Debt is everywhere, no matter where we look. Regardless of the source of non-mortgage debt, it can take years to pay off. This not only increases the possibility of running into debt fatigue but as well add the amount of interest that needs to be paid over the life span of the debt. But, it doesn’t have to be that way. There are simple ways to cut costs that can give additional funds to cover for the existing debt.
Here are some practical work around or opportunities that can be used to solve debt problems.
> Reduce Monthly Bill – Check the amounts you are paying for your bills. Do comparisons, or ask if you could switch to their going promotions. Or better yet, change to other providers that offer a more savings for your bill.
> Switch to a Zero (0%) Interest Card. – This may not give you extra money, but it will make the money being wasted to pay off debt work better for you. You can also consider debt consolidation to significantly lower your interest payment.
> Reconsider you Membership Cards – Sometimes, membership fees and other payments in joining your club makes such a waste of precious funds. Good example is your gym card, you can substitute gym by jogging along your neighborhood or do some housework to burn those extra calories!
> Rid of your junk! – Look around your house and surprisingly, you will see a lot of things that can be converted into good old cash! Earning few hundred dollars out of your “junk” items should not sound too boring, right?
> Eating Out. – Many of us spend at least extra $20 – $30 per week just to eat in a restaurant or fast food chain. Instead of doing that, the old reliable brown bag sandwich will do some magic to sate your hunger instead of buying food which obviously cost higher. In a month’s time, you will save at least $80 extra!
> Cut some of your “extra” entertainment and energy sources. – Having your internet and cable connections at the same time can rob you out of some money. If you don’t really use your cable connection and you only watch your favorite shows/movies occasionally, you can access those through internet then take the cable out of your system. For your monthly energy bill, save on heater or air conditioner when necessary.
There are many ways to cut expenses that will enable you to divert more money into your debt. The challenge is to be mindful of where you can cut back and convert your savings to pay off your debt. At times, it may require a mile of sacrifice, but it will significantly correct your finances in a way that your debt can be obliterated sooner than you think!
If you owe money from your bank, DO you somehow expect them to automatically take money out of your savings to SET – OFF what you owe them IF you are lagging on your payments either from your credit card or loan/s?
It is a hidden danger for anyone who has credit card, loans or mortgages at the same outfit where one banks or keep the savings. Banks can, and do, use your money to repay overdue debts, which can cause financial hell. Here is a guide that could help one beat this concern:
Know your right to “set-off”
Most of the financial institutions have the right to transfer cash from your bank or savings account to pay off debts held with them. It is known as the right to set-off or to link your accounts. This may not happen to most people, but to those struggling financially must be wary and prepare.
At times, there is a term or condition in your contract allowing it to happen, such as:
“The Bank may, without notice, set off a debit balance, or debit interest, on an account against any account with a credit balance or credit interest held by the same account holder”.
Some firms can add set-off into its contract, in banking and tax, there’s an automatic right to use the procedure. However, it is also important to check with your bank first as sometimes, we tend to overlook the terms and conditions on the contract.
End results of setting – off.
Setting-off can cause various problems – anything that affects how people budget can have long-term detrimental effects. If you’ve money set aside to pay for imminent cheques or direct debits from your accounts, but it’s taken without notice before, your payments to bounce and you to face bank charges. Technically, the rules give wide-ranging powers to banks, way beyond just sorting out unpaid accounts.
How to prevent this to happen?
Best way to avoid this is to keep your debts and bank/savings accounts in separate institutions. It is easier to move savings than debt. If you’re having financial difficulties, go for the Basic Bank Account or check with your local credit union offers current account.
Rules with Banks on setting – off.
You can check on the Lending Code, a voluntary code of practice and most banks subscribe to it, and the rules are binding.
While banks don’t directly divulge before they are going to take your money, they need to inform people of the circumstances of setting off rules.
The bank also need to look into whether you are having or heading to financial difficulties before they take money out of your bank/saving account. They should leave you with enough money to cover reasonable daily expenses and priority debts (mortgage. rent, tax, food bills).
It is always good to know your bank and lender rights, even if you are in debt.
As I am always reviewing my finances, I came to realize few things that I may have been falling short of.I have short-listed some of the mistakes I kept on going back to:
- Lack of Self-Control – Setting aside funds to cover my bills, but used it for something totally unrelated. Each salary day, I set aside money for all the bills and other expenditures. However, there are just moments that I could not control spending on something that is beyond the budget allotted for the month.
End result: more overdraft fees, penalties and panic attacks than I wish to reveal.
- Unrealistic Spending – I set aside a grocery bill every week. But I always end up adding little items at the store, and tend to forget occasional dining out, gas, or entertainment. These small amounts added to the weekly spending (let’s say $25 per week that is already a $100 in a month!), is already something that could have been used to cover for the debt payments.
- No Blow Money – In life, things happen! But the real test is whether or not we are prepared financially or not. No matter how much we have saved in our emergency fund, budget needs a cushion each month to cover the small, but unexpected increase in expenses. Otherwise, we’ll continue to dip into the savings account until it no longer exists, forcing us to resort to credit cards or personal loans.
- Base the Funds on Gross Amount, Not Net – Once we are employed, we have the tendency to plan our regular spending based on the gross monthly income. We tend to forget to account for the taxes, retirement deductions and benefits, which definitely steal a portion of the salary! It is a simple thing but yes, we tend to forget all about it.
- Pessimist’s Mentality – I believe in the old adage “Your attitude determines your altitude”. This definitely applies to budgeting; if you view the entire process in a negative light, chances are it won’t work out for you and you’ll continue to live in dire financial straits. By contrast, constantly reminding yourself that it’s totally possible to follow a spending plan is one of the most important things you can do to stay motivated.
At the end of the day, before I completely overhauled my budget, I spent few moments scribbling financial goals I wanted to accomplish in the future. Some could be as simple as saving for a family vacation fund, but, it became a great way to stay motivated every month!
There are no debt problems that cannot be resolved! We may not be able to come up with quick solutions or immediate fix, but there should always be a way to solve it. And the earlier you deal with it, better debt management.
Debt is not just a monetary issue, it involves the wholeness of your life. So, solutions are wide and varied – from cutting on spending, finding lower interest rates, budgeting, or simply getting out of your debt with a help solution from experts.
There are ways to deal with debt problems. Which one is right for you will depend on whether you’re in a technically defined debt, or if you are just worrying or due to huge debt.
There’s a strong indication if you answer yes to either of these:
Are you having difficulty paying all your basic outgoings: mortgage, rent, energy bills or credit card minimums?
Are your debts (excluding your mortgage) bigger than a year’s after-tax income?
Before you start tackling your financial problems, the basic and most important thing to do is get a disciplined handle on your spending. Stop borrowing and maximize repayments. Focus on cutting the cost of debts, rather than looking at the bigger picture of all spending.
Refrain from borrowing more. Traditional debt help say: Never borrow your way out of a debt problem.
If it’s possible to borrow more cheaply elsewhere to replace existing borrowing, this can provide a huge boost as lower interest rates mean more of your cash goes towards paying the actual debt rather than just covering the interest.
If you can’t cut cost on debt, or if after doing that you’re still struggling, then consider some severe measures.
- Talk to your lender, let them know if you are unable to pay; it’s always better to talk to them.
- Get help from the government – There are few ways which may be able to provide you with interest-free borrowing than getting into commercial loan. You could get as much as $1000 lent, and repayments are dependent on what you can afford to pay.
- Free Debt Counseling – If all options are exhausted, it is worth talking to the right people to counsel you, the non-profit debt counselling help. Be careful not to confuse this with ‘free help’: many commercial companies say they’re free as you’re not charged directly, but you’ll still pay somehow.
These non-profit agencies are also the ideal people to go to if you’re being harassed and bullied for payments by debt collection agencies. The debt counselling service will inform collectors, which will then give you a month’s breathing space to get yourself on a better footing. And take care of your debt at a manageable pace.
You may have suffered from being debt-ridden for the current year, but it is not too bad to start the incoming year on a new leaf /clean slate when it comes to your finances.
When it comes to your finances, this is the best time to reflect on how you did with your spending and taking care of your debts; and plan for next year. You would also want to consider or think that you will finally taste debt freedom.
If you are carrying anything around the average credit card debt of $16,000 you likely feel the same way. Take heart, it can be done. You can kill your debt next year, or make significant strides towards it in a few simple ways.
Work on a Plan – if you want to “kill” your debt next year, there should be a plan. It is a simple process – just like planning ahead your next vacation for next summer. The basic key is to personalize it. You can use the debt snowball or debt avalanche method. You can start on a budget or you can just simply track your expenses.
Make More Money! – At times, we focus on cutting costs when we’re paying off debt. It perfectly makes sense as we need to find ways to free up some funds to pay off debts. However, this should not be focused solely on this. You may also want to find ways to earn extra money.
You don’t have to take on extra job to earn. Other ways to increase your finances can be:
- Ask for a salary increase.
- Start a side hustle.
- Pick up extra hours from work.
***Plus other great ways to earn extra money.
Make Friends – It is one of the most overlooked ways to pay off debt. Paying off what you owe can be very isolating at times. You might feel shame and disappointment or lack of courage to focus on your financial problem. Counteracting with friends will give you that sense of “company” to get over your financial trouble. These friends are meant to not only hold you accountable to kill the debt but also to motivate you. Trust me, both are needed to be successful.
Adjust your Attitude – Staying out of debt is a matter of adjusting our attitude. You don’t want to pay it off only to return to it in the future. Break the cycle of debt to look different for everyone. This means getting rid of the “I deserve it” attitude. Be self-aware to know what that attitude is and get rid of it. It will be difficult to do at first, but take one day at a time and over time you’ll see a changed attitude.
Bottom line is, commit to killing your debt now and you will be well on the road to tasting debt freedom next year.
When dealt with financial troubles, we could use all help we could get. These days, we now have more control of our money than ever before. But that convenience could mean disorganization, reckless spending, borrowing and debt.
Having poor money management techniques to your personal accounts is one thing, but doing the same to your small business funds could be disastrous. We may not be able to help you to become sensible because that’s on you. But, here are selected tools which can make a difference on how you think and act with your capital.
QUICKEN Premier – One of the most popular name in personal accounting. Quicken’s desktop tool is well-aged, feature-packed (though a bit outdated). It neatly links transactions between your accounts – so transferring from savings into a current account is one entry, with a ‘from’ and a ‘to’ rather than a pair –provides various budgeting and prediction tools to keep on track.
Personal Capital – Primary function is to track your investments, assets and savings, rather than specifically looking after your current accounts. Personal Capital offers specific advice and statistics based on your goals and current standing, but access to human financial advisors is where the company makes money. Anyone is welcome to use its website, but only accept you as a customer if you have at least $25,000 in liquid assets, and there’s an annual fee (a percentage between 0.89% and 0.49%) to pay for your assets’ management.
Buxfer - An online service that does a good job of presenting your finances in a clean, professional manner. No need to provide your exact banking details if you are not comfortable. You have the option to go offline on your bank account, but if you are comfortable, there is a security encryption to protect your data and company is regularly edited.
You Need A Budget – YNAB’s primary mission, is to help you curb overspending and avoid living from paycheck to paycheck. Stick to the program, temper your spending appropriately, and eventually YNAB will see you spending last month’s money rather than that which you’ve just earned. If you get off track, YNAB will tell what’s need to do to get back to where you need to be.
Mvelopes - One time-honored technique is the envelope budgeting system: split funds, as they arrive, into various envelopes marked for specific purposes, never dipping into an envelope to spend cash on anything other than its designated use. Mvelopes is a way to put a representation of your sectioned-off income. Designate an envelope for working capital or savings and you can grow your personal wealth or business funds surprisingly quickly. Anything you don’t spend in an envelope stays there, giving you more to play with in your next pay cycle.
You are seriously overspending if you have debt and trying to save, but there is a swift solution for this. Best solution is to pay your debt first before you save or even before you start on your mortgage. Forget the old cliché “you MUST have an emergency savings fund”. Because this logic will get the better of you while trying to pay your debts.
Here are some guides to pay off debt first rather than save at the same time:
> Pay off your debt with any savings you have. – Well, this may sound a bit off, but, yes, you read it right. My point is, if you have a savings of $1,000.00 and you owe the same amount from a credit card, compute the high interest rate incurred from your debt from the interest earned from your savings. Debts usually cost more than savings earn. Cancel them out and you’re better off.
> Banks would welcome your savings and incur debt, too! – Simply put, if you save/deposit money to the bank, you are actually lending your cash to the bank for them to lend to other people. The difference between the rate at which it borrows money from you, and the rate it charges others is the bank’s profit. So, it will always cost more to borrow than you can earn savings.
> There is an exception to the rule! – The rule is based on the fact that it usually much higher than the benefit gained from savings. So, you will gain more by getting rid of the debt than starting to save. Consider these:
** Penalty exception. If you are caught into a debt, paying it off will incur penalty, so does with some loans and mortgages. Then leave the cash sitting in a savings account until the penalty’s small enough that it doesn’t matter.
** The interest-free / very cheap debt exception. Debts cost. Yet those who carefully and conscientiously manage their debts so they’re constantly interest-free should follow the opposite logic. If the interest rate on your debt is less than the amount your savings earn after tax then, providing you’re financially disciplined, you can profit from building up savings and keep the debts. In effect, you’re being paid on money lent to you by the banks for nothing.
> Should you need an emergency fund? – This question may be difficult to deal with, because the idea of having some cash available makes one feel safe. Especially when we talk about traditional budgeting, it always reminds us to have a bit of a “savings”. But I beg to disagree, the aim-point should be to become debt-free. Still, the best thing to do is to pay-off first your debt using your savings/emergency funds.