn your credit cards into powerful tools that will not only save you money – they will be a part of your income streams eventually.

Hopefully, by now, you’ve worked out exactly how much you owe on each card, and have chosen one to be your initial focal point. This is the card you will get paid down first – you will throw all your extra money at this debt until it’s gone.

Rule #1

This is the cardinal rule: if you owe money on a card, you are not allowed to use that card. Until it’s paid down, it’s in limbo – it exists, and you may even have a usable balance available – but you aren’t going to use it.

Once it’s paid down, I’ll show you how to use it wisely, as a tool to save you time, expedite your regular bill payments, and begin to work for your financial future, instead of against it.

Rule #2

This is nearly as (probably just as) important as Rule #1: Never, ever, ever take a cash advance on a credit card.

Ever.

Seriously, never do this. The interest rate on a cash advance is astronomical, and never part of a low-interest promotion. Cash advances are treated differently than regular purchases on credit cards.

When you take a cash advance, you are loaning yourself money – but the card company gets the interest.

In the past, credit card companies would always apply your payment to the lowest interest-rated balance on the card. This, of course, keeps you in debt longer, and allows the card company to make a bigger profit, since your interest payments are higher.

In 2010, a law came into effect in the United States that disallows this practice by credit card companies. Now, except for the minimum payment due, your payment will go toward the balance on your card that carries the highest interest rate, which works in your favor, unless you pay only the minimum balance. That amount, regardless, will go toward the lowest interest rated balance.

I’m still trying to find trustworthy information about a similar Canadian law, as well as laws in other countries, but so far, it looks like Canadian credit card companies, at least, are still applying payments to lower rated balances first. For this reason, I’m relieved to be able to say that I have never once taken a cash advance against a credit card – I think the only worse thing to do than this might be borrowing money against a future paycheck at a check-cashing outlet. I’ve never done that either, thankfully.

Rule #3

Always pay more than the minimum balance due on a credit card statement every, single month.

Here’s something that should scare the crap out of you…

126 Years!!!!
126 Years!!!!

This is a cut-and-paste from one of my credit card bills – sort of an “FYI” showing up at the bottom of the statement.

126 years.

Seriously. I don’t owe a whole helluva lot on this card, either. The only reason I’m not terrified by that screenshot is that I already have a date attached to Balance Zero on this card, and it’s only a few months away.

You can’t be afraid of your bills. Follow these rules, and you’ll get your credit card debt corralled and soon tamed.

That’s when the Money Game gets really interesting!

Stay tuned…

***

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Debt Elimination, Penny-Wise, Prepaid Living

Live Below Your Means…

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Receipts SpikeLet’s say you’ve added up all your debts owing, and added up all your income and your take-home pay is actually not enough to cover all your debts as well as your basic needs and necessities.

It’s time to reassess your basic needs and necessities, here, folks. You are living beyond your means, and that’s likely the main reason you’re looking at all that debt right now. Never mind how you got in this situation, anyway – you’re here now. It’s time to get yourself out.

(this might hurt a little bit…)

These are your actual Basic Needs.

Shelter: You need a roof over your head. Does your income cover your rent or mortgage payment and insurance? If it does, does it comfortably cover the rent or mortgage payment and insurance? Do you even need insurance if you’re renting? I’ll show you how to decide that simply and easily.

Food: You have to eat. And, in my opinion, although there’s nothing wrong with trying to save money by slashing your food expenses, enough (without over-indulging) healthy food is a basic need. You shouldn’t have to try to survive on Ramen and hotdogs because you just can’t afford to eat better.

Clothing: We need to protect ourselves from the elements, but most of us don’t particularly want to wear layers of burlap and rags as a fashion statement. There are varied number of ways to slash your clothing budget and still manage to dress fashionably. That said, having a closet full of clothes you rarely (if ever) wear and continuing to purchase even more clothing is financially irresponsible. I’ll show you how to fix this habit.

Beyond Basic Needs, there are Necessities. These are things that you don’t necessarily need to survive, but that need to be purchased or maintained in order to fulfill your basic needs.

For example, transportation may be a necessity for you. In order to purchase your groceries, you need to get to a store. If you live around the corner from your favorite grocery outlet, you’re already set; but what if you don’t? How do you get to work?

Do you own a vehicle that your current budget can maintain payments on, buy insurance for, and keep it fueled, along with regular seasonal maintenance? If you have trouble with paying any of the bills associated with your vehicle, you need to consider a different, more affordable vehicle, or you need to consider getting rid of it and using public transportation or carpooling.

Another necessity may be your phone – and a lot of people are finding it more affordable to give up a home phone or landline and use a cell phone exclusively.

Internet? Is it a necessity? Maybe… do you require internet access at your home in order to support your Basic Needs? Maybe not? This is an area to mark for reduction in cost or, if you’re really stuck for cash flow, eliminate altogether (temporarily, I swear!). Most folks can access the internet for free at libraries, coffee shops, their place of work or the local mall. You may have to consider sacrificing your home internet connection when you’re first learning to dig your way out of debt – most especially if you have it entirely for entertainment purposes.

A future post will give you a snapshot of my own financial picture when in debt, along with the detailed, step-by-step plan to get me out. You’ll have the chance to play The Money Game along with me, and get yourself out of debt and into a way life that allows you to pay next year’s expenses now.

It’s called Prepaid Living. It will make you feel rich.

Debt Elimination, Penny-Wise, Prepaid Living

Budget Is a Bad Word…

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money31Nobody likes that word. Budgets hurt. They’re limiting. They make us feel poor.

They’re necessary.

If you’re in debt right now, the reason you are is that you didn’t write a budget BEFORE you started cranking up those credit card balances.

If you’re in debt, and don’t have a clue how to start getting out of that hole, CONSIDER THIS. It’s one of the steps I took to get out of debt.

If you’re newly out of debt, you need a budget to KEEP yourself out of debt. It’s not that you can never use a credit card again – you just have to change your mindset about what money and cards ARE to your budget.

They are not a way to have it now and pay for it later – that’s how you got into debt in the first place. Money and credit cards are TOOLS. They help you budget your income so you can get AHEAD.

Unless you want to be right back into debt hell again in short order, it’s time to change your spending habits. Follow these steps along with me, and before long, you will be pre-paying next year’s expenses with this year’s income, and you won’t feel deprived.

You’ll feel relieved.

Debt Elimination

Step 2: Get Your Stuff Together

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pastdue-billsSo you have those scary figures in front of you. Now it’s crunch time. You need to break it down into affordable monthly payments while at the same time, STOP USING CREDIT. Debt elimination is what 100% of your extra income is going to go to.

If you are in SERIOUS financial trouble, as in “I’m about to declare bankruptcy,” trouble, you need to do two things fast, BEFORE you begin bankruptcy procedures. First, look up and make an appointment with a financial advisor. Your bank may have people on staff who can help you.

If you can make an arrangement with your bank to pay off your debtors by giving you a fixed-term, equal payment, low-interest loan, you can simplify your debt elimination from the beginning. As long as you make that one payment on time each month, you could be debt-free and rebuilding your credit in as little as three years.

I know, three years is a long time; but if you don’t start now, it could be thousands of dollars worse and you’ll have slid even further backwards financially.

If your bank or a financial advisor is not available to you, it’s still possible to eliminate that debt on your own.

Call the billing departments of all your creditors: major credit cards, department store cards, utility companies, the landlord or your mortgage-holder if those payments are behind. Let them know that you are beginning to clean up your finances and you want to know if they are able to help you with a repayment plan.

This does two things for you. It lets your creditor know that you are taking responsibility for the balance you owe, immediately putting your account closer to being in good-standing. It also eases your burden, if the company is willing to work with you by either lowering your bill if it’s a recurring, billable service, forgiving a certain amount of the balance owing (yes, some companies WILL do this for you), and/or lowering the interest rate or waiving a monthly fee provided you continue to make a timely payment each month until you’re caught up.

Once you have struck all the deals you can strike, it’s time to get back to the calculator again. If you’ve had help from a financial advisor, he or she may have already done this with you. If not, here’s how:

Find out exactly how much money you have coming in on a monthly basis. Add up your NET take-home pay from any jobs you have. If you have a partner or spouse who is on board with you, you can amalgamate those figures. Don’t forget to add alimony payments, child-support, government rebates or any other regular income you are getting.

Next find out what this coming month’s MINIMUM payment due is for each of your creditors. Include rent or mortgage payments, insurance premiums, car payments, internet, cable, phone and cell phone bills.

Add all these payments up and hopefully, your income is higher than your out-going payments. If it isn’t, you have to bite the bullet and cancel some of this stuff out of your life. There is ALWAYS a cheaper option – just sometimes, that means giving it up. A future post will cover inexpensive and free trade-offs to replace expensive entertainment options.

What you’re aiming for with all these calculations, is an almost even board with hopefully a little extra income coming in than payments going out.

Here’s where you make a choice: pick ONE of those creditors. This creditor gets more than the minimum payment every month. I chose the creditor with the smallest balance, with the reasoning that the entire bill would get paid down faster and I would feel like I was seeing results sooner.

It worked, too!

So next month, you are going to pay just the agreed-upon minimum balances to all of your creditors except for one. That one gets all the extra money you have after paying your expenses.

Future posts will cover how to speed things up with two financial foundation blocks: earn more – spend less.

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Debt Elimination

Step 1: Knowing is Half the Battle…

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Canadian CoinsHow much do you owe? Most people in debt don’t really have an inkling. They bury their heads in the sand, sometimes not even opening their bills each month, so they never commit to getting out of that hole.

You have to open those bills – even just the most recent one; just to find out how deep you are. Answer the phone when a bill collector calls. If you dodge them long enough, your account goes REALLY bad. You may be written off as a deadbeat and your account will be sold to a collection agency and your credit rating goes straight into the toilet. If this has already happened to you, you STILL need to get that stuff paid down.

Once it’s paid down, your credit rating will slowly get cleaned up, but the longer you wait to deal with it, the crappier your credit will get.

Step one is scary. The alternative is worse. Speak to your creditors, open your bills; find out to the penny how much you owe. In dollars and cents.

Once you KNOW, you can take CONTROL of it all.

Go get your calculator.

Make a list of every one of your creditors, and the amount you owe them right beside the name.
Add that column of debts up.

Try not to faint.

Next is Step 2.

It all gets better from here.

***

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