This week we welcome Joan Otto, editor of Man Vs. Debt. She’s here to talk about UNautomating your finances, which is the opposite of Jean’s standard approach. (If you’re familiar with her advice, you know that she’s all about automating — your bill payments and your savings contributions. In fact, it’s a Money Rule: #62: Automate.) But we’re all about showcasing different perspectives, and what works for Jean may not work for you — as you’ll read below, Joan is knocking out a hefty amount of credit card debt with her method.
My husband and I are in the trenches of a war to pay off just under $90,000 in credit-card and loan debt. Since we started in early 2011, we’ve dropped that number by almost $33,000 – and we’ve done it running, in a way, contrary to most major financial advice.
We pay our bills online, but we receive hard copies of most of them, rather than email statements, and we sit down and pay them one at a time. We keep a calendar with what bills are due when. We make regular contributions to our savings account – but we do so manually. And we’re opposed to debt consolidation, because we want to be the people in control of where our money is going and when.
And the thing that surprises people the most – I keep a by-hand transaction register (a “checkbook,” though it goes well beyond checks) that I balance at least weekly if not more frequently.
When I explained all of this to the community at Man Vs. Debt, where I’ve been chronicling our debt-payoff journey for more than a year, a few people were critical. “You’re making things too hard,” they said.
When I started reading Man Vs. Debt in early 2010 – almost two years before I became editor and community manager – its founder, Adam Baker, had just released a guide called Unautomate Your Finances (which is now available for free).
At the time, I had most of our bills automatically deducted from our checking account. I had 401(k) and regular savings accounts with automated contributions. I was still keeping a transaction register – sort of – but I wasn’t worried about balancing my figures with the bank’s; when in doubt, I checked the online balance and estimated.
Baker’s guide suggested I quit all that. And if what I’d been doing had, you know, been getting me anywhere, I’d have fought him tooth and nail.
It wasn’t working, though. We were doing a lot of the “right” things, and we were tanking hard financially. All the systems in the world don’t fix a broken mathematical equation. When money out is greater than money in, you’ve got a problem, right?
Well, the problem was, we didn’t know we had this problem, because we’d automated the knowing right the heck out!
The act of writing down each bill I have to pay on our calendar is tangible. It helps me be conscious of what I’ll owe when, and it actively changes my behavior, because I’ve imprinted in my memory something like, “Oh, I know I have to pay Discover $50 by the 12th.”
The same goes with making our payments. I highlight each paid bill as I take care of it. And it feels wonderful! (I have said on Man Vs. Debt before – I hypothetically may be the kind of person who writes something already accomplished on a to-do list just to be able to cross it off. Don’t laugh.)
I love this tangible, physical, visual act of highlighting. To me, it serves a real purpose. Could I use an online calendar and mark things as “done?” Well, sure. But I like to physically take action.
Even more importantly, I love the feeling I get when I pay our most-hated debt, a credit card that at its worst had a balance of almost $40,000 and is now down under $17,000. Every time I pay bills, I pay this most emotionally charged debt last, and it leaves me with a great feeling. I’ve described it as ending the game with a grand slam, or a 90-yard touchdown pass. You might win either way, but when it’s the last moment, and when you are the person taking action, it feels amazing.
So does tracking our payoff progress (again, manually, in a spreadsheet I update monthly). I love the idea of money-management systems that keep track of your finances, making sure everything balances and showing you neat graphs of your remaining debts. But I don’t love them in practice. I need to be forced to really LOOK at where the money is going, and at the same time, to get the concrete positive feedback of typing in those new, lower numbers!
Maybe you’re already debt-free. Maybe you’ve automated your savings, and you’re having good success. That’s awesome! But whether you’re just starting the long road to debt freedom or already onto the savings and wealth-building path after it, if your motivation is ever waning, can I suggest giving unautomation a try?
Take it from me: It feels amazing to see your success!
About Joan: Joan is the editor and community manager for Man Vs. Debt, where she’s documenting her family’s journey to pay off almost $90,000 in non-mortgage debt. You can follow the Man Vs. Debt crew on Facebook, Twitter and Pinterest, and check out more about the “big why” behind Joan’s debt-payoff – quitting her full-time job to begin working from home and homeschooling her 13-year-old daughter – on the family’s personal blog, Our School at Home.
My husband and I have booked a cruise for our wedding anniversary. We currently do not have a credit card. We want to have one specifically for this trip: cruise charges (drinks, excursions), bike/kayak rental, etc. We want to build credit and will consider making large purchases on it when we have the cash first and will pay off within the same month. What card or company should we consider?
Angela, credit cards have a bad reputation, and there’s a good reason for that. If you carry debt, the interest rates can be a killer. But they’re also an important tool to have in your wallet — used wisely, they can help you improve your credit score, as you noted, and even earn you money or other perks in the form of rewards.
This is a good, timely question, as many people are in the thick of planning their summer vacations. If you’re going to be paying off this card in full each month — as, of course, you should — you want to look for a card that will give you rewards by spending on things that you buy anyway. Card issuers often dole out rewards based on categories of spending — you might get more back when you shop at grocery stores, for instance, or fly a certain airline. Remember that this is a card you’ll use not only on your upcoming cruise, but also on other purchases when you return, so take a careful look at your spending and then look for a card that will reward you based on where you spend money anyway.
My favorite website to sort through the options is LowCards.com. You can search by gas cards, home improvement, retail, travel cards, and then narrow them down by the credit score requirements. If you’re not sure you’ll use something like miles, I’d look for the most generic card you can find – one that gives you cash back for spending across the board. LowCards.com picked the American Express Blue Cash Everyday card as the winner in that category – right now they’re offering $100 cash back if you spend $1,000 in the first three months of membership, and that cruise may get you there. The card also pays 3% back at US supermarkets (for up to $6,000 per year in purchases), 2% back at US gas stations and select department stores, and 1% on all other purchases. And there’s no annual fee, which is important because depending on how much you spend, a fee can really eat into your rewards.
Enjoy your cruise, and happy anniversary!
I talked to a credit counseling agency and they told me to find an attorney about bankruptcy. What should I look for in an attorney and what questions should I ask? I am self-employed, have my own at home business and have gotten in serious credit card debt. I have been paying my mortgage and all cards, except for one. I called them but they will not work with me. I had one card go to collection and just got a collection agency letter in the mail. I would be willing to sell my house and pay the debt, but prefer not to do that. The lawyer I called said he need $2,000 up front and I do not have that. I do I deal with talking to the collection agency?
Hi Kathy, I’m sorry you’re in this situation. What kind of credit counselor did you go to? Did they tell you that you were ineligible for a debt management plan? Typically a not-for-profit credit counselor will work with you and your creditors. They’ll put you on a plan — called a debt management plan — that will allow you to pay off your credit card debt in less than five years, and negotiate with your creditors to lower your interest rates. Is that a process you went through? Sometimes, if the counselor thinks that the debt is too high to pay off within that time frame or if you don’t have enough income to support the debt, they will suggest bankruptcy. But I want to make sure you went to a reputed counselor and considered all of your options before going this route. Be sure that the counselor you are working with is an accredited non-profit agency that is a member of the National Foundation for Credit Counseling. You can do a search on their website here.
Once you’ve done that, I’ll direct you to the American Bankruptcy Institute. That organization has a consumer information website that is really helpful. Whether or not you can keep your home and your car will depend on the type of bankruptcy you file, the value, and your state’s exemption rules. Chapter 13 bankruptcy allows you to keep your property and puts you on a repayment plan to pay off your debt.
ABI’s website also has a pro bono resource locator that can help you find pro bono legal help near you if you qualify – it’s certainly worth a look. If you don’t qualify, and you can’t afford an attorney, you may be able to pay off the attorney’s fees through your repayment plan if you file Chapter 13. Be sure to ask about that upfront. You’ll also want to ask the attorney how long the process will take, how much time he or she will devote to your case and how much access you will have to ask questions, and whether he or she will be handling your case exclusively or if it will be passed off to someone else in the office. He should also be able to clearly explain the bankruptcy process in a way you understand – if it sounds like another language, search out other attorneys until you find the right fit.
This week we welcome Travis Pizel, the blogger behind Enemy of Debt. We receive a lot of questions about the process of credit counseling, so I asked Travis to share his experience paying off over $100,000 worth of debt through a debt management plan with a credit counselor. First-hand accounts are always helpful!
Driving through the treated road sludge of Minnesota winter roads had left our van extremely dirty, so I took my place in the car wash line late on a Sunday afternoon. Once I entered the car wash, little nozzles shot detergent, and then water at our vehicle. Finally, the dryers kicked in, blowing hot air at the van. But the van didn’t move an inch. We allowed the work to be done around us while we sat still. I couldn’t help but think to myself how nice it would be if getting out of debt was like that. I could just close my eyes and wait as someone else did all the work.
But it’s not like that at all. Let me tell you my story.
During the first 13 years of our marriage my wife and I accumulated $109,000 of credit card debt. Due to a minimum payment policy change with a major creditor with which we had multiple accounts, we found ourselves in a situation where we could no longer meet our monthly financial commitments. It was then that we enrolled in a debt management plan. They negotiated a lower interest rate and monthly payment with each of our thirteen creditors that would allow us to eliminate our debt in just under 5 years. Our overall payment was not significantly lower, but because of the drastic interest rate reduction, we were finally able to make progress on the principal of our accounts instead of just throwing all our money away each month on interest. We are approaching the end of our fourth year in the program, and have paid off $84,000 of that debt.
But there’s so much more to our story.
Getting out of debt is not like the drive through car wash described earlier. We couldn’t just enroll in a debt management program and expect all the work to be done for us. It’s more like parking the car in your driveway, filling a bucket with water, grabbing a sponge and a towel, and getting to work. We have to be active in our program to make sure we’re headed in the right direction. Each and every month we check our creditor statements to ensure the lowered interest rate is being applied, and that our payments are being received on time. As creditors are paid off, we need to contact our debt relief company and tell them where we want those extra funds applied for future payments.
There’s also the matter of how we got into debt in the first place.
Eliminating our mountain of debt wouldn’t do us any good if we didn’t address the lack of communication and bad spending habits that got us there in the first place. My wife and I have made significant lifestyle changes in order to live within our means for the first time in our lives. To be honest it didn’t happen all at once. It took us over a year of constantly re-evaluating our monthly expenses and cutting out unnecessary expenditures to fully understand how deep those cuts, and how big those changes had to be.
We have also worked tirelessly to improve our communication skills. For the first thirteen years of our marriage we hardly talked about money at all. Changing that by forcing ourselves to talk almost daily about the state of our finances and coming up with a budget system that works for us has been extremely hard.
Our hard work is paying off and we are finally able to see the the finish line.
In twelve months, with the help of our debt management program, we will have eliminated our mountain of credit card debt. We will also have learned and practiced the tools needed to handle our finances the right way for the rest of our lives. After that last payment is made, we will then in a way start over, leaving the mistakes of our past behind us and focusing on bettering our future.
I think our future looks pretty bright.
About Travis: Travis writes about personal finance at Enemy of Debt, where he candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband, he provides a unique perspective on balancing debt, finances, and family. Follow him on Twitter.
According to new research from the Urban Institute, people in their 30′s and 40′s are falling behind when it comes to building wealth. The other morning, I went on Morning Joe to talk about this troubling trend as well as the specific things — like housing — that are tripping people up. To see our full discussion, check out the video clip below.
As Tamron Hall said to me this morning, we used to ask our dates, “What’s your sign?” Now we’re asking, “What’s your score?” It may sound hard to believe, but credit scores have entered the world of dating — and where a bad score might have prevented you from getting the best interest rate in the past, now it might also prevent you from getting a second date. To see what’s at play here — plus to learn exactly what makes your credit score go up or down — check out my TODAY segment in the video clip below.
What to do when your credit card company won’t lower your interest rate? Hint: not nothing! There’s a way to get a better rate. To learn how, plus to find out whether or not you can raid a 401k to pay off credit card debt, check out the video clip below.
This morning, I went on the Today show (in purple and white, the colors of my son’s new school!) to talk about the ways kids blow their budgets when they’re at college. To see why it’s good to budget dining dollars and open a bank account with a local bank, check out the video clip below.
After taking the show on the road to cover the Olympics, the TODAY show is finally back in Studio 1A, which means I’m back on Money 911! In today’s segment, we discussed how to make sure your child’s social security number hasn’t been compromised, as well as how to get ahead on your mortgage payments (hint: make 13 payments per year!). To see these tips and more, check out the video clip below.
“Do you recommend parents conduct a credit freeze for their minor children?”
- Tim, via Twitter
You actually can’t freeze a credit report unless there is a credit report to freeze – and your children, unless they’ve already been victims of identity theft or you’ve added them as an authorized user for your credit card, shouldn’t have a credit report. So unless you have reason to suspect fraud – in which case, you can contact a credit bureau to see if a file has been created using your child’s Social Security number – I’d focus on protecting your children’s identities in other ways:
- Give out their Social Security number only when necessary and, and keep it in a safe place at home. A large percentage of identity fraud is committed by friends and family members of the victim, believe it or not.
- Keep an eye toward red flags. Watch the mail for credit card offers in their name, a sign that there’s something fishy going on.
- Teach your children well. Namely, tell them not to share personal information – including their birthday, address, phone number and, of course, Social Security number, with strangers. This extends to Facebook and other social networks, which thieves tend to mine for information.