BROKE #04 | cutting expenses when there’s nowhere left to cut

BROKE #04 | cutting expenses when there's nowhere left to cut // Kelsey, Esp. blog

BROKE #01 | BROKE #02 | BROKE #03

When you’re looking for ways to stop living paycheck-to-paycheck (or less than paycheck-to-paycheck), you’re typically looking for ways to either cut expenses or payoff debt. Or, if you’re like me, you’re looking for ways to do both. Ideally, you’d find yourself in the position where you have no debt (or very little “residual” monthly debt, like *just* a car or mortgage payment) and are looking for where you can cut in order to add a little more to your savings each month. Ideally, you wouldn’t find yourself in the position in which I find myself: living on a monthly income that isn’t enough to support your most basic expenses, and looking for ways to squeeze savings out of thin air in order to throw a little extra loot toward paying off your debt so that one day you can build up your savings, which currently doesn’t exist.

There are a bazillion sites out there that will tell you the same ol’, same ol’ when it comes to squeezing savings out of your budget: (1) create a spreadsheet (2) obsessively track your spending to see where you’re wasting, so that (3) you can figure out where to cut expenses. Know how that makes me feel? LIKE THIS:

BROKE #04: cutting expenses when there's nowhere left to cut // Kelsey, Esp. blog

Why? Because what if you don’t have anywhere to cut? What if the only expenses you have each month are the bare minimum necessary to live? What if there aren’t daily Starbucks trips or regular dining out occasions or weekly Happy Hours that you can cut back on a bit, or give up altogether? What if you don’t have any extra expenses but are still struggling to live off your income? How do you squeeze savings out of your budget when it’s depleted before you’ve paid all of your basic living expenses, like rent and daycare and food and gas? How do you cut expenses when there’s nowhere left to cut?

GET OVER YOURSELF. And get creative. That’s how.

+ + + + +

GET OVER YOURSELF

Around the beginning-ish of the year I started trimming the fat from my budget: I let my CrossFit membership (aka MY LIFE BLOOD) lapse when it came up for renewal back in March; that was a $195/month cut. I cancelled my credit monitoring service through my bank; that put $12.25/month back in my pocket. I got rid of the “big box” gym membership I’d signed up for in a quasi-attempt to replace my CrossFit membership; that saved me another $19.99/month. And as difficult as it was, I gave up my monthly Studio Calico Project Life Kit to save an extra $25.48/month. At the end of the day I added $252.72/month back into my budget by giving up four — 4! — monthly expenses that I’d convinced myself were impossible to live without.

The up side? Despite my initial conviction otherwise, for the most part I was able to quickly and easily adapt to life without the gym or credit monitoring or a goody box of monthly crafting supplies (the gym was tough, but that’s different story for a different day). Plus, $250 bucks a month back in my pocket is a sizable chunk of change.

The down side? It hasn’t been enough. Those cuts, which were hard to reconcile at first because those expenses felt so necessary, would’ve come on their own sooner or later. To be honest, I wish I’d made a few of those cuts earlier because the anticipation of how much my life would suck without monthly CrossFit or credit monitoring or crafting supplies memberships was a trillion times worse than life without those things has actually been.

Don’t get me wrong. Living without the gym for the last six months has sucked. Not having daily access to my credit file (which is important only because I’m in a rebuilding stage and monitor it like a hawk) for the last few months has sucked. Not receiving a fun box of fancy Project Life supplies in the mail each month since the beginning of the summer has sucked. But giving up those things up is only temporary, and life without them has been manageable…ish. Making the decision to temporarily give up things that are indescribably important to you — things that define you as a person, things that you live for — for the sake of securing a better life for yourself and your family in the long run — and then really committing to that decision — is the most difficult part. Living without those things becomes second nature, just as living with them once was. And on the fo’ real tip: if those things are that important to you, you’ll find a way to improvise temporary substitutes for them in the interim while you get your shit together, so that one day you can afford to have those things in your life again on a consistent basis, stress-free.

+

GET CREATIVE

There’s no “one size fits all” quick fix to this get-out-of-debt-while-living-paycheck-to-paycheck-on-a-salary-that-doesn’t-even-cover-your-most-basic-living-expenses-but-is-supposed-to-somehow-magically-turn-into-enough-to-live-and-payoff-debt-and-save-with cycle. It’s hard. It’s stressful. It’s scary and frustrating and annoying. It’s degrading and embarrassing. And it’s borderline debilitating. It makes you second guess yourself and your worth all the time. Resent and regret and self-doubt usurp your livelihood.

The only way to break the cycle is to just do it. Be proactive. Stop throwing yourself a pity party. Stop blaming everyone else. Stop whining about not having enough money to pay rent on time while you compose a text on your fancy new smartphone with one manicured hand while sipping your daily Starbucks with the other.

01 | REEVALUATE WHAT’S ACTUALLY NECESSARY  This is the classic (and cliché) exercise in recognizing the difference between “wants” and “needs”. You want those hot new boots to wear to work because you’re tired of wearing the same shoes everyday. You need a tank of gas to get you to and from work this week. Grow up. Seriously. You don’t need Starbucks every day. You don’t need to have your nails done every week. You need to feed your kids. You need to keep the lights on. This step seems pretty “no duh”, but really challenge yourself to figure out what you can and can’t live without. Go back to the first part, where first and foremost you get over yourself, if you have to. I did.

I was convinced that I couldn’t survive without daily trips to CrossFit. The nearly $200 bucks a month I paid in membership fees each month (which was on top of seminar fees and the $2 bucks a day I paid for a post-WOD KillCliff) was worth it to me because CrossFit is more than just a workout for me. But my future and my kids’ future is worth it to me, too. So when my contract came up for renewal at the end of March I decided to not renew, in part to “save” a good chunk of change each month (in reality I redistributed that $200/month I was spending on CrossFit to my monthly grocery bill, not my savings account) . Same goes for my credit monitoring service, my “globo-gym” membership (cheap as it was), and my Project Life kits: they were the only “extras” I had each month.

Just like a coffee lover unconsciously and automatically sets aside money for Starbucks (or wherever) each week (day?) with no qualms, and will in fact vigorously defend their need for a daily cup of designer caffeine, I was unconsciously and automatically batching (and then vehemently defending) those four expenses — CrossFit, credit monitoring, a globo-gym membership, and crafting supplies — as “can’t live withouts”. WRONG. All four of those things are “sucks to live withouts”, but not “can’t live withouts”. There’s a big difference, people. It would behoove you to recognize that difference, and then give enough of a shit to suck it up and live without a few of your favorite creature comforts for awhile. Just ’til you’re back on track. And then indulge all you want. Be. My. Guest. But whatever you do, don’t let me hear you whine about how broke you are if you’re doing nothing to fix it and everything to perpetuate it.

NOTE | Most budget worksheets have a line item for gym memberships, entertainment spending, a clothing fund, and other expenditure categories that ideally areeasy to integrate into your monthly spending plan. But if you’re truly living paycheck-to-paycheck, you literally don’t have the money for those things. They can’t exist in your budget. Just because your budget worksheet has a space for a specific expense (like a gym membership) doesn’t mean that it’s a necessity for you at this time. Be ruthless in separating wants from needs, and then be diligent about maintaining a wants-free monthly spending plan until you’re able to afford wants.

02 | TALK IT OUT  It’s taboo to talk money, I know. But sharing your financial struggles with people in your life whom you view as financially successful + stable will help you develop a new perspective on spending and splurging and saving. Who are these people? How are they similar to you; how are they different? How do they manage their money? What do they spend it on? What do they qualify as okay to splurge on, and where do they save? What are their habits with money? What’s their attitude toward money? What are they doing differently than you?

I went to my parents, Shannon, and RJ, all of whom have waaay better credit histories and spending habits than me. I filled each of them in on every last detail about my financial picture, and then ran through a million different scenarios and possibilities with them. I asked them for their opinions: Was there somewhere I wasn’t thinking things through thoroughly? Was I overthinking in another area? Was there something I wasn’t seeing; a pattern, a behavior, a place to save or cut altogether? What was I missing?

I didn’t rely on any of them to give me an answer. I relied on the action of literally talking it out with all of them to help me discover an answer on my own. I also didn’t go into this step asking for tangible help. I went into this step asking for conceptual help. I made it clear I wasn’t looking for handouts or for a loan; that I was looking for their honesty and their perspective. And I walked away from each conversation with a little bit more insight into how to tweak my approach, and a little bit more confidence that I can do this.

NOTE | Having such a brutally honest and open line of communication with Shannon about money is refreshing. It’s uncomfortable and makes me feel like a total loser and failure to be confiding in someone that’s half a decade younger about such a grown-up concept that I should have a much more solid grip on by now, but refreshing nonetheless. Money ruins people, and relationships, because no one likes to talk about. TALK ABOUT IT. It’s worth it.

03 | THINK OUTSIDE THE BOX  If you have “extras” that you can cut out — like daily coffee stops or weekly nail appointments — then congratulations: you’re rich and this post isn’t for you, and we definitely can’t be friends. Go away. (JK, you can stay if you want. As long as you don’t gloat about your exorbitant wealth.)

If you’re truly BROKE and don’t have “extras” that you can cut out, then finding ways to scrape together some extra cash to put toward bills each month will be a challenge. Aside from borrowing money from a rich relative that doesn’t exist, or picking up yet another job that you don’t have time for, it might seem like there’s nowhere to cut back on your expenses. WRONG. There is. There’s always something, somewhere. It might not be as prolific of a savings as you’re hoping for, but you can always find some sort of savings.

When I was going through my income/assets and expenses/debts a few weeks ago, I struggled to find anywhere that I could trim some fat. Like, struggled. Like, I was hopeless and depressed and convinced that there was nowhere I could save and that my life was over. After all, it’d been months since I’d gotten rid of my CrossFit and “globo-gym” memberships, and my credit monitoring and Studio Calico Project Life subscriptions, and the only monthly expenses I had left were legit the “can’t live withouts”, and I was (am) still struggling. So I started thinking about things differently.

I grabbed $1.50 in quarters from the change jar and used it to buy 3 giant sheets of posterboard from Michaels. When I got home I gathered my monthly bills notebook, statements from asset and debt accounts, a calculator, a pencil, and a giant eraser. I laid all the posterboard side-by-side on the living room floor and then I went to town with drawing out a giant visual roadmap of my current financial picture. I listed every penny I had to my name at that moment in time; all of my monthly income; monthly expenses; debts; goals of how much money I want to save; calculations for a thousand different scenarios; everything. RJ asked me why I didn’t do this in a notebook: because I wanted to have all of that information in front of me at one time. No flipping through pages or computer files. Just standing up and stepping back and taking a look at the entire picture. And that’s when I started thinking outside the box:

  • Maybe I could save money by un-bundling cable and Internet and paying for only Internet
  • Maybe I could lower my car payment by refinancing my loan, or trading in my car
  • Maybe I could save money on gas by commuting to work on public transportation
  • Maybe I could lower my cell phone bill by lowering my data plan
  • Maybe I could put more toward my tax debt by changing my withholding

 UNBUNDLING CABLE/INTERNET

I called my cable company and was told that I have a few more months left on my two year cable/Internet bundle contract, which means I’m stuck with my current $130-ish/month cable/Internet bill until the end of November, because the cancellation fee is outrageous. Also, this idea might be totally worthless even in November, since un-bundling these services will actually jack up the standalone Internet service price. Seems like a bummer, but I’ll definitely be doing some more research on this.

↓ TRADING IN CAR

I considered trading in my current SUV for something smaller, better on gas, and with a better reputation for efficiency and longevity. I thought I’d found the perfect deal, but then that “if it seems like it’s too good to be true, then it’s probably too good to be true” adage was proven true. Damn.

REFINANCING CAR

So then I thought about refinancing my car to lower my rate and, consequently, my monthly payment. But refinancing your vehicle slaps a hard inquiry on your credit report. Hard inquiries stay on your credit report for up to two years and ding your score, which means that refinancing your car loan in an effort to save a few bucks a month on your payment isn’t always a smart long-term solution. I’m managing with my current car payment (after all, it’s an expense that I’ve been “used to” over the past few years), so ultimately I decided to hold onto my current vehicle for just a little while longer. Another money-saving idea that ended up being a no-go (at least for now).

COMMUTE VIA PUBLIC TRANSIT

I researched commuting to work via public transportation, but in my case it would’ve cost me the same amount of money out-of-pocket each month for commuter train and metro monthly passes (even after factoring in the $115/month subsidy my employer offers), and would’ve actually added 3 hours to my daily commute. Obviously this idea ended up being another no-go. (Do you see why I felt so hopeless? All my great money-saving epiphanies were ending up to be a bunch of duds.)

DOWNSIZE DATA PACKAGE
I finally scored some savings when I looked into changing my cell phone plan. First, I compared my at-the-time current package (unlimited talk/text, 3 GB data) with my current provider (Verizon) with comparable plans with AT&T and T-Mobile. Then I compared lower data packages between all three providers. I also weighed the pros and cons of each provider (You can talk on the phone and surf the Internet or use an app that requires the Internet, like Google Maps, at the same time on AT&T and T-Mobile; you can’t on Verizon. Verizon gets flawless coverage underground on the metro; the others don’t.). And I factored in what it would’ve cost me to cancel my Verizon wireless contract early to switch providers. I even looked into T-Mobile’s “we’ll pay your early termination fees” deal, but it ended up not being a deal at all (You have to pay your termination fee, then provide T-Mobile with proof of doing so. After approximately forever they then send you the amount of money you paid to your previous carrier to cancel your contract…in the form of a gift card, which doesn’t do anyone who needs cold, hard cash an ounce of good.).

In the end, AT&T provides the most bang for my buck, but it didn’t make financial sense to terminate my Verizon contract early, so instead I opted to drop my data package from 3GB a month to 250MB a month, while I wait for my contract to end so I can jump ship back to AT&T. Yup. You read that right: I cut my data package down to 1/12th of what it used to be. The idea of essentially getting rid of data on my phone terrified me in the beginning, but I’m constantly connected to wifi while at home and while at work, and considering I spend 90% of my time at one of those two places, the adjustment hasn’t been all that difficult. Actually, it’s helped me focus more on real things that exist outside of my phone and to be more present, especially when I’m not at home or at work (although I’ve become more present at work and home recently as well since after downsizing my data plan, I turned off all notifications and badges on my phone so that I’m not tempted to check any data-guzzling apps “real quick”, because I can’t afford the accompanying overage fees that all those “real quick” checks would inevitably turn into). And it’s saved me $50 bucks a month. That’s $50 extra bucks I can roll into my debt snowball each month, which helps cut my couch payback time in half.

LEGALLY CHEAT THE IRS 

My last outside-the-box money-saving idea — changing my federal withholding to have an additional set dollar amount withheld from each paycheck — is still just an idea. But it’s one that I think I will eventually implement. Here’s the deal with this one: once I file my 2013 taxes (don’t worry, the IRS granted me an extension until October) I’m going to owe the IRS a lot of money. Not only was I 1099′d last year (which means no taxes were then out of my pay and I owe state and federal on tens on thousands of dollars), but RJ and I filed “married, filing separately” in order to help establish separate-ness for our one-day divorce, and that means I’m going to be penalized even more. Since I’m W2′d now, I have taxes withheld from my check. Changing my withholding isn’t a quick fix, but I don’t need a quick fix for this one since I’ll be paying on it for a long time as it is. If I change my withholding to have an additional $50 pre-tax dollars withheld from each check (that equals a withholding of an extra $100 pre-tax dollars each month), it will only feel like a $39 hit to my pocket each check (or $78 per month), which is a 22% “savings” for me.

Implementing this “savings” tactic for 2015 will come in handy once January 2016 rolls around the IRS tells me they accidentally withheld an extra $1200. Except because I had this $1200 withheld pre-tax, it’ll only feel like a $936 hit to my pocket. The IRS will cut me a refund check, and I’ll turn around and send it right back to apply toward my 2013 tax account, all at a 22% “discount” to me.

Obviously this “cheating the IRS” method won’t work if you need an immediate solution, but it’s something you might consider if you’re in a situation where you find yourself paying on an account for years. Maybe you want to payoff your car loan faster, or throw some more money toward your mortgage. You can use this method to help make an extra (and big) payment on your student loans every year. Or perhaps this method will help you save ahead for an annual family vacation, or another big annual expense, like a property tax bill or your child’s private school tuition. You can even use this method to start saving for college for your kids…or yourself.

+

These potential money saving ideas won’t work for everyone. Hell, 4 of the 6 ideas I had didn’t work for me (that’s a 66% failure rate). But the two that did end up panning out are going to do wonders for me. And I hope that at least one of these ideas will work for you in a significant kind of way. Or that one of these ideas will help you spark your own genius AH HA! idea.

If you have any other outside-the-box money-saving ideas, please: SHARE THEM IN THE COMMENTS!

+

MORE | an intro to BROKE // income + assets v. expenses + debts // prioritizing debt

 

IMAGE | via

Currently | August

Currently | August // Kelsey, Esp. blog

READING | Dreaming for Freud by Sheila Kohler. Historical fiction borrowed from fact, with a healthy dose of erotica thrown in is my kind of read.

LISTENING TO | a loooooot of sports talk radio. Yepyepyep.

EXCITED | for football season to begin! Just a little over a week until the Redskins’ season kickoff! #HTTR

HOPING | the weather holds through at least Friday so I can take advantage of an extra day off and spend some time at the pool SANS KIDS!

BOOKMARKING | productivity tips from 99u like it’s my job.

WAITING | for my official transcripts to arrive at my school (1) for evaluation, and (2) so that I can enroll in classes.

NOTICING | that I’m having a really difficult time getting up in the mornings lately and…

WONDERING | why.

USING | this personal inventory sheet to help figure out if in getting the most out of my workday(s), and to see where I can make changes in my day in order to improve productivity and efficiency.

PAYING | off debt like a mofo and…

OBSESSING | over the CreditKarma web app (v. the phone app). So, so good.

COMPARING | the capsule wardrobe and 30×30 wardrobe approaches to style, and figuring out if I want to use either in my quest for a Happy Closet.

PLANNING | Emma’s low key birthday celebration this weekend.

Project Life 2014 | Week 33

Yeah. I skipped a week. And IDGAF. SAY SOMETHING!

But really. I skipped a week. And really. It’s not bothering me as much as I thought it would. I just can’t get stuck with this project again by getting hung up on one freaking week. So I’m not. I’m pushing forward and if I have time to go back to Week 32 and figure out a way to make it work, I will. But I’m not stressing over it. Because ain’t nobody got time for that.

Project Life 2014 | Week 33 // Kelsey, Esp. blog

WEEK OF | August 11 – 17

Project Life 2014 | Week 33 // Kelsey, Esp. blog

WHAT HAPPENED THIS WEEK | Umm…? Stuff…? And things…?

Project Life 2014 | Week 33 // Kelsey, Esp. blog

I kind of don’t remember all the particulars of this week because when I took my iPhone in to be fixed on Saturday morning, they ended up having to replace the entire thing and the back-up to The Cloud that was supposed to populate (via “restore) my new phone DIDN’T FUCKING WORK. And I lost everything. So that was bittersweet. Mostly bitter, actually.

Project Life 2014 | Week 33 // Kelsey, Esp. blog

The funniest thing that happened this week? Opening up my Dropbox folder on the computer and seeing these selfies that the kiddos took on the iPad. I had no clue until I opened the folder up. And there were A LOT more. Too funny, and too cute. I knew I had to include them.

Project Life 2014 | Week 33 // Kelsey, Esp. blog

ANYTHING SPECIAL THIS WEEK |  The most “special” thing/the coolest thing that happened this week: seeing that praying mantis in the front yard. I’d given the kids the green light to eat a yogurt snack out front. Emma left her container in the front yard and when I went to clean it up I noticed something was quite right. I’d never seen a praying mantis in real life so forgive me for sounding super lame but IT WAS SO COOL! Especially when Madden walked by the container and accidentally knocked it a bit with his foot — the insect immediately took a defensive “attack” position (not pictured, obvs).

Project Life 2014 | Week 33 // Kelsey, Esp. blog

TECHNIQUES USED THIS WEEK | More of the usual: stickers on top of pockets, hand-lettering, and…well mostly just that. I also grabbed a pineapple illustration I found somewhere on Pinterest, sized it to fit a 3×4 card, and slipped it in the pocket. I was looking for a popsicle, because that would’ve been more fitting, but the colors in that pineapple illustration just fit. That boxed “i love you” is my handwriting.

Project Life 2014 | Week 33 // Kelsey, Esp. blog

OVERALL THOUGHTS | Honestly? Love it. The colors and the content just…work. Can’t beat winning on both the aesthetic and conceptual levels. On. Freaking. Point. #BOOM

Project Life 2014 | Week 33 // Kelsey, Esp. blog

SUPPLIES USED | PL Photo Pocket Pages Design APaislee Press Week In Review CardsPaislee Press Pictures & Words No. 9 Caylee Grey handwritten weekly title card; my own templates + hand-lettered filler cards; and embellishments from Studio Calico Project Life Kits. 

 

MORE PROJECT LIFE

:: 2013
:: 2014

Madden James | 10 things

Madden James | 10 Things // Kelsey, Esp. blog

01 | We’ve finally started to approach potty training semi-seriously with you, and you’ve finally started to approach potty training semi-seriously, too. You showed interest in using the potty a few months ago, but it was mostly just because you saw everyone else using it and wanted to sit on it and feel special, too. You didn’t actually go potty in the potty. And you didn’t know how to recognize and vocalize the urge to go. Until now. For the last couple of weeks, daycare has been working with you on potty training during the day, and when you hit the point where you had more “used the potty” remarks on your daily report than “# of diapers changed”, we started encouraging you to go at home. You’re not an expert yet, and you don’t always want to use it, but we’re making progress. And it’s exciting!

02 | “Big” and “lots” are your buzz words du jour. You must always have the biggest of everything, and you must always have lots of everything. It is incredibly adorable. Just. Like. YOU.

03 | Oh, and you “can reach the highest”. Wherever we go you put your right arm up in the air and touch as high as you can with your fingertips and proudly declare that you “can reach the highest”.

04 | You call knives “a big sharp”, and you open your eyes reeeaaalll wide when you say “a big sharp”, which makes me LLOL.

05 | Purple freezy pops are your fave. You won’t settle for less.

06 | Your new thing is brushing your teeth in the toilet. So. Effing. Gross. But also hilarious and cute. Each night before bed you stand at the end of the toilet, lift up the lid and the seat, and brush your teeth. When it’s time to spit you put your hands on your knees, push your butt back (PERFECT lifting form, ps), and dip your head *almost* all the way in the toilet. I mean, your face is centimeters from the water. You think it’s hilarious and refuse to cooperate with any other way of brushing your teeth. We’ve learned to live with it.

07 | A whispered “yeah!” or enthusiastic + loud “GOOD!” is your reply to nearly everything that you know requires a response but you’re not sure what the response is supposed to be. “Madden, what did you do at school today?” “Good,” you’ll shout. “Madden, what do you want for dinner?” “Yeah,” you’ll whisper. Weirdo. CUTE weirdo.

08 | Your current favorite bedtime read is “the abacus”. It’s an oversized board book with an abacus built into it that, obviously, is used to help kids count.

09 | You deal with extreme anger by repeatedly banging your head on the floor while screaming. Is this a boy thing?

10 | You weren’t a fan of the pool at first but you’ve definitely learned to love it. Except for some reason you’re totally against wearing pants. But the neighborhood pool is a public pool. So you have to wear pants. And you are NOT happy about it.

Broke #03 | prioritizing debt

BROKE #03 | Prioritizing debt // Kelsey, Esp. blog

Debt: UGH. When you’re in debt, the idea of paying off your bills is pretty much constantly on your mind. Or maybe actively blocking it out and ignorning your bills is more your speed. I don’t know. I’m not the boss of you. But if ignorning your debt is how you “handle” it, then I should be the boss of you. Because when you’re in debt, paying it off should be the only thing you live for. Forget your kids (they cost too much, anyway). Forget the gym membership you rarely (*ahem* never) use and the monthly hair cuts and weekly nail appointments (you’ll have to look a little ratchet for awhile, suck it up). Forget the morning coffee or chocolate or booze or smokes or whatever “inexpensive” stress-coping habit you’ve developed that’s actually pretty expensive and probably unhealthy (go for a run instead). Hit the reset button on your brain and get your head in the game. Because when you’re in debt, paying it off should be all of your top 10 priorities in life until every last payment has been sent off to the creditor, has cleared your bank account, and has posted.

+

I spent the first half of my 20s ignoring tiny debts that turned into huge, life-changing (in a bad way) bills, and at almost 30 I’m still paying for them. LITERALLY. Under any other circumstance I would never say this (because I’m actually pretty cool) but: DON’T BE LIKE ME. Don’t ignore a few menial bills, hoping that they’ll magically go away. They won’t magically go away. Well, that’s a lie. They will magically go away. To collections. And ain’t nothing magical about that place. There, they’ll be slapped with a jacked up interest rate and assigned to some asshole bill collector that blows up your phone every day for like, three years, all the while tripling and quadrupling in dollar amount while simultaneously bludgeoning your credit score. And that effectively ruins your life. So again, DON’T BE LIKE ME.

I’ve wisened up over the last three years (I think it’s offically called “growing up”), and paying off my debts is something that has taken top priority in my life. I have a 5 year plan, people, and not only is “being in debt” not a part of that plan, but my plan can’t happen unless I’m debt-free (which is why being debt-free is actually part of said plan). SO. It’s time to get super serious(er) about paying off my bills. I’m at the point where paying off my debt and ideas of how to boost my income to help with the process consumes my thoughts. It’s something that I know I have to do, and something I actually want to do. But figuring out where to start — determining which debts take priority and should be tackled first — is tricky at best, and daunting at worst. Especially since the so-called experts don’t even agree on where you should start, or (and?) which debts should be tackled first.

Personally, I’m a fan of the snowball method because (to me) it makes the most sense: keep making your normal monthly payments on each of your debts until the debt with the lowest dollar balance — not the lowest monthly payment or lowest interest rate — is paid off, then take the amount you were dedicating to that monthly payment and roll it into the payment for your next lowest dollar debt. And so on and so forth until all your debts are paid off. I probably did a really horrible job at explaining that, but oh well because I assume that the majority of you already know what the snowball method is, which just makes me assume that further explanation isn’t needed. But just in case it is, here’s a good primer.

+

I think this approach makes the most sense because for the duration of your debt-paying obligation you’re spending the same amount of money each month. As time passes and you pay off lower dollar debts, your monthly payments increase on your remaining debt(s), but you’re never digging deeper into your pockets. You’re simply redistributing the same chunk of money each month in order to apply it most effectively. Spend the same total amount of money each month on my debts in periodically changing distributions in order to pay off said debts faster? Sign. Me. Up.

Last week I broke down all the numbers — income + assets and expenses + debts — so that I know exactly what I’m working with; exactly what I need to do; and exactly where I stand, financially. I listed the 6 debts that I owe money on, but made no mention of my plan of attack for paying each debt down to zero. Today I’m going over that plan of attack. Since last week’s post, payments to 4 of my 6 debts have posted, which means that the balances on those 4 debts are (slightly) lower. Here’s an updated chart of my debt, current as of today:

BROKE #03 | Prioritizing debt // Kelsey, Esp. blog

Listed in order from lowest overall account balance to highest overall account balance: I pay $50 a month on my credit card, $50 a month on my couch, $29 a month to the IRS (RJ pays the other half of the IRS debt account since it’s a joint debt), and $350 a month for my car. That adds up to $479 a month going to debts, although if we’re being real I don’t really count my car payment as a debt, and only 70% of the money I give the IRS is applied to the principal so a $29 payment one month only decreases the next month’s balance that I pay on by $21.50. But whatever. Back to the snowball.

Using the snowball method, my credit card debt will be paid off with September’s payment. That means when October rolls around I’ll have 3 debts to actively pay on: my couch, the IRS, and my car. Because the couch is my next lowest-balance debt, I’ll take the $50 I was spending each month on my credit card payment and roll it into my couch payment. That will boost my monthly couch payments to $100, literally doubling them and cutting my pay-back time IN HALF, from 31 months to 15 months. And that means my couch will be paid off come January 2016 instead of May 2017. WHOA.

Assuming I don’t experience any major setbacks, once January 2016 rolls around I can take the $100 a month I spent paying off my couch and add it to my current $29 monthly payment to the IRS. Doing so would have me free and clear of my 2012 tax debt to the IRS an entire year earlier than my current payment setup would. As long as I steer clear of being knocked way off course, Come New Years Day 2017 the only debts I’d have remaining would be (half of) my car loan and my student loans. January 2017 seems like forever away, but it’s really not. It’s a little over two years away. And for me, being able to payoff nearly $4,000 between the IRS, my couch, and my credit card, in two years is a big accomplishment. Especially considering I struggle each month to come up with the money to pay these bills.

+

But wait. What about my transcripts? That’s the “real” number 2 debt, not my couch.

Well. My transcripts. I don’t currently pay on my transcripts because the balance isn’t accruing interest and there isn’t any direct negative consequence for not paying it (other than the obvious — holding my credit score down), but there’s a pretty huge indirect negative consequence that could stem from not paying off this debt IN FULL, before next week.

The grace period on my student loans ends in November, which means if I’m not enrolled in school at least part-time I’ll have to begin paying on them. The minimum monthly payment is $350. I don’t have $350. I also don’t have my degree (yet), so going back to school makes sense because I’d kill two birds with one stone: make progress toward earning my degree and stave off an additional $350 in monthly expenses that I don’t have. Except I can’t re-enroll in my school, or request Tuition Assistance (TA) from the Army, until I provide both the school and the Army with my official transcripts from the college from which I earned my associate degree. But I can’t be issued my official transcripts until I payoff an old debt to the school. An almost $1,500 debt.

The school I attend runs condensed courses and has 4 sessions to choose from. The Army requires that I be registered in the classes for which I request TA a week prior to the class start date. The transcripts take an average of 4 weeks to be evaluated once received, 2 weeks if I can convince someone to place a “Rush” order on them. So in order to even have a hope of attending the 3rd and 4th session (yes, I would HAVE to attend both in order to take the configuration of classes I need), my school needs my transcripts by the end of next week AT. THE. LATEST. And that means that I have to come up with $1,500 to hand over to my old school before Monday in order to give the payment enough time to post; the account enough time to clear out to $0; and the request for official transcripts to be processed. I have only a little tiny baby clue as to how I *MIGHT* be able to pull this off, but I really don’t want to jinx anything so I’m keeping my mouth shut for now. Hopefully I’ll be back next week with a positive update. Until then, let’s recap my debt prioritization:

  • Payoff transcripts ($1,485 balance). Give my old school the finger. Re-enroll at my new school.
  • Payoff credit card ($110 balance) September 2014. Never max it out again.
  • Payoff couch ($1,562 balance) 16 months early by rolling old credit card payment ($50/month) into couch payment ($50/month) starting in October. This will double my monthly couch payment ($100/month), putting my payoff date for this account in January 2016.
  • Payoff 2012 IRS debt ($1,795 balance) a year early by rolling original credit card payment ($50/month) + original couch payment ($50/month) into current IRS payment ($29/month) starting February 2016, bringing my new monthly payment to $129. Expected payoff moved up from early 2018 to early 2017.

I don’t really have a game plan for my car loan or my student loans. Ideally, I’d like to continue the snowball momentum with my car loan after my IRS debt is paid off, and roll that $129/month into my current $350/month car payment BUT I’m not convinced I’ll still have my current vehicle come 2017. For now I’m perfectly comfortable with paying off my credit card, my transcripts, my couch, and the IRS and calling it a day. A day that will take the next (almost) two and half years to get to. But a helluva day once it finally gets here.

1 | 2 | 3 | 4 | 71 |