by Hope
This is our Sunday series where we all respond to reader questions. If you want to submit a question, please go to this post.
Question of the Week |
| How are you going to handle difficulties and emergencies now that you are in debt reduction mode and will no longer be relying on credit cards and loans? posted by Hot Sauce |
Stephannie |
| When my husband started with his medical problems they were running all kinds of tests to try and figure out what was wrong. We had gone to Houston for a major test and before we could sign in they wanted $1,800.00. I completely panicked and all we could do was put it on a credit card. His health problems were the main reason I shelved my business and went back to work for someone else. We just could not afford all the medical bills plus the debt we had accrued. I went back to work full time, worked my business on the side as much as possible (monogramming) and worked a second job in the evening at my parents business. Because of this we were able to put some money into an emergency savings account while still paying down our debt. That was a hard time on our family because I was never available for my girls since I was always working. While it was hard, it was so worth it because we now have a little set aside for emergencies. I am now only working at my day job and doing a little bit of my business on the side. But, if we needed it I would do it all again because I don’t ever want that feeling again of knowing we have to pay for something that concerns our health and the only option is to put ourselves more into debt.
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Jim |
| That is a real toughie for me. You see we already live paycheck to paycheck. This wasn’t always the case… Before I quit my job, to be home with my family, I was making around $4.5k a month and we did have a good savings. But little by little, the savings got eaten up. But I do want to build that emergency fund up, because my wife and I have terrible luck. After the end of this month, I will have a clearer picture of where my money is going and where I can budget everything. After that, my first priority is to start that emergency fund. I haven’t really relied on credit cards for a while now (another story), except for the one store credit card. That is for a clothing store of my wife’s. She has lost a lot of weight since we have been married. And I know that she will need clothes for the summer. Hell everyone will need clothes, except for me hopefully. The kid’s I try to buy next year’s clothes after the season ended on clearance. But it is getting harder to find these clothes. But yard sell season is coming and I am anxiously waiting to find what kind of deals and steals I can get this year.You ever notice that when a real emergency comes up, you somehow find the money? Whether it is from robbing Peter to pay Paul, or selling stuff? Somehow you always do, well I hate the fact this happens all the time with us. So hopefully I won’t have to once I sit down and look at where all my money is being spent |
Hope |
| I am on the fence about an emergency fund. I know I should have one, especially with four kids. However, I also know that I am really bad about dipping in when I shouldn’t. I did well last fall and saved $50 per month in an account that I cannot access without going to the bank – no debit card, no online transfer, etc. That worked. I put the money in when I deposited a check and didn’t think about it. In addition, I am leaving no cash I can get too, everything is going to bills or to debt. We are living very lean in trying to do this. But then an emergency struck, my son broke his hand, and I had to rush him to an Urgent Care after bank hours. I had no access to money, none! Thank God, literally that his dad lives 30 minutes away and met me halfway to bring me the money to get him seen.So the answer is, I have no idea. I am not a panicky person. I have a good support system I could call if needed. And I carry life insurance in case of the worst. I think I would probably fly by the seat of my pants and trust God, karma and my great family and friends would help me for now. But I am considering starting my inaccessible emergency fund again, maybe. Would love to hear the communities thoughts on it.
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Ashley |
| I think, for me, the biggest change will be a psychological shift. When we experienced our most recent emergency (with my husband’s health crisis – discussed in this post), my immediate reaction was to whip out the credit cards and reserve cash for only the essentials (e.g., rent, utility payments, etc.) In the end, we ended up accruing more debt that was totally 100% avoidable because, in fact, we had an emergency fund that could get us through at least 2.5-3 months (or longer if we really cut down to bare essentials. For some reason the credit cards provided a sense of security. But that’s exactly what an emergency fund is supposed to be for….emergencies!!! I think by shifting my mindset to not viewing CCs as a “safety net” and instead viewing them as the devil (a little dramatic, but you get the idea), and relying on my emergency fund in case of emergency we should be okay. Restocking a month or two of our emergency fund is a much faster/easier process than paying down our monstrous debt that is accumulating daily interest! |
Hope is a creative, solutions-focused business manager helping clients grow their business and work more efficiently by leveraging expertise in project management, digital marketing, & tech solutions. She’s recently become an empty nester as her 5 foster/adoptive kids have spread their wings. She lives with her 3 dogs in a small town in NE Georgia and prefers the mountains to the beaches any day. She struggles with the travel bug and is doing her best to help each of her kids as their finish schooling and become independent (but it’s hard!) She has run her own consulting company for almost twenty years! Hope began sharing her journey with the BAD community in the Spring of 2015 and feels like she has finally in a place to really focus on making wise financial decisions.
Thank you all for putting your thoughts out there. Here’s my two cents.
When we first started our debt pay off journey, two of the best things we did was 1. Agree to NEVER use our credit cards again – seriously! That was a major mind change, but it truly is one of the biggest steps for us. When you’re in a hole – STOP DIGGING! Plus it makes you get creative when you take the cc out of the solution. You sell things on ebay, eat out of the freezer, etc……so change your mindset!
And 2. we built up a $1,000 emergency fund. It doesn’t cover all emergencies, but it gives us options and helps us sleep at night. I hate to use it though so sometimes it forces us to get creative to protect – sell things on ebay, eat of the freezer, etc….
We’re in year 5 of our debt payoff journey and we have NOT used our credit card at all!!! We’ve used and replenished our EF a few times, but so worth it!!!! Once our debt is finally paid off we’re going to increase our EF and sleep even better at night.
Have faith that you can live without those “evil little cards” and you will succeed!
Congratulations on not using credit cards for 5 years! I know that some people can use them and pay them off right away but that never seems to work for us. I plan on never using one again.
Hi Stephannie-
I totally understand where you are coming from in thinking you can pay them off every month and never being successful. Unfortunately, in the US, it seems a good credit score is necessary for everything! One thing we found worked for us was to start with little bills that are consistent. Example, our cable/internet is the same price every month and it automatically bills to our credit card, but then we also had our credit card on auto-pay to match that same amount! Then we stepped up to doing things where we could keep the spending under control, we only used them to purchase gasoline for our vehicles – we had a pretty set amount we used every month and it is not like you are going to see a great sale and go crazy stocking up! For many people, learning to use credit cards responsibly takes time, if we had started by saying that we were only going to use the card for groceries or at Target, we would never have been successful at paying in full every month. And obviously, we use a card that offers rewards and no interest accumulation if paid in the first billing cycle. I would not recommend starting something like that now when the goal is to see zero balances, but it is something to consider for the future.
Cheers!
-Meghan
That is something we’ve struggled with. If you get rid of credit cards and debt you have nothing to build your score with. We’ve tried using them only for gas and then paying them off at the end of the month but then “something” always comes up so we figure we will pay it off next month and the cycle continues.
Your suggestion of set bills and having it automatically set to pay is a good one.
For now of course I’m done with credit cards but when we are totally debt free it’s something to think about.
There’s a perspective in that you only need good credit if you plan on using credit. You may get to the point in your debt payoff that you never want to access credit again.
The other side of the coin is that you don’t need TONS of credit to maintain a good credit score and you don’t need to use it all the time. At the end of this journey, pick one credit card and only use it occasionally. The credit card company may close your account if you don’t use it for more than a year or so, so maybe make a point of charging and paying something off every six months.
Way to go, Den!!! It’s so scary to think that the debt-payoff journey can be that long, and longer (a reality for us, including student loan debt). It’s wonderful to hear others chime in who have made it work and continue fighting the good fight to get out of debt!
I will go against the grain a little and say that credit cards can be used judiciously and to one’s advantage. There are many financially secure folks who use credit cards all the time (no interest, of course). And of course many folks who don’t which is great too.
However, when in debt, they should truly be the last resort for true emergencies. The real problem comes with the slippery slope between true emergencies and major inconveniences. And then the one between major inconveniences and just inconveniences. All the way down the line.
The concept of an “emergency fund” actually rarely makes mathematical sense when in debt. However, getting out of debt is almost never a problem of pure math, rather you have to mix in the elements of psychology that let you distinguish between what you really need and what you just really want. This is where having a cash emergency fund can make a big difference.
Got cut off:
Seeing cash get spent instead of swiping a card really helps make sure that something is a true emergency!
I think using credit cards can work for some people but I’m hoping to be done with them. You’re so very right about a slippery slope.
Your addition to your comment is exactly why we want to rely on cash. Swiping a card makes it easy to lose track and using actual cash makes you (well, me at least) really question whether it’s necessary to spend it.
I’ve yet to reach a stage where I am 100% able to commit to quitting the credit cards. It’s the absolute goal, but like at the swimming pool, I usually test the waters at length with my toes rather than jump off the diving board in a big cannonball splash!
My first step however has been to remove it from my wallet and place it locked in the safe. This has already had a dramatic impact on it’s use and in many cases removes it as even a possibility.
That’s what I’ve done as well. I just leave them at home then I can’t be tempted. I’m glad you’re making progress! I’m finding that little changes and being very conscious of the decisions we are making has helped a lot. Good luck on reaching your goal!
Jim-You may want to try Goodwill for your wife and kid’s clothes. Goodwill has a lot of women’s clothing at rock bottom prices. You can get cotton tops for the summer for $1.5 each. You can’t beat that. I’d try that until you have more income. As for kids clothes, yard sales are good but so is Craigslist. Often times, under the “free section” people will have boxes or bags of clothes. You also might find some friends or relatives that would be eager to give you clothes for your son, if they know you want/need them. Kids grow so fast as that age, it’s hard to pay full price. Also, Gap Kids used to have sales on Wednesday’s (not sure if they do now) and they’d have new clothes on clearance for $3.00 or less sometimes. If you get a sales person and let them know you like sales, they can call you and give you a heads up when prices hit rock bottom.
I’d also like you to quit thinking about your life in terms of “bad luck”. You really need to banish those words from your vocabulary since you don’t want to “attract” that. You have a good marriage, nice kids, a nice family and lots of blessings. You sound like a generally nice guy. Instead, we all have times when things don’t go our way. When a person isn’t financially prepared, it’s overwhelming because the debt aspect of it is stressful. As you bring more order to your financial life, you’ll find that a flat tire isn’t as big of a deal, when there is money in the bank to fix it, but when there is no money, it “feels” more like bad luck. It’s also important to understand that we all have seasons where it seems that nothing goes right. That’s part of life. Nothing (good or bad) ever stays the same and sometimes, all you have to hold on to, is that things won’t be that way forever. If you look at other people’s lives, (celebrities are an easy one to look at), you’ll see that everyone has hills and valleys in their life (think Paula Deen, Martha Stewart going to jail and then re-building her brand, Donald Trump being bankrupt then coming back), etc. and it puts things in more perspective. That doesn’t mean that when things go wrong in our life, that it’s not demoralizing, hard, unfortunate, etc. It just is.
Hope-I hear you about the savings. I opened an ING account (not called Capital One) and use it as my savings account. Because it’s not a brick and mortar, it’s hard to get money out and it usually takes a few days to transfer the money to my main checking account. Kind of out of sight, out of mind. There are many incentives out there for opening an account so be sure to look for them and earn some money when you do that. I also opened a Capital One savings account (it used to be called ING Checking). I opened it because they offered me a $125 incentive to do so, lol. The advantage to the checking account was that I got a debit card that I could use for both checking and savings (I don’t think the saving account offered one if I recall.). That way, I can use the debit card to transfer money from the savings to checking and withdraw it in case of an emergency. I like that the money isn’t in my main checking accounts. I didn’t open those because it was hard to access however I was thinking that it might be helpful for you. It takes a while to change our mindsets a bit and I am sure you’ll be successful.
Hi Mary-
I really like how you mentioned getting the “we attract bad luck” mindset out. There can be a lot of truth to that. I once went to a conference where one of the workshops was on “hunting the good,” the idea was to intentionally find the good things in your day; at first the recommended activity was to, each evening, find three good things that happened that day.
Another thought on yard sales, I live near a metropolis and was not a fan of them until recently because I felt I was wasting my time with the quality of what I was finding…..until my sister-in-law who always has awesome finds shared her secret with me. Now, we almost exclusively hit up yard sales in the wealthier neighborhoods, I find name brand (often like new) kids clothes for pennies on the dollar – and if you are buying a few pieces they are always willing to negotiate.
Cheers!
-Meghan
Thank you Mary. I will try my hardest to start having the Law of Attraction work for me again. You are very right about everything you said. Once again, thank you
I don’t even see it as bad luck–I think Jim has consistent problems with planning and long-term thinking regarding anticipated events. The pipes freezing were not bad luck. Getting a house broken into and not having insurance is not bad luck. Not paying off a credit card before the 0% runs out is not bad luck.
You may be right here, but I am trying to get my act in order.
Actually, I’d like to amend that–you remind me of my dad. Lovely guy. Smartest man in the room. But an addictive personality, a gambler/hustler to his core, and never met a limit or a boundary he didn’t want to test. He had a real craving for excitement that was hard to live with, and I wonder if spending $75K on gaming equipment, hoping that the pipes don’t freeze in the world’s coldest winter, and credit aren’t your version of some of his behaviors.
The $75k was over the course of my lifetime. And it wasn’t the fact that I was hoping that they wouldn’t freeze. I had planned and called about an oil delivery and I ran out the night before they were delivering. Yes I wasn’t planning on the coldest winter, I wasn’t planning on having to spend close to $2000 in two months to heat my home. But at the same time, there were many people that are way better off financially, that ran out of oil this winter.
How old are you? This is the first house I have lived in, before that it was all apartments, I never had to worry about oil and whatnot. Not saying that’s an excuse, but it was a gamble. Where do exactly you live? I am willing to bet that it is in Arizona or California. It was a hard winter for a lot of people.
I’m older than you, and I’ve lived in both Cleveland, OH (in a house I couldn’t afford to heat above 55 degrees) and in the Northeast. I know from cold. I also know risk-taking behavior, and excessiveness. $75,000 over the course of your lifetime? That was in 2009. So that was $75,000 by the time you were about 27, right? Even averaged out like that it’s $2-3K a year, amortized over your lifespan. But you spent it all in a shorter period of time, no?
You are right I do have risk-taking behavior, for I have an entrepreneur spirit. In my opinion, those that want to be/are entrepreneurs they take many risks. Now about my games, this has been since I was around 7 years old, when I first got the Atari (which I still had up until they were stolen) I was getting gifts of games from that time. When new systems came out, I was also given them. I had about 10-15 games a year. But when I got my first job at 14, that is where most of my money went. But you would be correct that I was probably doing more than $2k-3k a year. I probably spending around $300-400 a month, when I was single.
My point of that post was while many of my friends were going out two-three times a week, spending $50-60 a night. I bought a game, which kept me out of trouble for the most part, and gave me hours of enjoyment.
And while you might not agree with this or not, the fact of the matter that I didn’t divulge on, I have made roughly around $35,000 in competitions and sponsorships since 2005. This paid for this habit.
Also, it allowed me to network and now I have a long term contract with a big box store. Now I got my Xbox One and PS4 for free. I get over 100 games for free throughout the year. And During October-December I have an hourly wage, that pays for my family’s Christmas, without going into debt.
You are very right Lynn, I do have to live with that. But know that it was basically a mutual decision, between the corporation and I. You can say I was let go, but during the same time I quit. If that makes any sense.
If I were to go by this post, my initial reaction is that at this point Stephanie is the only one who has a shot at making it out of debt. I don’t say this to be unkind, but the mindset I see from these posts I find very troubling.
Jim, let go of the bad luck crap. Everyone has bad runs of luck and circumstances are not entirely responsible for where you are. You quit a well paying job to spend more time with your family. That was a decision that you are responsible for. I am happy for your wife’s weight loss but she could buy smaller clothes on the secondary market. Garage sales, thrift stores etc have many high end clothes if you look. And you don’t need a credit card to buy them.
Hope you say you are really bad about dipping into an emergency account, Let me ask you, who is making that decision? If your child was indulging in self harming behaviors and when you called them on it and they responded “I am really bad about that”‘ what would your response be? It is really simple, if you want to get out of debt one behavior you need to adhere to is don’t dip into the ER fund unless it is an emergency. There is no magic bullet that is going to replace self control and adult decisions.
Ashley,I don’t even know what to say. CCs give you a sense of security? You cannot make financial decisions with your feelings. You are obviously intelligent. Please stop agonizing about changing your mindset and just do it.
I know this sounds harsh, but honestly you guys have to make a decision about what you really want. I know you want to get out of debt but you are going to need to marry that desire with some determination and sacrifice along the way. I would encourage each of you to go to the library and check out The Tightwad Gazette by Amy Dacyzyn. Though some of the info is outdated, she addresses the mindset of thrift and frugality as tools to use toward reaching a goal. You seem like lovely folks and I do wish you the peace that comes from having your finances under control. But my wishes and your desires ain’t gonna cut it. You have all got to make up your minds that you will do what it takes.
I do wish you well. Now you can sit back and enjoy watching get roasted by the folks who will say I am too harsh. : )
I think that you should cease worrying about whether stopping the use of your credit cards would hurt your credit score. Your credit score is impacted by many things including paying all your bills on time. If you have a mortgage, cell phone, utility payment, car payment etc. that you are paying on time, then that influences your credit scores. Also, at this point in your life, are you looking to take on more debt? I would say that you should keep your oldest credit card open if you are worried about the length of your credit history.
I agree with this. Keep a card open for the most dire emergencies and put it in somewhere to remove temptation from using it (frozen in a block of ice, for instance).
It doesn’t take much to have good credit. It also doesn’t take much to ruin great credit!
Nope, we hope to do everything cash once our debt is gone. We did worry about how our score would suffer because that’s looked at for all kinds of things like insurance, utility deposits, etc. We do plan on keeping the cards open once they are paid off.
Tenn, I think you are mistaken. Half of the things you mention don’t really impact your credit, unless you stop paying on them. Most utilities and your cell phone don’t report to the credit bureau.
Jim – You are correct, but I hope you understand the general point behind the comment. Using a credit card to improve your credit score should be a last resort, esp. if you are paying interest on what you are buying. There are many other ways to increase a credit score.
I completely agree with you Tenn. The other ways to improve your score is something I want to read up on more. You will find out why soon, why I personally need to research this
Jim – one thing to consider on the clothing front is that you really don’t need to spend hundreds of dollars on tons of clothes. I only have a couple pairs of pants, a few shirts, and enough underwear to make it to laundry day. I wash all of my clothes every week and if I don’t wear it, I get rid of it. Dresses are also really economical.
Another item to consider is that clothes don’t necessarily need to be washed after a single wearing. Growing up on a farm as kids, we wore the same clothes until they were dirty. Now, I get that kids tend to get themselves into messes, but to the extent that they make it through the day with relatively clean clothes, let them wear them a second day.
Most people could get by with many fewer clothes than are in their closets. I also second browsing goodwill, consignment sales, and if you buy new, then check TJ Maxx and Marshalls for good deals.
Believe me Walnut, I have shirts that I own from ten years ago. I rarely buy clothes. I do however need a new pair of sneakers come nicer weather. Last year the sole fell off my one pair of sneakers, the other is just as bad.
We will search before resorting to buying new.
I bet you’ll find a great deal. If you’re not picky, ugly sneakers can always be found on clearance racks! I was recently at a housewarming party where the new folks were giving house tours. The master closet was totally packed wall to wall with clothing. I later was picking up on the drift that the couple was not doing so well financially and all I could think is that they had easily $5-10k in clothing in that closet. Imagine the cash flow they could find if they simply stopped consuming clothing!
I haven’t paid more than 25 or 30 dollars for sneakers in years. I go to Joe’s New Balance Outlet and get whatever running or cross training shoe they have in that price range. Last me a couple years (wear boots in the winter). And no, it is not my website! 🙂
I usually go for the same price range. And I also wear boots in the winter. They last me about four or five years. Sneakers last about 2.
Stephannie has a great mindset going here. She made some really hard decisions and did what she had to in the short term in order to stabilize the situation. Once things were back on an even keel, she scaled back to make more time for family (and sanity!). You’ve got a solid income and a little side business to bring in extra, while not sacrificing all of your family time. I think that’s A+!
Jim is tracking his money and talking about using any excess to save up an emergency fund. It’s a good start, but, as others have noted, the bad luck attitude is concerning. I’m going to rant a bit, because this attitude is a huge pet peeve of mine.
Stop complaining about all the stuff that happens “to” you and start taking control of your own life. Everything is a choice. Every decision you make has consequences. My husband got three flat tires in the last year. Terrible luck, right? Well, yeah, ok, but the tires he picked out and bought just aren’t very durable. So, that’s on him. Next time he buys tires, he’ll be smarter about it. In the mean time, he knows that he may need to patch these some more and ultimately, he’ll need to replace them sooner than planned. Needing new tires is not an emergency, you know it’s coming. Plan for it. I’m not saying bad stuff doesn’t happen, I’m saying that most of the time it’s attributable to bad choices and poor planning. And sometimes there are nothing but bad choices, but there’s always a choice. Own it and make the best of it and stop blaming “the world” for making your life suck. If you don’t like your life change it.
On a less ranty note, I’m looking forward to your post on your spending and hoping to see you put a solid plan in place.
Hope – You need an emergency fund. I’m a big supporter of only having as much as you need, but it’s just you on one income with four kids. It’s irresponsible not to. Start a new one, and if you find yourself dipping in when you shouldn’t, restock it, and then sit down and figure out why it’s happening. Did you not plan for a sporadic expense or annual bill? Are you dipping in for frivolous stuff? Even if you need to budget more for something to keep yourself from dipping in, do it. You can always try to reign in that expense later. Behaviour change is hard, do it one step at a time. You don’t have to be perfect (repeat that to yourself as needed), but do try to always do better. Better is having an emergency fund even if you dip in when you shouldn’t. Better than that is a fund you don’t dip into even if your budget is a bit higher than you’d like. I’m not perfect, you’re not perfect, but we can both aim for better than yesterday, right?
Ashley, I would recommend you sit down and figure out a solid plan for how you will handle emergencies. You had one, you didn’t like how it was handled. Great, what would you do differently. Figure it out, write it down and stick to it next time. Make these decisions with a calm, level head. Not in the middle of a panic! Personally, I charge everything, but it always gets paid off at the end of the month. If I can’t do it from my monthly cash flow, then it comes from my emergency savings, and if I have to, other targeted savings. After tapping all savings, I would then consider taking on debt, but a credit card balance is still at the bottom of a list of other options