Anonymous Mommy Blogger
Let’s talk about debt baby
Ok you guys. I’m writing this anonymously. I feel like I can be more honest this way and I really want to pass on what I’ve learned from my situation to whomever can benefit.
This post is for the moms who are out of money before month. This is for people who are of average income and have an average family life and you feel like everyone around you is handling finances so much better. They seem average too. What gives? I haven’t figured that one out yet but my hypothesis is that many more families are struggling than what they let on. It’s stigmatized to talk about, especially if you make fairly decent money and into your 30s it’s just not as funny as it used to be to be broke the day after pay day.
Here are some steps that I’ve researched for how to get out of debt in your 30s…
- Save up a rainy day fund. This one is going to seem crazy and might make me seem out of touch. Like seriously if we had a rainy day fund we wouldn’t be reading your shitty blog post. I know, I get it, but here me out… Before you start this process, try saving a few tiny dollars. $200, $500 or $1000 is even better. The old saying “it takes money to make money”. You got it babe. There are several reasons for this. The first reason is psychological. How good would it feel to have $200 left at the end of the month? When you’re used to putting the last grocery haul on your credit card, pretty darn good. How great would it be to know if you needed to call a repair guy for a sewer back up that you could write him a (good) cheque? Plus let’s be honest, you need to take an honest look at your spending anyway (I’ll get more into this later). Find the first $200 by cutting expenses. Cut your cable, reduce cell phone plan, make a grocery budget. Many of you have already done this but if you haven’t, do it now. The third reason is that sometimes, it takes money to change something about your situation. A thousand dollars could buy you a beater you can drive for a few months if you lost your job but still needed wheels. If you change jobs and you’re struggling financially, a few unpaid days can be hard to recover from. Enter rainy day fund. Don’t let a couple hundred bucks hold you back from making needed changes but being literally paralyzed by finances.
- Cut variable expenses. I know this one is a given but it’s worth mentioning. Someone once told me “live like no one else today so you can live like no one else tomorrow”. Really evaluate what you NEED for survival vs what is expected of you. The thing I find really hard is fundraisers, lunches out with coworkers and anything where I feel judged if I don’t participate. Say “no” to literally everything except for groceries and utilities. Try staying at work for lunch. Not only is packing a lunch cheaper but if you go out at lunch every day, guess what? You’re doubling your gas bill! Another tip, read every piece of paper that comes your way. New cell phone contract, credit card bills, utility bills. You wouldn’t believe the charges that can appear that no one ever questions. I submitted some receipts to my benefits company. They sent back an explanation of what they would and wouldn’t cover. In tiny writing at the bottom of the page is asks for more information. If I hadn’t have read, I would have assumed they just didn’t cover the whole amount, which they eventually did cover 100%. If you must make a purchase, compare, compare, compare! Do your research. The most mind numbing activity I ever had to do was research winter tires. BORING! But I can now tell you that tires go on sale every April and October and that all weather tires are different than all season. Get familiar with spreadsheets and make one for every financial decision you have in your life. You can’t possibly keep comparables in your head so write them down in excel and when you do research, make sure you’re comparing apples to apples. Winter tire quotes – is that installation included, what about recycle fee for the old tires, etc. Get the whole picture. One final note on this is that youtube can teach you anything. Need build a secondary suite in your basement? Youtube! Which leads me to my next point…
- Find alternate income. The one I did for years is a basement suite. Use that rainy day fund and invest a bit in a reno that can pay you back in spades. The most important tip about being a landlord is be fully prepared to go without a tenant if you need to to find the right one. Don’t accept just anybody. Do interviews and check references. And go with your gut. Next, after a suite or room rental is to rent out your toys (boat, camper, quad). I imagine that if you’re serious about getting your finances in better shape, you looked at that camper or boat payment and thought ‘surely, we can do without this’. Well, I know from experience that it is very difficult to get out of these types of loans. You can only trade in to a dealership if you buy another unit. They lose their value very quickly. You’ll likely never get back what you paid if you sell privately, yet the bank will expect full payment if you sell and transfer ownership. Also, if you bought newer you probably have a 20-year loan. So selling is sometimes not an option unless you have the cash to pay the balance off to the bank. In this case, I recommend renting it out. People who are smarter than I am are not buying these vehicles or campers to use once or twice a summer and paying to store it the rest of the year. They’re renting from a dummy like me who makes a monthly payment that I can’t get out of! Since this is so trendy, there’s a few websites out there that can help you connect with rentees and give you insurance so that your asset is covered through the process. You can more than make up for the payment in a few months in the summer from rental income.
- Cut fixed expenses. Evaluate major monthly payments. Mortgage, truck payments and recreation are likely your largest monthly expenses. This is where you need to really ask yourself how much of a priority is it to you to get out of debt and what are you willing to do to reach that goal? Car payments and mortgages are a necessity in today’s life. But are they? A couple of years ago I lost my job. We had a very nice large house with a basement we rarely used and only for laundry. We took some money we had saved up and converted our basement to a suite. Then we moved out. We moved into a smaller house and rented out the big house as two suites at $2900 a month- the upstairs suite for $1500 and two renters in the basement at $700 each. This more than covered our mortgage and expenses for the house with some left over. Another option is to relocate your family to the basement and rent out your upstairs. Even Scott McGillivray recommends this if it’s feasible. An upstairs suite commands more rent. Or, consider selling your house and moving to an apartment for a year or to a parent’s basement. Anywhere you can save a bit of money on your housing costs. I know it seems extreme but it’s only temporary and the more money you can carve out the quicker this process will go. Next is car payments. Visit a dealership and get some options for consolidating. The salesmen will be experts on how to get you an affordable payment. I know 7 and 8 years is not the ideal but get that monthly payment lowered for some short term gain. Go down to one car if at all possible or take the bus. We sold my husband’s 10 year old truck last month and went down to one car. We were contacted by a man from Saskatoon who said he was a wholesaler and ships pick-ups down to the states. I thought it was a scam no question. Well, the man showed up and met us at our bank to obtain a bank draft for the amount we had negotiated with him to purchase our truck for (which conveniently was the amount we owed on the truck). He took the truck and left us with a check which paid off our truck. I was shocked that it was that easy and not a scam!
- Balance transfers and consumer proposals. Balance transfers are really a hidden gem for anyone who has decent credit. I can tell you that I have around $25,000 in credit card debt currently but it all at 0% for the next twelve months. So this is where you open a new credit card (or an existing card you have if they have offered this to you) that offers a low interest rate if you transfer a balance from another higher interest rate card to their card. The best offers out there are 0% interest for 12 months with a fee of 3% of the value of the transfer. With regular credit cards charging 19.99% or higher, you’re really just spinning your wheels making payments on this. It’s very hard to make progress on paying these down unless you’re making very large payments every month. You have to be careful that you’re not looking to make major financial decisions when you open new credit products such as credit cards because this can lower your credit slightly. But keeping high balances on existing cards doesn’t do your credit any favours either. If you’re using more than 80% of a limit on a credit product, your credit downgrades because they expect you will be seeking new credit soon. Try to keep your credit card balances under 80% of the limit. If you google this subject there’s readily available material and instructions on how to manage this and which cards can give you the best offers. You can also keep one card free so that once you reach the end of an offer period and if you haven’t paid off the balance, you have a card free to transfer the balance onto. Likely if their card has been sitting unused for a period of time, they’ll be chomping at the bit to have an offer ready for you! Also one note about this. I don’t know if this is scientific or not but I’ve noticed that my cards seem to have offers for me in the spring. Like March/April-ish. Also, read the fine print. It is to your advantage to only transfer a balance onto a card with $0 balance. When you make a payment, it is allocated to the lowest interest rate balance first. Therefore, if you have $9k at 0% and use the card for $500 purchase, your payments will be allocated to the 0% balance first before it ever touches the $500, leaving that to accumulate interest unless you pay off almost the entire balance. Again, this is where that small but mighty rainy day fund may be of use. If you have paid off a card to let’s say $1000. And you have a great offer that expires next month, it would be great to have the money to pay that off and take advantage of 0% for a whole year. You would probably save that much in interest. You also must make your monthly payment each month (on $15k it might be $120/month). If you miss this payment, even by a day, bye-bye 0%.
Consumer proposals involve a professional credit counsellor or bankruptcy trustee and are basically one step before bankruptcy. Your credit will take a major hit. But a person who represents you will negotiate with your debtors to lessen the amount you owe and consolidate it into one payment at a reduced interest rate. If you make good money and haven’t defaulted on loans and are not at risk of your possessions being taken away, you really are better off to just pay off your debt. I actually had a credit counsellor say this to me once. Regina has a great free credit counselling service and they offer webinars and brochures targeted at couples. There is nothing to lose by seeking some free advice. Except that you do have to pay for parking…
- A few more notes: make sure you claim any additional income on your taxes. If you own a rental property there’s tons of deductions you can write off. But I don’t recommend skipping the tax man in this process at all. Also, cover your butt with insurance. Always make sure before you rent something out or make a change to call you insurance company to see if you need an additional policy. When we converted our house to two suites, we needed a commercial house insurance policy which was quite a bit more expensive but very worth it.
And that’s all I got for now. If you’re in major debt you’ll need to major overhaul your finances. It is uncomfortable at times but you’ll get out of the process what you put into it. This is also a long process. It might take years. But just like stepping on a scale at the beginning of your journey to see how far you’ve come, record all of your debts today and track your progress. Sometimes a big victory is just getting interest rates lowered so that you can coast for a while without racking up interest. If you have a health issue or job loss, this really will take some of the pressure off
I’m happy to take individual questions about personal situations if you want to send them to Jennie, she can get in touch with me!