Wednesday, May 13, 2009

Beginning Debt Management Tutorial & Tips

I recently was repplying to a post asking what has helped you to become debt free? What websites, books, info, etc, have helped you to become debt free?  If you read this thank you for the great prompt mama. The following was my responce to her; I got to the end of it, reread it and realized it was a great tips post for this blog. I wanted to share it especially with those who are struggling to take those first steps to managing debt, but this would probably even be helpful to those who are well into their journey or even at your goal, you may just pick up some tips you hadn't thought of before. At the very least if you take nothing else from it I hope it makes for an informative/interesting read.

In answer to the direct question- "What websites, books, info, etc, have helped you to become debt free?" I didn't even think about using books or sites or whatever to become debt free honestly, it probably would have been easier if I had. I come from a background without much money at all and so always lived within my means, I was terrified of the idea of debt after watching my parents struggle with debt. I saved up $2500 and bought my first car flat out with cash when I was 19 years old (the same time I got my license). I had a credit card to build credit only and paid it off in full every month. I had never taken out a loan for anything, my parents couldn't co-sign my loans for school because of their credit issues but they made too much for me to get help from the goverment (even though most of what they made went to debt so there was no way they could help me with school). So I took classes as I could afford them.

When dh and I moved in together he brought almost 30k of debt with him in credit cards, student loans, engagement ring loan, car loan, pay day loans and ect... it was a mess. He had never paid late, thank Lord for that, but still. Then on top we ended up with another ~10k in medical bills from the health issues during the pregnancy (again thank Lord we had good insurance or it would have been several times what we were left with) then we were also trying to pay for our wedding that was coming up.

It was daunting so what I ended up doing was getting a binder and labeling it it Finances 2006 and I laid out EVERYTHING that was owed, how much a month and ect. The first thing I did was call each place where money was owed and see what the interest rate was and wrote that down and found out if there was anything we could do to lower it, which often there was- including with one of them just asking got it lowered and the student loans we got lowered from 8+% to 1.35% just for having them fax us a special agreement form and switching to automatic withdrawal of $50 a month from our bank account. If you are doing this for someone else & you aren't a legal spouse or guardian all you have to do is have them call the company or be on hand to give permission & proof of identity (usually social and birthday) for the company to discuss the account with you. The companies are use to this happening so it shouldn't be a big deal. The entry page I made up for each debt looked something like:

Such & Such Company(side note of what it is, credit card, car loan, ect..)

Amount Owed dd/mm/yyyy: $$.$$

Minimum Monthly Payment: $$.$$

Original Interest Rate: $.$% Altered Interest Rate: $.$%

notes on how to lower the interest rate if possible

Then once I had everyone figured out as far as amounts, what was due when and interest rates I started working on how to condense the debt accounts down. This was pretty easy, I figured out what had the highest & lowest interest on the credit cards. Then I talked to the credit card company with the lowest interest rate, got them to extend his credit there and mail us checks. Then I switched as much over from the higher cards to the lower one as possible, I think I totally closed out one card and paid off about half of another. So then I went back and put a big X through the page from the above quote for the closed card. I suggest doing something like this, it's very satisfying and helps you feel like you are getting somewhere, proof you can see and the action it'self of the big x through the debt is very theraputic in my opinion.

I also made sure the companies faxed us a sheet saying the account was closed when we closed each debt account. This was important later because one particular credit card company (citi) tried to screw us, multiple times, and without the fax it would have been very hard to fight. So every time I closed a debt account I always asked for faxed proof that the account was closed with a zero balance and no further charges are owed from us to the company. I kept the payment records and faxes in manila envelopes in my desk drawer with a copy of the above quoted page written on the front of the envelope so I could find each debt's info and important papers easily.

I also started another section in the finance binder that what the monthly & biweekly (since that's how we got paid) budget. For a more in depth look at monthly budgeting you can check out my post- Monthly Budget Breakdown, Tips & Explainations. Now that I'm more use to budgeting I just break it down monthly then break it down by dating when things get paid for the biweekly part. For example:
$50 AutoPay 15th of each month
$58.54 3/28
$41.57 05/10 (call in to make sure went, technical error showed)
5738237631 $59.13 4/26
paid $295 2/13 ‘til sept
169369 $198.17 05/10
204.76 04/30

The above is an excert of a few accounts from the version I keep on the computer. Each month gets a seperate on hand paper write up in the journal still, the version in the computer is an up to date easy to access and record while doing bills on line- this is especially helpful for keeping track of the ones like auto insurance that we have gotten where we can pay off 6 months at a time and save even more money that way with the 6 month discount. The date it's labeled is the date I paid it, then after I see the payment clear on our bank account I will go back and highlight (with the yellow highlighter tool on word) the payment info to show it's cleared the account. Just an extra precaution to make sure things don't get mixed up with how much money we have in the bank. However, when starting out it was really helpful to do both a total monthly budget breakdown and a what your you're going to pay each pay period budget breakdown.

Once I had the debt consolidated down to fewer accounts I filed the closed accounts in a new section at the back of the binder and set up an order for what to pay off first (again what had the highest interest rate) I didn't set up a certain amount to pay, I literally just would pay as much as we could spare after bills, groceries and minimum payments to the other debt accounts.

It was at this time I also started another budget technique we still practice. I set up up a seperate binder section for each 'event' we would need money for. One of these is always what we call the 'uh-oh' expense, when the car breaks down or some other uh-oh happens you need money for. At the time one was a 'baby' section (we moved in together shortly after finding out we were pregnant) and another was a 'wedding' section, thankfully we had already put the down payments on all the wedding buildings and priest and had bought my dress and (although I bought it before being pregnant, so for a while we thought we were going ot have to buy a new one) so that just left decorations and other ods and ends which still add up, but it could have been much more daunting. Anyways, I degress, I also did a christmas & gifts section (check out my Tips For Paying Less For Gifts post for what I do now for christmas and other gift occassions, this has saved me thousands of the last few years). But you get the idea, then I would sit down and figure out what was needed (as close as we could know anyways) for each occasion and guestamate a dollar amount.

You can go a few ways with how you work it from there. To start out I took more manilla envelopes and labeled them with each 'event' and we started off putting $25 from each of our paychecks (so $50 a pay period) to 'events' and we would just withdraw the money and put a certain amount in each envelope and date and amount the envelope on the front, then when we took money out of it to pay for an expense for that event we would also date and amount that on the front. This just helped keep track of it and worked pretty well. BUT keeping money in the house like that isn't always great for sleeping easy. So another way we tried was setting up a seperate savings account for each event, but for us this also proved more confusing, and a hassle then helpful. What we finally ended up doing was setting up one savings account, and keeping track of money deposits and withdrawels for what event in that event's section in the finance binder.

It's also really helped us to stockpile (see Food Budget- It's ALL About Stock-Piling!) and to seach for deals when buying things instead of buying at full price (that's why you often see me posting stuff like It Never Hurts To Ask- Making A Deal, BOGO & $20 off $40 Gurney's Plants & $50+ of FREE Natural Products!!!)

hmm.... I am sure I am not telling you all the set up, something seems to be nagging but I can't think of it, so I'm going to leave off there. If anything isn't clear or you want me to expand on anything or address something I didn't address here just let me know and I'm happy to help. We have paid off all of that initial debt except a few thousand in student loans- which we make more off cd interest right now then we pay in the interest of student loans and they are a tax write off, so we are just letting them sit and paying them off the minimum $50 a month. We have about ~6k in cds, savings and money market right now and bought a foreclosed house last august that we owe just shy of 40k on (we bought it for 35k and took and extra 5k to install ac and a new furnace and build new decks- since the others were literally falling apart and the old furnace didn't work) We've put another 5k into the house now in updates and the value has risen 10-20k, (it had risen 10k last time the bank appraised it, but we have done more updates since that should raise it another 10k) at a time when all the other houses are still dropping in value. But we used that same 'event' budgeting to come up with the money to do the updates :)

Anyways, hope something helps, but this is basically how we've done it. Please share your own tips below, or if you want anything clarified, or addressed that maybe isn't here buy you are struggling just ask and I'll be happy to answer from my own experience if I can.

About Me

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I'm a semi crunchy stay at home wife and mama of two boys. Extend Breastfeed, Cloth diaper, Cosleep, Babywear, Homeschool, Homebirth. My sons and I have some serious health concerns (allergies, growth hormone, kidney, lung, spine, etc...). We didn't realize they were genetic (or I had) until after Trace's birth. Tristian had some big medical and possibly/probably autism related delays in early childhood but also taught himself to read at 2yrs and started on math equations at 4yrs. Trace is bit delayed across the board by about 6 months, but as he's 1yr+ behind in height... it's not very noticable ;-) Trace is very musical and hands on. With plenty of common sense, love, good doctors and faith we are doing wonderfully!

This wonderful chapter in my life of discovering the green subculture has (mostly) ended. Living green on a budget has changed from the thrill of discovery to habit. This blog remains in rememberance- with occasionally crossover posting. I hope you join me- the same green mama on a budget, in a new blog celebrating life's daily experiences- LIFE O'KAY Still lots of crafts & crunchiness- with even more sweet family moments.

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