Beating Broke

Personal Finance from the Broke Perspective

What to Do When You Have More Bills Than Income

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It can happen to the best of us—we have more bills than income.  Every person’s situation is unique.  Maybe you lost your job, or you had a medical emergency, or you just went through a divorce.  The situation doesn’t matter.  What matters is that you find yourself in a desperate position.  Rather than panicking or ignoring the problem, know that there are strategies to implement to get yourself out of this position.

More Bills Than Income

Steps to Take When You Have More Bills Than Income

The process of getting out of this situation isn’t quick, but finding your financial footing again can be done.

Write Down Your Financials

The first step is to take an honest account of where you are.  How much money do you have coming in?  How much debt do you have?  What are your monthly payments and bills?

Cut Ruthlessly

Now that you have your financials on paper, you need to cut ruthlessly.  What do you pay for monthly that you can slash from your budget?  Start first with subscriptions like DisneyPlus, Netflix, Amazon, etc.  You can get those services back once you no longer have more bills than income.

Next, look at categories you can’t eliminate but can reduce.  We all have to eat, but we don’t have to go to a restaurant to do so.  If you’re not already cooking all of your meals at home, now is the time to start.  Also, make a plan to shift the type of food that you’re eating so you can lower your grocery bill.  Now might be the time to eat some beans and rice and vegetarian soups.

Learn how to lower your electric bill.  Turn off appliances and devices that you’re not using at night.

Consider switching cell phone providers so you don’t have a high monthly cell phone bill.  You might want to move to a lower cost provider like Ting or Tello Mobile.

In short, cut or reduce everything you can.  Then, you’re on to the next step.

Prioritize Payments

More Bills than Income
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If there’s not enough money even after slashing your expenses, there’s not enough.  Once you write down your financials, list your bills in order of importance.  Think survival here.

Survival Expenses Should Always Be Paid First

Bills and expenses that you likely want to be sure you pay every month can include:

Food,

Clothing,

Utilities,

Housing,

Transportation

The most important goals right now are to feed and clothe yourself as well as keep the lights on (along with the heat or air conditioning) and maintain your house and car.  Without the latter two, keeping and getting yourself to work is very difficult.

Keep in mind, you’ll still want to be conservative in these categories.  You won’t be eating fancy meals and you won’t be buying designer clothes.  You’ll spend the minimum you need to get yourself fed and clothed.

Expenses to Pay with the Remaining Money

After you’ve done looking at your spending priorities, look at how much money you have left.  You may find that you have many more bills to go and only a little money left.  That’s okay.  You knew you were in this position, and now you’re writing it all out and making a plan.  This is empowering even if it feels terrifying.

Let’s say you have four debts remaining and you only have $250 leftover.  Spread that $250 between each of your remaining debts.  For instance, let’s say your four debts have these balances:

CC #1: $10,000

CC #2: $3,500

CC #3: $5,000

CC #4: $1,500

At this point, don’t pay attention to the minimum payment.  Instead, add up all the debt, in this case, $20,000, and figure out which percentage of debt each is.  For example, CC #1 represents 50% of the remaining debt, so you’ll give it 50% of your remaining money each month, $125.  CC #2 is 17.5% of your remaining debt, so it will get 17.5% of your remaining money–$43.75, and so on.

Negotiate Credit Card Rates

If you think your current financial situation is temporary, call your credit card company and ask them to reduce the amount of interest you’re paying.  By doing this, more of your monthly payment will go to principal, lowering the overall amount that you owe.  You’ll likely be successful with agents lowering your rate about 50% of the time.

Negotiate Monthly Payments

If you feel your financial situation may last longer than a few months, call your lenders and explain your situation.

Credit card companies have the power to reduce your monthly payment.  When you negotiate with them, they will ask you how much you can pay monthly.  Using the math that you did above, let them know exactly how much you can pay a month.  (You’ll tell credit card company #2 you can only pay $43.75 even if your monthly payment is $70.)  The credit card companies will likely lower your payment to what you can pay because you’re making a good faith effort to meet your obligations.

Remember to call your other lenders.  Your mortgage company may be able to work with you to reduce or temporarily suspend payments.  You can also apply for deferrals on your student loans.

The important advice is to call these companies early, before you fall significantly behind.  Call them while you still have good credit.

Find a Side Hustle

More Bills than Income
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Reducing expenses is important when you have more bills than income, but the flip side is just as important.  Can you start a side hustle as a way to make extra money and boost your income?  I started freelance writing 10 years ago when our youngest was a baby.  Now, my freelance work contributes 25% of our monthly income.  Imagine adding an extra 10 or 20 percent to your current income?  How would that money help you improve your financial situation?

Final Thoughts

If you’re in the unfortunate position of having more bills than income, know that you’re not alone.  There are steps you can take to improve your financial situation and help you survive this current financial difficulty.  Most importantly, remember that this situation is temporary.  Things will get better.

Read More

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How to Create a Zero-Based Budget in Excel

Why We’ve Decided Not to Throw Extra Money at Our Debt Now

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Going into debt is a bit like gaining weight.  It’s much easier to go into debt than to get out.  But, when you’ve finally decided you want to break the debt cycle and live debt free, it takes a lot of time and effort, much more effort than it took to go into debt.  Likewise, when you decide you want to be fit and healthy, you have to work much harder than you did to gain weight.  With either situation, when you decide you want to make a healthier change, you want it to happen.right.now!  That’s why so many people who want to be debt free decide to save only a $1,000 emergency fund and put the rest of their money on debt.  We’ve tried that before, but there are several reasons why we’ve decided not to throw extra money at our debt now.

Get Off the Debt Repayment Roller Coaster

Why We've Decided Not to Throw Our Extra Money at Debt Now
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With COVID-19, we’re living in unstable times.  But honestly, even before the virus, a $1,000 emergency fund was never enough.  My husband and I have been in debt most of our lives.

When we were first married, we had student loan debt, car loan debt, and credit card debt from our time in college.  We followed financial gurus who said have a $1,000 emergency fund and put the rest of the money on debt.

Some months, we had phenomenal success and paid down a significant amount of our debt.  But other months, because we were living so close to the edge with only a $1,000 emergency fund, we’d have the unexpected happen such as a $2,500 car repair.  Our emergency fund would be wiped out, plus we’d go back into debt to finish paying for the unexpected.

Going back into debt a few thousand dollars when we were trying to pay down debt was depressing.  Plus, we’d have to pause our debt repayment and start back over to rebuild the emergency fund.

We paid off the credit cards eventually, but a few years ago, we went back into credit card debt when three things happened one summer—our HVAC system died, our house had mold and had to be remediated, and our child had a medical issue that wasn’t completely covered by insurance.

Since then, we’ve been working to build a more substantial emergency fund AND pay down debt.  No more debt repayment roller coaster for me.  This time I vowed when we paid down our debt, it would stay gone.  But for that to happen, we needed a bigger emergency fund.

The Economy Is Too Uncertain

Now that COVID-19 has hit, we’re not paying any extra on our debt.  We’re funneling all of our extra money to our emergency fund with the goal of hitting a 6-month emergency fund.

Why?

No one knows for sure what the economic impact of this virus will be.  I want to make sure my family has enough cushion to survive.  That means creating an ample emergency fund.

Prepare for Potential Job Loss

Why We've Decided Not to Throw Our Extra Money at Debt Now
Photo by Alexander Mils on Unsplash

We’ve been lucky that my husband hasn’t lost his job.  He’s in the higher education field, which is being hit especially hard by this pandemic.  He has to furlough for 39 days this upcoming year, which means we will essentially be losing two months of pay in the next 12 months.  However, we’re grateful that he still has a job.

But what will happen next year?

There is a very real possibility his job could be in jeopardy next year, depending on how badly this year goes.  We want to be prepared.  Sure, it would be nice if we could get our debt load down, but right now, we’re just focusing on piling cash in the bank.  We want an ample security net.

Much of the country is in the same predicament.  If you work for or own a small business, how long can the business hold out?  We’re already seeing some small businesses closing permanently, which means all of those employees will be looking for jobs.

I don’t want to advocate irresponsibility, but if you’ve lost your job and aren’t able to get a new one, you can always negotiate with your creditors or worst-case scenario, not pay your bills.  However, if you don’t have money in the bank, you’re left without resources.  Having a savings account in this situation always comes first.

Only Pay Down Debt After a 6 Month Emergency Fund Is Established

If you pause paying down your debt and only pay your minimum payments due, you can always change your plan later and pay more on your debts in a few months.  That’s one of the major reasons why we’ve decided not to throw extra money at our debt now.

We’re going to save, and save, and save.  If we, as a country, as a world, ride out this virus and it is no longer a threat, things can change.  Let’s say my husband and I do save a six-month emergency fund.  If, in another year or two, his job is stable, and the world is back to normal, we can change gears.  Maybe we take three months’ worth of our emergency fund and throw it on our debt to pay it off.  We can do that.

Final Thoughts

Though you may want to be debt free or carry a lower debt load, there are several good reasons to pause that goal.  The main reason why we’ve decided not to throw extra money at our debt now is because having money in the bank is priceless, especially in the age of a pandemic.

We can later decide to take some of that large emergency fund and put the money on our debt.  However, if we pay down our debt and stay with a $1,000 emergency fund, we’re extremely vulnerable financially to what may happen in the upcoming months.  We intend to protect ourselves as well as we can from economic instability by saving as much as we can.  There will be time later to aggressively pay down debt.  We don’t believe now is that time.

 

How to Pay Down Your Credit Card Faster Even If You Don’t Have Extra Money

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Your budget is tight.  I get that.  You stare at your long list of debts and don’t know where to begin.  You may wonder how to pay down your credit card faster even if you don’t have extra money.  After all, you may be doing all you can just to meet your basic monthly obligations.

How to Pay Down Your Credit Card Faster Even If You Don't Have Extra Money

If you search the Internet for help, you’ll likely find suggestions like eliminating eating out, visiting coffee shops, and buying designer clothes.  But what if you’ve already eliminated all of those extras, plus cable television, date nights out, and entertainment with the family?  What if you buy used clothes, have your grocery budget as low as it can be, and have changed to VOIP phone service?  Perhaps you’ve cut as much as you can.  What if you have nothing left to cut?

You may feel like you’re in a desperate position, but there are still strategies to pay down your credit card faster even if you don’t have extra money.

Stop Using the Credit Cards

Before you begin to employ any pay down strategies, the most important thing you can do is stop using the credit cards!  There’s no way to pay down the balance if you keep using the card.  Let’s be honest, if you stop using the card completely, eventually it WILL be paid off even if you don’t use any strategies to pay down your credit card faster, even if you don’t have extra money.

However, if you stop using the card and use the following techniques, you will slowly but surely pay off your credit card.  And, you will do it faster than if you just stopped using the card and paid the minimum payment every month.  (Sure, that’s better than using the card and having a perpetual balance, but just paying the minimum will take you sometimes 20+ years to pay off the card.)  Instead, use a two fold approach:  stop using the cards and use these strategies:

How to Pay Down Your Credit Card Faster Even If You Don't Have Extra Money
Photo by Nathan Dumlao on Unsplash

How to Pay Down Your Credit Card Faster Even If You Don’t Have Extra Money

Use these techniques to “create” extra money to put on your credit card, which will slowly but surely help you lower those balances.

Switch to a 0% APR Credit Card

If your credit is good enough, you may want to try applying for a 0% APR card.  These cards often give you a 0% APR for 12 to 15 months.  Since you’re not paying interest during that time, you can pay off your credit cards more quickly than if you were still paying interest.

If you owe $10,000 on a credit card, and you have an APR of 16.99%, each year, you’re paying approximately $1,699 in interest on the card or approximately $141 a month in interest.  Now, imagine having a 0% APR for a year.  That means if you make your exact same payment as before switching to a 0% APR credit card, you’re paying an additional $141 a month on the card instead of interest.  By taking advantage of a 0% APR credit card, you can reduce your balance by an additional $1,699 in a year!

Many of these cards charge a 2 to 4% transfer fee, so do the math first and make sure you will save money over your current card charging interest.  If the math works in your favor, consider continuing to use this strategy.  When the 12-month promotional 0% APR ends, switch your remaining balance to another 0% APR card until you have the card paid off.

Negotiate a Lower Interest Rate

If you don’t have access to a 0% APR credit card, try to call your credit card company to negotiate a lower interest rate.  I’ve had good luck with this strategy.  Just recently, I called one of my credit card companies and asked for an interest rate drop.  They moved me from 13.99% APR to 10.99% APR.

Let’s say again that you have a $10,000 balance.  If you’re paying 13.99% APR as I was, then you’re paying approximately $1,399 a year in interest.  Just this simple rate reduction to 10.99% APR means you’ll be paying approximately $1,099 in interest per year, saving you $300 a year in interest.  That entire $300 can be used to reduce your overall balance, assuming you continue to make the same payment throughout the year.  This difference in interest rate means you have more money you can apply to the balance without increasing your monthly payment.

Pay Weekly or Bi-monthly

Most people pay their credit card monthly.  If you instead pay weekly or every two weeks, you’ll pay down your balance faster without increasing your payment.

Why?  Two very important reasons.

First, your interest rate is computed based on your daily average, and if you pay more frequently, you’ll lower your daily average.  If you normally pay $100 a month, just pay $25 a week instead or $50 every two weeks.

Second, if you pay weekly or biweekly, you’re actually paying more than if you pay monthly.  If you pay $100 a month, you’re paying $1,200 over the course of a year.  If, however, you instead pay $25 a week, you’re actually paying more–$1,300 a year.  Sure, it’s only $100 more on principal over the course of a year, but in time, that additional principal payment will make a difference in how quickly you’re able to pay down the card.

Don’t Lower Your Payment as Your Minimum Payment Drops

If you’re currently paying your required minimum payment of, say, $100 a month, in a few months, that minimum payment will drop to, say, $97.  Don’t drop your own payment.  Keep paying the $100 you’re used to paying.  That extra will be put on principle without affecting your current budget.

Final Thoughts

If you’re looking at your bills and desperately wondering how to pay down your credit cards faster even if you don’t have extra money, remember, there are strategies to help you pay off the cards faster.  Just using these simple steps will help you pay more on principal without putting extra money on the debt.  Of course, as you make additional money, you’ll want to put it on the debt, but until then, you can gain traction with these strategies.

What other tips do you have for people to pay off their credit cards faster even if they don’t have extra money to throw at the debt?