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Robbing Peter to Pay Paul
My husband and I are trying to regain control of our finances and become "current" on our bills and pay them on-time. But we can't seem to get out of the "red" because we find ourselves "robbing Peter to pay Paul". Do you have any suggestions?
Financial Peace Helps
Five years ago my husband and I read a great book and made it law in our house. Now we are debt free except our house payment. One taste of the ability to keep a few paychecks a month and you will never go back into debt. The book was Financial Peace by Dave Ramsey. A must read for everyone!
The Envelope System Saves Money
The system I use works great for us, but it did take 2 or 3 months to get it working correctly. I took a very close look at all our bills and how much we spent for each category per week. I then made an envelope for each category.
Each week when my husband gets paid, we cash his check and pay the envelopes. Then when the bills are due, money should be in the envelope to pay it. Example: We have envelopes for phone bill, electric bill, cable bill, dr. bill, VISA bill, Christmas, car insurance, etc. I figure up how much our insurance is for the year and ours is almost $800 per year. That comes to a little over $15 per week. I put $20/week in the envelope. When the bill comes, I put the cash in the bank and write a check. It's nice to have that extra left over at the end of the year too! It comes in handy at Christmas. Same story for every expense.
The VISA bill is a little different because the amount varies month to month. We pay the balance in full every month. So every time you charge something you put the cash in the envelope. That way it's all ready to pay the bill when it comes.
I also have an envelope for Miscellaneous. We all know that no matter how well we plan there are always unexpected expenses. It took a while to get this working because you are having to pay last month's bills while you're starting next month's bills with your envelope system. Once we finally got it working, we've not had any more problems having money to pay bills.
Pay Off Lowest Balance First
Most financial "gurus" say you should pay off the credit card with the highest interest rate. I found that for me, it was better to pay off the credit card with the lowest balance first.
There were two reasons I found that this worked better for me:
- I was used to paying a certain amount on the credit cards and it didn't matter what the interest rates were.
- When I paid off the lowest balance credit card using as much "extra" money as I could each month plus the regular amount of payment, I was actually able to see my debt lower over a shorter period of time.
When I got the lowest balance credit card paid off, I then applied all the "extra" money that I had applied to first credit card, plus the regular amount I had been paying to the second lowest balance credit card and so on. This is what worked for me.
Get Help From Consumer Credit Counseling
My husband and I were in the same boat about twelve years ago but I think our boat was probably sinking a little faster than yours. We first called a financial planner who directed us to the local office of Consumer Credit Counseling.
We met with them and were required to turn over all our credit cards to them, which they cut up. We signed a contract to agree to work with them to get ourselves out of debt in exchange for them contacting our creditors and arranging lower payments for us so we could manage the monthly payments.
Instead of paying our creditors directly, we had to pay the counseling service the total sum due to all our creditors each month, by cashier's check or money order, no personal checks allowed. They then doled out the appropriate amounts to each of our creditors. I believe this service was free as well. This was a real lifesaver for us and helped us get back on track again and manage our finances much better. We couldn't believe how irresponsible we had been.
Now, twelve years later, we have a few credit cards, but are keenly aware of where we are credit wise, and pull the plug on ourselves when we see we may be getting out of line.
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