some help? (paying off debt)

[crisT]

hello everyone I am new to this site. First I would like to introduce myself, my name is cristy and I am 22 years old. I have a question. I just recently graduated from college and I have a Huge amount of debt. not just student loans I know thos e aren't really looked down upon, but i have credit card debt also, and quite a bit of. you see during school i was only working on the weekends and using my cc for almost every purchase, i would make my minimum payments but I did the math and noticed that i am barely even paying off the interest.!!! Does anyone have any advice on how to get out of this situation with the least amount of pain as possible?

[Joe]

hello everyone I am new to this site. First I would like to introduce myself, my name is cristy and I am 22 years old. I have a question. I just recently graduated from college and I have a Huge amount of debt. not just student loans I know thos e aren't really looked down upon, but i have credit card debt also, and quite a bit of. you see during school i was only working on the weekends and using my cc for almost every purchase, i would make my minimum payments but I did the math and noticed that i am barely even paying off the interest.!!! Does anyone have any advice on how to get out of this situation with the least amount of pain as possible?

We sort of already discussed this problem in the following thread:

http://www.veggieboards.com/boards/showthread.php?t=35496

Feel free to read my posts there and to use the spreadsheets I uploaded there.

I don't think your first goal should necessarily be to pay off your credit card debt. Your goal should be to make yourself a budget, to set aside adequate reserve funds, and to start saving money. Only when you have these larger tasks under control, should you formulate a plan to pay down your credit card debt.

You obviously know that you need to make your minimum payments on time or risk losing your good credit rating.

When you get your credit card bill, you need to analyze it into three parts: 1) Finance Charges (FC), 2) New Charges (NC), and 3) Previous Balance (PB).

Just to stay even, you would need to pay FC+NC (1+2). Maybe you should see if you could manage to "stay even" for a few months.

If you want to start paying down your credit card debt, you would also need to start paying something toward PB (#3). Since you imply that it took you 4 years of college to build up this debt, a sensible repayment period might be 4 years also, or, to make the math simpler, 50 months. So that would mean paying down the credit card debt over 50 months, or roughly at 2 percent per month (on top of FC+NC).

I would have to know more about your situation to give you further advice, but that sounds like a sensible plan off the top of my head.

ETA: I am assuming that FC+NC > minimum payment, and that
FC+NC+(.02)PB > minimum payment. In any case, you absolutely must make at least the minimum payment. I think these assumptions are fairly safe, but Michael posted an article recently that said that most credit card companies are basically doubling the minimum payment, so I felt I had to include the caveat that you absolutely must pay at least the minimum payment.

[crisT]

I have to say I have never really made a budget before. any tips on making one that is realistic? should I doit by the week or by the month?

[bstutzma]

I'd first take out your previous credit card statement and look at the types of things you buy. Are there CDs, movies, dinners out, new clothes, nights out for drinks on there? If so, you need to cut them out pretty much completely. If you are swimming in debt there is no reason to spend $4 per drink out with your friends when you could have them over, make an awesome meal and FEED 4 people with $4. :-) Once you're out of debt, instead of dinner out, you can plan REAL fun, like vacations, with the money you've saved.

Do you buy your lunch every day? Don't do that - pack one and bring it with you. Watch the prices of your foods - groceries are expensive! Don't buy grapes when they are over $2 a lb, they are heavy and pricey! Buy beans and grains on sale, same with cereal (can be so expensive!) Be a frugal shopper and that will help a lot.

Start doing that, and see how much you save the next month. Then you can get an idea of how much you can survive on.

Do you have cable? DSL? Caller-ID? These are all unnecessary things that no one even had 10 years ago. You can live without them today. Cell phone? If you can't live without one, get a cheaper plan that wont let you go over the minutes. Read more books for entertainment - get them (and most likely, movies!) for free at your local library.

My husband and I have lived this way for years quite happily and now we're doing well, and can travel and have fun with friends comfortably without working about Credit card debt. School debt... well that's another story... ;-) Good luck!

[SeaSiren]

Joe is great with finance.

You may also try:
http://www.debtproofliving.com/

[Joe]

I have to say I have never really made a budget before. any tips on making one that is realistic? should I doit by the week or by the month?

There are form books that you can find in stationery stores or in the stationery departments of department stores that have budget forms in them that you can basically just fill out. The most common brand I am familiar with is Dome.

http://www.domeproducts.com/catalog/product_info.php?cPath=25_30&products_id=110

I believe each form is done by the month, and then broken down by the week.

You should also go to the public library and check out some books on personal finance and budgeting. They might have some forms that you could xerox and use.

Most of your bills, I assume, come once a month, so I think a monthly budget would be a good way to start, and then you can break that down into weekly amounts if you need to.

You should probably start just by writing down all your income, expenditures, savings, etc., for a few months just to get a clear picture of what you are doing financially before you try to use the budget restrictively to control your spending.

One of the reasons to do a budget first is to avoid the "robbing Peter to pay Paul" syndrome. People think they are "saving" or "paying down a debt" when what they are really doing is fooling themselves by digging a second hole while filling in the first.

One of the reasons for this is the difference between "cash/actual" and "accrued" accounting. Under "cash" accounting, you make note of an expense when you pay for the item (or are billed for it). And this is the way most people do their accounting. But the problem is that this method does not work very well for major expenses that are infrequent but forseeable.


To deal with these expenses, it is better to use the accrual method of accounting, and to have what I will call a "reserve account" into which accrued expenses are paid. Thus, you would have a "mixed" accounting system, where most expenses are accounted for on a cash basis but a few expenses are accounted for on an accrued basis.

Let me give you an example that will make these concepts clearer. Suppose your parents gave you a brand new $20,000 car on your 22nd birthday. And suppose you use this car to drive around, go to work, etc. Suppose you knew that at the end of 10 years the car would cease functioning, and you would need to buy a new car, but that new car would cost $20,000 (and be just as good as the one your parents gave you on your 22nd birthday).

Now, how would you account for this car situation, budget-wise?

You could stick with the cash method, and say the car (operating and repair expenses aside) cost you nothing each year for ten years until--BAM!!--you were hit with a $20,000 bill for a new car. Yikes! Or, rather, you could say that you were using the car for ten years and thus "using it up" over ten years. One way to account for this (called straight-line depreciation) is to say that you were really "using up" one-tenth of the car's value each year over the ten year period, i.e., $2,000 per year or $166.67 per month. So, you would mark in $166.67 each month as the accrued expense (depreciation) on your car, and put at least this amount into a "reserve account" that would allow you to replace your car.

Many people just ignore these kinds of expenses when drawing up a budget, and thus fool themselves into living beyond their income, and find themselves back in debt again to finance these new expenditures when they come due.

The most important thing about a budget is that it present an accurate/true/correct picture of your income and expenditures and that it not involve any sort of self-deception or inaccuracy, regardless of fault.

Any bills that you would get less frequently than on a monthly basis need to be entered as "accrued" expenses on a monthly basis. For example, my auto insurance is billed twice a year. One-sixth of each bill should be entered as an accrued expense each month, and this amount deposited into a reserve account monthly. I have a AAA membership that comes due once yearly. This should be divided into twelvths and entered as an accrued expense each month, etc.

It is important to have an adequate "reserve account" to deal with such on-going and foreseeable expenses just to make sure you are living within your means and paying for what you are really consuming. This is just designed to make sure you are "staying even" as opposed to (unconsciously) falling behind. Only after this is accomplished can you really start to "get ahead" by saving and investing and/or paying down debt.

[Joe]

There are a number of software products to help you with budgeting. Some are payware/commercial products, some are freeware. I haven't tried many of them, and I think you may be better off starting with pencil and paper and a calculator.

Many software products that are or were freeware are listed here:

http://www.pricelesswarehome.org/acf/P_BUSINESS-HOME.php

[See under subcategory 2.00 Accounting; Personal]

If you want to try some software products, some are:

AceMoney Lite (Freeware):

http://www.mechcad.net/products/acemoney/index_lite.shtml

Cash Manager (Freeware):

http://www.kreatives.org/platform/index.php?section=cashmanager

Cornerstone Personal Finance Manager-Lite (Freeware):

http://www.cornerstone.m6.net/pfle/index.html

JMoney-Beta (Freeware):

http://sourceforge.net/projects/jmoney/

PandaMoney - v.3.0 Major (Freeware):

http://www.lossepladsen.dk/all4you/TheLostWorld/PandaMoney.php

--------------

Budget - $29.99 - Formerly freeware

http://www.snowmintcs.com/index.php

See discussion of "the Envelope Method" here:

http://www.snowmintcs.com/budgetinfo/index.php

[crisT]

wow you are very indepth with your answers.Thats great! your advice seems very sound. I thank you. were you a finance major in school or something?

[crisT]

well, Some of my cc debt is from food and movies. but maybe only like $200. I never go out, just for the reason that I can't afford it. I used my credit cards mostly for groceries, gas, tootpaste, things like that. My school was so expensive my loans ddnt leave much left over after tuition and book etc. I don't even have t.v! I have rabbit ears. so all my debt is basicaly from living a fairly frugal life withoutany money in my pocket. plus I was a lot younger then when I started getting these cc's. the cc companies prey on people like me in college with no money. its horrible. thanks for the advice you guys are great!

[goettling]

There are form books that you can find in stationery stores or in the stationery departments of department stores that have budget forms in them that you can basically just fill out. The most common brand I am familiar with is Dome.

http://www.domeproducts.com/catalog/product_info.php?cPath=25_30&products_id=110

I believe each form is done by the month, and then broken down by the week.

You should also go to the public library and check out some books on personal finance and budgeting. They might have some forms that you could xerox and use.

Most of your bills, I assume, come once a month, so I think a monthly budget would be a good way to start, and then you can break that down into weekly amounts if you need to.

You should probably start just by writing down all your income, expenditures, savings, etc., for a few months just to get a clear picture of what you are doing financially before you try to use the budget restrictively to control your spending.

One of the reasons to do a budget first is to avoid the "robbing Peter to pay Paul" syndrome. People think they are "saving" or "paying down a debt" when what they are really doing is fooling themselves by digging a second hole while filling in the first.

One of the reasons for this is the difference between "cash/actual" and "accrued" accounting. Under "cash" accounting, you make note of an expense when you pay for the item (or are billed for it). And this is the way most people do their accounting. But the problem is that this method does not work very well for major expenses that are infrequent but forseeable.


To deal with these expenses, it is better to use the accrual method of accounting, and to have what I will call a "reserve account" into which accrued expenses are paid. Thus, you would have a "mixed" accounting system, where most expenses are accounted for on a cash basis but a few expenses are accounted for on an accrued basis.

Let me give you an example that will make these concepts clearer. Suppose your parents gave you a brand new $20,000 car on your 22nd birthday. And suppose you use this car to drive around, go to work, etc. Suppose you knew that at the end of 10 years the car would cease functioning, and you would need to buy a new car, but that new car would cost $20,000 (and be just as good as the one your parents gave you on your 22nd birthday).

Now, how would you account for this car situation, budget-wise?

You could stick with the cash method, and say the car (operating and repair expenses aside) cost you nothing each year for ten years until--BAM!!--you were hit with a $20,000 bill for a new car. Yikes! Or, rather, you could say that you were using the car for ten years and thus "using it up" over ten years. One way to account for this (called straight-line depreciation) is to say that you were really "using up" one-tenth of the car's value each year over the ten year period, i.e., $2,000 per year or $166.67 per month. So, you would mark in $166.67 each month as the accrued expense (depreciation) on your car, and put at least this amount into a "reserve account" that would allow you to replace your car.

Many people just ignore these kinds of expenses when drawing up a budget, and thus fool themselves into living beyond their income, and find themselves back in debt again to finance these new expenditures when they come due.

The most important thing about a budget is that it present an accurate/true/correct picture of your income and expenditures and that it not involve any sort of self-deception or inaccuracy, regardless of fault.

Any bills that you would get less frequently than on a monthly basis need to be entered as "accrued" expenses on a monthly basis. For example, my auto insurance is billed twice a year. One-sixth of each bill should be entered as an accrued expense each month, and this amount deposited into a reserve account monthly. I have a AAA membership that comes due once yearly. This should be divided into twelvths and entered as an accrued expense each month, etc.

It is important to have an adequate "reserve account" to deal with such on-going and foreseeable expenses just to make sure you are living within your means and paying for what you are really consuming. This is just designed to make sure you are "staying even" as opposed to (unconsciously) falling behind. Only after this is accomplished can you really start to "get ahead" by saving and investing and/or paying down debt.

Hey Joe, can you be my personal money adviser and how much do you charge.:lol: Great knowledge going on. But I was wondering, it does depend on the person's income and debt,what they can afford to save, pay down debt, etc?

I think it stinks that it cost so much to go to college and if you are lucky to find a degree in the feild, it is almost like you are damned anyway because of the debt. It is like no college=no student loan debt=not making money in decent paying job. College=debt and hope to find a great job to help pay of all the debt that you had to spend in the first place just to get a decent paying job.:eek: It is a tough world.