21 February 2014

February 20 and Financial Advice

As this week winds down, I am relaxing here at home. While the weather was warmer today, I will still be very glad to see the end of this winter! I try to focus on the good things that are happening to Hal and myself rather than spend too much time focusing on the weather, since we cannot control that anyway.

One area that I am very pleased with is my finances. I will have one of the big bills paid off before July of this year and that will be such a huge relief to me and my budget. The past 5+ years have been brutal at times for me as I struggled to make my monthly settlement payments to creditors. There were times when the choice literally come down to food or payments. I cut back on food in order to not fall behind on the payments. I swore to myself that I will never let that happen to me again!

Now I can look at my budget and see extra money that I instantly put into my savings every 2 weeks. As the balance increases, I am assured that when Hal and I move later this year that the expense will be manageable, even if I have to take on most of the cost myself and let Hal pay me back later. It has been many years since I felt the luxury of having money set aside for a particular purpose other than paying bills. I also have learned to resist the temptation to go out and spend extra money that I now have because I know that will just delay getting out from under the debt and probably incurring new debts that I don't need.

I cannot say with 100% certainty that I will never be in debt again, but I will do everything in my power to avoid things getting out of control as they did in the past. I am already planning which expenses need to be addressed in what priority as the summer finally arrives. My savings balance will grow even more quickly as I put the money that was going to service my debts into savings and keep building that balance up. As it grows, necessary expenses can then be covered using that money that is being specifically saved for that purpose, I have learned to live with less, and I will not forget that lesson in the future.

Friends have asked me how I managed to be on the verge of having massive debts paid off. The first discipline is to calculate how much one can pay each month on a debt in addition to whatever minimum payment has been set. As painful as it sounds, you need to pay approximately 3x the minimum amount due each month to really see a reduction in your debt. Not everyone can immediately manage that amount, but I was always able to find a way to at least double the minimum payment most months, if not every month. As I learned to live on less I was then able to increase those monthly payments.

A really important is to not let up when you begin to see progress. Once you have found the amount that you can pay, you should only increase it, never reduce it just because the balance is going down and the minimum goes down with it. This is a trick that credit card companies play on consumers to keep them in as much debt as possible. I recently read that a $6000 balance on a credit card that is supported by only the minimum monthly payments will actually cost you approximately $30,000 to pay off at that pace, and it will take many years to get there.

One method I used to determine a good amount to pay was to check each monthly statement and see how much the interest charge was. I ignored the minimum payment portion of the bill. If you can double or triple the amount of the interest that you pay each month, you will truly begin to see the balance begin to shrink. The key is to keep paying at that level as the interest charge finally begins to shrink as your balance decreases.

It also goes without saying that you should never use a card that you are paying down on except for an emergency when there is no other option available to you. This can happen due to car expenses, or even worse, an illness. Just try to avoid using the card except in those conditions.

If you have reached agreements with creditors through the courts, ALWAYS pay those monthly bills. Obviously you run the risk of big trouble if you fall behind there. The advantage of these payments is that you realistically should only pay the amount for the specified time. This at least gives you a set amount to budget for each month. In a way that does make it easier to maintain your process and also allows you to find the extra money for the credit cards.

I did not intend to get off on such a tangent, but I know how difficult this can be. If my advice helps even one person, then I am very happy to have written about it.