Tag Archives: debt repayment

Four One-Off Financial Tips You Should Test Drive

Last week we started talking about some financial goals for 2015. All of them are meant to be specific, measurable, and easy to get started – if you choose to. Last week’s were half hour, tops. Here are a few more suggestions that are one-offs to kind of test drive. All of these will have a significant impact on your finances for this year, and years to come.

Do a seven day no-spending week. We talked about that a few years ago, and I did it for two weeks – twice. I’ll link the story from back then, all of which are always on the yourmoneybook.com site. Essentially, gas up, fill up the fridge, and then spend no money at all for seven days. Pay your normal bills, but nothing else. I learned a ton about where my money leaks out. It’s well worth it, and not hard to do for just a week.  http://moneybookcdn.myblogspace.ca/?p=35

Try an envelope system for any 30-day period. Take the amount of money that you will need for groceries, and for money you spend on yourself for stuff like haircuts, coffee, lunch out, and the likes. Take two envelopes and put that amount of cash into the envelopes. For that one month, you’re only spending on groceries and “me” stuff out of those envelopes, in cash. You’ll learn a lot about yourself and your spending habits. And when the envelope is empty – you’re done spending – and you’ll spend way less than you have been.

Put all your credit cards away for 30 days. No, I’m not asking you to stop breathing. I’m just asking you to see if you can break your stupid spending habits and addiction to credit cards – just for a month. Take your cards, put them in a plastic Ziploc bag, add some water, and put them in the freezer. Or put them in a sealed envelope and give them to a friend or relative that you trust. You’ll be amazed that you’ll spend a lot less money in that month. Plus, your credit card balance will love you for it.

Write down a list of all your debts from the smallest balance to the largest amount, in order. Pay minimum payments on everything but the smallest bill and attack that one with every dollar you can spare. Because it’s the smallest debt, it’ll take only a few months to pay that off in full. Then you’ve freed up all that money to attack the next smallest. It’s a debt snowball that gets traction really quickly. It really is that simple, and it’s a chapter in the It’s Your Money book.

Save or Pay Off Debts?

Two weeks ago I had an e mail from a listener asking if her and her husband should pay off their $30,000 line of credit, will still contributing $400 to their RRSP each month, or to stop contributing, and focus on the debt? Unfortunately, there’s no black or white answer, and the note didn’t have any information about their income, tax bracket, etc.

Paying off debts is way more of a psychological and emotional issue than it is about math. If it were about math, who on earth would be dumb enough to run up debt on a 19% credit card? Who would finance a vehicle that depreciates so quickly AND adds thousands of dollars of interest on top of something that’s worth less each day?

That’s why I generally advocate stopping your investments while you clean up your debts. It’ll make it go that much quicker, and you get the huge self-confidence that you’re making progress each month.

There’s also no better return than getting out of debt. With a 19% credit card, you’re paying after-tax money. The chart to walk you through what your rates really mean is in the It’s Your Money book. So, that 19% card is really costing you 27%. And there isn’t a reasonable investment on the planet that’ll make you 27%.

The issue is a little different when it comes to a line of credit that’s likely in the 4 to 5% range. It’s also different for someone who has a substantial income and can pay off their debts within a year or 18 months.

If this couple is in a high tax bracket, the RRSP savings will net them a great tax return that should then go on the PLOC immediately. So essentially, half the investing is still going onto debt.

If they stop the RRSPs, it’s only for a year or so. It’ll give them way more traction, save a bunch of interest, and get it done two years faster. But that depends on whether they are really committed to paying off the balance in the first place.

Lots of people kid themselves that a line of credit is no big deal, because the interest is so low (forgetting it’s after tax money, that rates have already gone up ¾ of a percent, and often that size line of credit is secured by their home, and they keep using the line of credit…)

Anyone who is making some pretty steep payments on their debt anyway, and is seriously committed to getting debt free should absolutely stop investing for one year, and get their debts paid off and closed. If it’s going to take two or three years, it’s your decision: Get debt free fist, or just reduce your RRSP contributions for a while.

Whatever you do, this week, you need to do a written budget of where your money is going, and I bet you can find $100 to $200 in your budget that’s leaking out right now, and can go to the PLOC without you even noticing much of a lifestyle change at all.

When we focus on saving and paying debts and this and that, we know none of these will get done with much intensity. When we have a single-minded focus to pay off one or two balances, you’d be amazed how quickly it happens. If we want to…