So Sick of Debt

can you pay my bills
can you pay my telephone bills
can you pay my automo’bills
then maybe we can chill
I don’t think you do
so you and me are through

Well, things might work that ways in the realm of Destiny’s Child, but in my world, we pay our own damn bills! So how can you do it with a minimum of stress? This is what works for me.

One evening in 2002, while planning my wedding, I realised I was finding it hard to balance wedding saving with the stuff that gets in the way. You know, a car rego would fall due just when I wanted to put a deposit down for our reception. Or I’d have a big phone bill that was going to cut into wedding savings. I had already steadfastly calculated how much we needed to save to have our wedding paid for outright, and then it was just a matter of dividing the total by the number of remaining weeks. But that doesn’t work if you suddenly need to see a dentist urgently.

So how to manage my bills into easy expected and manageable chunks? I tried to think of all the monthly or annual bills I could expect in the coming year. Then I assigned a dollar value to them all. Some I had a fairly good idea about ie by averaging my most recent phone or electricity bills. Others - such as car repairs or dental expenses - were a total guess. I did not include credit card or loan repayments, or even rent, as these were weekly and I did not want them to be thought of as `just another bill’.

When I added it all up, I was shocked at the total, and the amount I needed to save each week to pay these bills alone. I think the total was something like $12,000. That necessitated me saving $230 each and every week. It seemed like such a lot of money. How had I been paying these expenses before?

Well the answer was that I would end up having to put things on my credit card. Or have a big week or two with one big bill paid but no fun money and no other bills paid. So I was often just paying the bill a little late, or cutting things fine.

Once I thought about it, that weekly amount wasn’t so bad. It eliminated all the fear I had about what was around the corner. I made sure to include $1000 for Christmas expenses, likely (and unlikely) medical expenses, every phone and utility bill, student expenses such as text books and union fees, car repairs, registrations, insurances … and on and on. This means I never freak out anymore when a big bill arrives.

The biggest problem was getting it right. I didn’t think of half my expenses on that first attempt. It took a while to think of everything, and even then I would budget too much for one non-fixed bill, and too little for another.

Six years on and my weekly billpaying amount hasn’t changed much. It’s still only $235/week. However, the categories have adjusted to reflect changes in our living situation ie shared bills with my father in law. Probably one disadvantage of this system is that you tend to get a little blase about reducing your bills, because `you have the money ready anyway’. That’s not a good approach and I intend to rectify this soon.

So some bills are on autopay, and others I’ll pay by manual direct debit. Sometimes I’ll pay for sometjing on a credit card then transfer the balance immediately from the billpay account. It generally works. When I do occasionally find that a bunch of bills fall due and there’s not quite enough in the billpay, it doesn’t take much to cover the excess, but this is rare.

I’ll finish up with a complete list of the items included in my billpaying account:

• Car registration, repairs and insurance
• Automobile association membership - for towing and roadside assistance
• Boat insurance - I should include the service costs - see, I have room for improvement!
• Private health insurance
• House contents insurance
• Life insurance (husband) - I’ll need this next year when I earn a decent income
• Mobile bill x 2
• Home phone
• Internet
• Electricity
• Pharmaceuticals - a fixed fortnightly expense for my husband
• General medical - appointments, new glasses, dentist visits
• Internet security (McAfee) - an annual expense
• Printer cartridges - always a pain, always expensive
• Christmas - for presents, food, alcohol etc

There’s a million more items I could add but I find this takes care of the big stuff and fights any feelings of panic when I see that the mailbox is full. I hope you find a system that works for you. If you have one, please share it!

So this is my first day of being a blogger! It’s great to have an outlet for your thoughts and feelings, and personal finance has become important to me in the past few years, for a range of reasons (which I’ll go into another time!).

However, I think I might have something useful to offer anyone who is out there - like I was - looking to find out if other people were in the same boat as me. If you look at those around you, it does tend to feel like everybody has so much more than you. But I’ve learned that it’s not as simple as that. A lot of them just have high debt levels and are comfortable with that - I’ve learned that I’m not! Now, that might sound funny coming from someone who states that her aim is to buy a house (and mostly using a home loan, of course). But I’m talking about personal debt, the gift that just doesn’t keep on giving :).  I have done a budget for a few years now, and for the most part we stick to it (it gets easier, especially when you build in the things you want from the start!). But I HATE putting that money away each week for a credit card or personal loan. My car is old and I don’t even remember what I bought with the credit card, but the debt is still there. Notice I said credit card, not CARDS. This is going to be the focus of one of my upcoming posts. If you have to have a credit card, and I would say most of us seem to, having just one is enough for most people, especially those whose focus for the next few years is debt reduction.

But anyway, I’m crapping on a bit again! Needless to say, I think I have something to offer. Over time, I’ll share more personal information, but for now I’m going to be a chicken and stay anonymous!

Over the past 3 months, I’ve been able to wipe $1500 in credit card debt. That’s on one wage. We have lived pretty simply to do this, and part of the reason is because we’re living with my father-in-law. But I think most people could free up at least $100 a week  to reduce debt - with little or no impact on lifestyle. I know that other personal finance bloggers would agree. Over time, I will discuss this.

These are my biggest tips:

1)  Pay at least double your minimum credit card repayment each month - in many cases it would take up to 10 years to repay credit card debt at the minimum payment level, and that’s even when people aren’t adding to it!

2) Look seriously at your bank fees. I reduced our monthly bank fees from $60 a month to $5 just by ringing my bank and asking them which account structure would suit me best/better. I know this can be a pain (and you’re groaning inwardly) but that’s $55 a month more in our pocket  - movie tickets for two with coffee &  cake, anyone?

3) Ask your credit card company to reduce your interest rate. You might have to tell them you want to close the account, but they’ll almost definitely offer you a deal. Don’t be put off by an initial response  of “no, we don’t do that”. Just say you’d like to speak to someone about closing the account, then (once transferred) explain that you’re really trying to get on top of  your debt and you have been offered an X% rate on balance transfers from X company (research it and find a real such offer). When I called my company and said I was having trouble meeting all my commitments (I wasn’t really!), my company reduced the rate from 12.99% to 5.99% for 3 months, and the guy on the phone advised me to call back after 3 months and see what else they could do for me !

4) Cut back but don’t start by being too frugal - if you have a facial every fortnight, could you stretch it out to once every three weeks, or every month? Or could you go out one night a week, instead of two? Make sure you still have things to look forward to and build them into your budget. Don’t ignore them and then blow your budget when you inevitably do get your hair coloured.

5) Try to see the bigger picture. Even an improvement in your finances can yield massive gains. Thinking twice before buying is a good thing, and if you can come up with something that at least means you aren’t further in personal debt this time next year, isn’t that a great start? You might even get excited about budgeting …. eventually … well, maybe not !