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This is a practical series based on life experiences covering many ways you can get tough on credit. Whether its an overdraft, bank loan, mortgage or credit cards.
WEEK ONE
Warning: This is a rough/draft topic that is yet to have its pictures, diagrams, video links, tutorials embedded. You are reading a draft, wordy version and welcome to chip in!
We’re going to look at established methods to support those lines of credit and real life experiences in mitigating risk (to you and the bank.)
Oh and the stress this can cause. Sometimes daily. Chip in with your ideas, feedback, concepts. Eventually this could all go to a lifeskils online tutorial to help as many as possible.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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“Embarking on a Journey with Pete and Jill: Mastering Financial Support”
Join us on a transformative journey with Pete and Jill, a story that began over three years ago when they triumphantly cleared the slate on their old credit card, effectively hitting the reset button on their financial situation. Pete, the meticulous account manager, not only provides online services but also engages in restoration work as a cherished hobby. Together, they have adeptly navigated their home expenses and mortgage commitments.
However, as time passed, Pete began to realize that their credit card was being treated almost as casually as tap water – a convenient but potentially perilous habit. Concerns loomed over their ability to not only keep pace with their expenses but also articulate the rationale behind their credit card usage to one another. It wasn’t long before Pete became apprehensive about how it had evolved into a catch-all solution for both their immediate and extended family’s financial needs. The family seemed to sail smoothly without the need for credit cards or bank loans, painting a stark contrast.
Pete found himself pondering: How do I regain control of this situation? How do I articulate my predicament if asked? The weight of embarrassment and stress settled in. Being a provider by nature, Pete grappled with this new reality. Despite his earnest efforts, he struggled to find a logical explanation for the mounting balance. He dutifully made payments, but the balance only seemed to escalate. Every family event or emergency further chipped away at their financial stability. What appeared to be isolated incidents were, in truth, a collective blind eye turned towards an ever-increasing balance.
This narrative mirrors a common financial journey, one that many of us can relate to. In the following pages, we will delve into the steps Pete took to navigate this challenge and emerge with newfound financial stability.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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Embracing the Initial Challenge – Recognizing the Debt
When it comes to confronting debt, your mindset can either be your greatest ally or your fiercest adversary.
First and foremost, let’s establish a fundamental truth: It’s a debt, not money you possess. Regardless of its origin (as outlined below), you are indebted to someone or something. In our narrative, it takes the form of a credit card balance. However, for you, it could stem from various sources:
An outstanding bank loan,
Borrowed funds from family or friends,
Assistance from the ‘Bank of Mom and Dad,’
Charges accumulated on a credit card,
Funds withdrawn from superannuation,
Savings tapped into,
An ongoing mortgage,
Utilization of an overdraft,
Falling prey to an online scam,
Unsettled accounts with creditors (e.g., vet bills or car repairs).
This journey encompasses all these scenarios.Before you proceed, imprint this truth in your mind: THIS IS A DEBT. THIS MONEY IS NOT MINE. It is a balance that is owed. Even if it originated from Mom and Dad, they, too, had to acquire it from somewhere. Do you not owe them this? Let’s not play the ‘they’ll pass away someday’ card… because, honestly, are either of them or both still alive and in a position to assert their rights? Unless it was a true inheritance, you are in debt.
If you received it from an external source, and it was never truly yours, it constitutes a debt. You are bound by this debt.
Let’s refrain from seeking exceptions or justifications. If it wasn’t a debt, you likely wouldn’t have arrived at this juncture. Unless, of course, you’re here to contribute alternative advice – and if so, you are welcome. In this forum, we adhere to candid, unvarnished truths.
It. Is. A. Debt.
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Acknowledge the amount borrowed was more than the amount paid
Pete thought, how do I account for this debt? The statements from the bank don’t explain everything. It doesn’t say… this was for family, this was for us, this was for the dog. Not really. And the balances seem to be growing even though I am diligently paying more than the bank require.
Oh, for a few months less than the minimum were being paid and the bank would call. The partner would answer the phone and Pete would recover the shortfall by paying the bank. But this was just pointless. He was not acknowledging that his payments were not keeping up with the increasing amount borrowed. And it was not really covering the interest (cost of credit.)
Also, within some months there were many, many transactions on the card. It was getting hard to keep an eye on.
If you were Pete, what would you do?
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Starting to become organised
You will shortly discover there are several ways to become organised. We will talk about many ways to keep your eye on the goal and reduce stress. Let’s see what happens…
Pete decided three years ago after failing for some months to recognise the growing debt and the amount of transactions that he would run up a spreadsheet. This spreadsheet could have been in a book, a diary or some other hand written form (and do this if you like) but he had access to a computer. So he started a spreadsheet to keep a record.
tutorial pauses here… as it is a work in progress… we are preparing a video tutorial to show you how Pete started his spreadsheet. Please comment below as we go and look forward to the tutorial.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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WEEK TWO
From the tutorial (note… video to follow) you will note the columns were date, description, code (because Pete was also self employed and had an accounting system), total, payment date, amount paid, balance. These were the main columns. It doesn’t need to be like this but it worked for Pete. Next to that he had optional columns for whether home, business or bank (e.g. interest) and a column for a title (e.g. holiday.)
Some of the key points from the video (to follow) include:
– a left-side slim colour coded column to show progress. This is an easy way to see where you are up to.
– ability to make regular payments to the overall balance bringing the progress bar up the spreadsheet.
– ability to make focused payments to the most recent transactions to keep current spending in check.
– ability to take the smallest of payments and pay off either a small single transaction or a part-payment.
– When the day comes to explain the account, printing this out or walking someone through it will be a great help.The spreadsheet approach makes great sense and means you can attack the credit card on multiple fronts. Can’t wait to show the video tutorial. Once you are in the swing of how this works, it’s fun and helps you focus. You know there is progress.
But there are other activities you can do too.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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Pete’s model was a hybrid model. It took the cards (two of them actually) and made it easy to see progress and make sense of small, regular and partial payments. There are two methods recommended for most debt situations: Avalance and Snowball. Let’s see if this could help Pete’s situation:
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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A typical borrowing situation
We’re pausing the training just for a moment to think about why you would borrow regularly, such as from the bank of ma and pa, or against your income (e.g. a benefit loan), credit card(s) or overdraft.
Some people do. We do. Oh, we’ll put it on the card and put it back on payday. How much was that? $50 for some basic groceries? Oh. Or maybe… pay the car bill and pay it off over a number of payments (like that is gonna work. You are already paying a debt, remember?)
Stop the horsays.
Let’s look at a few things other people actually do to avoid what is in reality, discretionary spending.
Firstly, ‘those other people’ don’t do that. At least, not casually. They might for expensive, urgent costs such as ‘honey I blew up the car and need $1500 for anew turbo unit’ which incidentally happened to us in the last year. A huge plume of smoke causing the firebrigade to come running. Insert Homer Simpson ‘still life’ blinkey eye no other facial expression emoji…
There’s a way to turn around the small discretionary spending habit that actually strains your available family fund in no time flat. Actually, two. Chip in with other ideas here…
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Changing Discretionary habit
These are meant to be immediate and easy to do. No hard work involved. Easy habit changing activities.
1. Agree that the card is not for casual spending. Go on. Agree. The card is for special purposes. Like a major repair. Or blowing up the car.
2. Agree to a couple of discretionary changing activities.
The first activity that actually works is what we used to teach our children and forgot to teach ourselves. I would appreciate it if you go and buy a silly little coin box. I’ve got one…and all you have to do is… at the end of every week (say a Friday night) put every spare coin you found lying around, in your purse, car, wallet, bag… in to that stupid little coin box. And leave it there. Don’t even think about it until it builds enough to cover the casual discretionary spending a few times over. It doesn’t matter if it takes a few weeks or a few months or even a year. It matters that you do it. It’s IN, not OUT. Not in out in out (this isn’t sex you know.)
Here’s my coin box… see, I am actually doing what I preach…
How did this go for me? Well, it became habit forming. Humans are habit forming beasts. Every Friday I would put at least one coin in the box. And you know what, it was a good feeling.
When did I last raid it? Well, when saving for a long planned family holiday, the week prior, I actually changed it for holiday spending and had accumulated a healthy amount just over $100. But I had built it up like over many months and had used it for emergencies twice as well.
I’ve just started re-using this. Let’s to this together.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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The next way to remove discretionary spending is:
But wait. Rmembering that we agreed the card/overdraft/whatever isn’t for casual spending right? RIGHT???? Do I get an Amen 😀
I bet most of us forgot the above. I’m using a card story to explain the training, so I’ll stick to that from now on, but it could be any kind of third party money source.
This situation doesn’t apply to everyone (yes, actually it does…) and that is… you know your benefit, income, wage, drawings schedule that says, this is what our income is regardless of how it is split up?
Well… write it down. What is your income? $500/week, $900/week, $5000000000 whatevers a week like a real champ?
Times your weekly income by 52 (for a year) or your fortnightly income by 26 (for a year) or your monthly income by 12. That is the actual base income, averaged income, fixed amount (not counting bonus’, penal rate additions, transport allowances etc… just the … whatever income is the base that you can say goes to family needs and fixed outgoings (oh yes, add in any home supllementary income like accommodation benefit.)
But don’t skimp out on some of the above. if you have split pay, or some goes by AP to special acocunts.purposes or direct you health, insurance, rent… it should be added in. We want the actual figure. We’re working in bulk here man. Get it on.
Ok, I’m going to say $50,000 after tax. Oh yes, we mean the after tax figure. Pete gets $50,000 per year.
Write down for the equivalent period that actual basic must pay costs. And I mean, rent/mortgage, power, internet (because we want you to be here), travel to work expenses, insurance, rates, phone. Those fixed costs. Nothing else (no, not netflix, sky, cable tv, KFC or pet grooming… nothing extra that actually, if we had to, could be cut out.)
Ok… got a figure? Work it out for a year. This is Pete’s average fixed outgoings per month:
Power $250, Internet/phone $225 (cause hes also paying off a phone on the account). insurances $200, Rent $1620 (averaged), tarvel to work/medical needs $200 and work/medical parking $40. Averaged water/rates $240.
So that’s $33,330 a year approximately.
Hey wait a secondomojo… this isn’t rocket science. Your’ averaging, not being exact. Rough it up and just work with me here.
Taking the total base income of $50k and deduct the fixed outgoings of $33,350 leaves Pete with 16,650 for discretionary spending.
Poor pete has $320 a week for everything else. Actually Pete isn’t poor. There are people with much less than that. And we haven’t even eaten yet.
The key point in the above rough workings… which any of you (actually all of you) can do is…
Be aware that discretionary/casual spending habits rob you of your ability to truly live. It’s even worse if you are using your credit in between pay runs. You need to refocus for a while instead of going shopping 3x a week (whatever.)
Oh by the way… the coin box rattles so there’s some already in there. How are you going with your box. I’m going to ask regularly. I’m smiling at the …. well, $1.80 in there so far.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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Removing casual – discretionary spending
Poor Pete. He just worked out from above that his available discretionary spend available is $320 a week not counting any surprises like a windfall, bonus, backpay adjustment. But he had been leaning on his credit and repaying.
He started his stupid little coin box. And he put his first coin in. Felt good it did. Don’t touch the bloody thing. It’s now got the etherical lock called ‘My Precious.’ Let it build up past 2x your normal casual discretary use of credit.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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WEEK THREE
The Savings Account
The next activity is so easy… ask your bank if you do not already have one… to open a linked Savings Account.
From your casual discretionary leftover, you are also going to set up an Automatic Paymen (AP.) That AP is a minimum of 5% (1/20th, 0.05) of your casual discretionary leftover. It doesn’t matter if it’s a dollar or in Petes case literally $16 a week. It matters that you do this. And it won’t hurt either. You will not miss it.
Once this is underway, leave it going. Set and Forget. It’s got a taboo on it to protect it from evil mis-spending.
What is the long term purpose for this? Let me tell you what it is… it is to eventually replace the credit use. You know, the next time you blow up your car? That use. We’re going to remove your credit use and get your life back in your hands, remember?
But it will slowly build. The advantage of using a savings account initially is so you can also gain a little interest (but just like big man…. small part syndrome… little means little.) It is what it is. The sun will still rise tomorrow.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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We’ll stop with the activity making for a bit and let you catch up. Heck, I’ve gone so fast in all this writing, I’ve not stopped to see who might be looking. And we definately have no comments, replies or other feedback. If you are reading, please register and add some support.
Looking forward to hearing your silly little coin box is underway and/or your savings account is ready to go. If you follow along with me we’ll all be on a strong journey in no time.
BTW… in case you were wondering, everything I am writing I am either doing with you at the same time, or already have in place.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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Just noting there are some psychological high moments when paying down debt. Imagine your loan or credit card or combined accounts went under each of the following:-
$150,000 and decreases of $10,000 (e.g. $90k, $80k)… these are good reasons to go out and celebrate those milestones on debt clearance.
$99,999 or less : The final chapter begins. Principle has well overtaken interest.
Under $20,000 – a major milestone.
Under $10,000 – psychologically $9,999 is a great achievement.
Under $7500 – the account is heading in the right direction
Under $2000 – The home stretch. $1999 is an achievable wipeable level.
Under $1000 – most salaried people can take this as … nearly wiped. Wipeable.
Under $500 – the final final final moment. You could just pay this! Begone debt
$0 – a moment of greatness. Well done. Now consider carefully before incurring debt. You’re used to debt. So be warned… your emotions might get you on the next spend.
Did you know… with credit cards, you can actually continue paying once you are at $0. This is good to know for those who habitually want to hit that card. Some people put all their residual wages/income into their card and use it every week. Be careful though as this leads you to a sense of open spendability.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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You know, if you have two or more credit cards as some do and we did in a way (e.g. a Gem account which is actually a credit card and a mastercard), some people pay more to the card with the highest interest and some pay more to the card with the lowest balance.
My suggestion: If you can, get rid of the smallest balance. This means you can then focus on the higher debt. So, pay what is due and spent on the higher card balances but pay a set large amount on the smaller debt.
A card with a balance of $3600 at $250 a fortnight + even 30% PA interest can be paid off fairly quickly. 15-16 fortnights. Done and rid of.
Now transfer all your effort to the next lowest debt. You will find this go hard at start means additional cash on hand when you need it later.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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What about when your card is near your limit?
Most fully salaried people with a credit card know that cash is king. But having a card with available credit is also king. If you do need to cover that inevitable cash crisis, say an urgent car repair or bill, you need available cash. The best is savings of course. But this is the life of the squeezed middle or lower income earners.
Once your credit was near your limit you might totally freak out. No way. This was not on. And so you would pour every $$$ from every corner into it to ensure one thing and that was to ensure it was there and available for the next emergency.
That meant reducing the balance as quickly as possible by at least $2,000 . Which is about where you need to be for those emergency purposes that happen ocassionally.
This should be factored into your credit card or debt policies at home. Ensuring you are safe from crisis. But eventually, you should build savings to cover this so you don’t need a form of alternative credit.
To register please text username @ password to me at 0274501899 or email admin@spirit.org.nz.
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