You would think that someone who works in banking would be able to manage their money in a healthy way; put a decent amount away for retirement, use credit cards wisely, have an emergency fund, have a budget, etc. That’s not the case for me. I never created a budget, and when I tried to, I never stuck with it. It normally caved in on itself right after I started it. Instead of sitting down and working on one, I told myself I would just get to it eventually.
Most of my debt (besides my student loan debt) happens to be with my employer. Loans were easy for me to obtain, because I had great credit, and my DTI (debt to income) ratio was low. My loan applications were approved quickly, because of my banking history; great repayment on my credit card, direct deposit, and my loan payments were automatically deducted from my paycheck. So, the company knew they would always get paid somehow when they approved me.
But my problem was that I would extend my personal revolving loan limit. Oops, my credit card balance is getting high, and I don’t have the money to cover it — let’s extend the other line to pay the credit card down! Car insurance is due, and I don’t have the money for it…no problem, I can extend my personal revolving loan limit again. Wait! I have an expensive weekend coming up! Let’s increase that revolving loan YET AGAIN.
I would apply and reapply for a fixed-rate personal loan, and use the difference I received to pay off other credit card debt. “I won’t rack up my credit balance again,” “I’ll put extra money every pay towards the principal,” “I can pay the loan off early with no penalty,” and “I’ll create budget” were all things I said to myself. I got caught up in the hype and easiness of loans. And once the money was deposited — the same day! — I would be on my way to a better financial life.
At one point, I had two personal loans with my employer, in addition to my credit card. One personal loan is my line of credit: I pay it right out of my paycheck, and because it is revolving, it’s a little easier to just increase the limit. My biweekly payments may only go up by $30, but that’s maintainable, right? The other loan was a fixed rate personal loan. If you needed more money from that kind of loan, you have to apply for the amount you need PLUS the payoff of the original loan. I can easily afford this because I won’t be using my credit card anymore, remember? And my payments are only going to go up a little, but I needed that fun weekend with girlfriends. I deserved it, right?
Of course, this thinking was all wrong. “Eventually” has come around for me. After seven years of robbing Peter to pay Paul and not having a budget, I am maxed out with my credit card debt and personal loan debt. To me, my amount of debt is overwhelming, because I could have avoided about 75% of it by simply having a budget. Instead, I was trying to keep up with the Joneses, which was and still is fairly easy to do when you have easy access to personal loans. I would have no problem paying them, because the payments would come right out of my paycheck, so I would never see them.
However, knowing what I know now, I would have gone about my debt a different way. And I want to share these tips with you because they are simple and practical. As someone who has come to love Pinterest and reading different ways to save money, several articles and tips I see are not realistic. Those feelings of failure and disappointment when I read unrealistic articles with my overwhelming debt make me want to help others…and sometimes stay in to prevent money spending. So here is my advice to you.
1. Have ONE major credit card. My credit card is with my employer. I have a low interest rate, I am able to pay right through my account, and I can see the activity with the click of a link. I sadly have a balance on this card, and have been carrying a balance for a year. Not smart, no, but I’m working towards paying the balance down, and then not using it. I have the cash back option that pays back onto my balance once a year. I’ve used my credit card more than my debit card since I started working there, because the amount of debit cards I’ve seen compromised makes me nervous to swipe at the gas pump, or buy my toiletries at a big box store. My credit card is not directly linked to my personal money; therefore, my money in my account is protected from scammers. I have a tight budget (now that I’ve created one). If my debit card is compromised and my account is wiped clean, I have to wait a substantial amount of time before I’m refunded. And what would I do in the mean time? Use my credit card. It would be the beginning of a vicious cycle. Now, I do have store cards, but they get paid in full when I use them. I do not want to pay 22% or more for interest.
2. Ask your financial institution about their services. Do they charge monthly maintenance fees? Do they charge fees for you to access your money at various ATMs? For example, my institution does not charge an annual fee for our credit card, no additional fee for a balance transfer, and no additional fee for a cash advance. How great is that? If you are aware of these great services, you can save money simply by transferring high balances to lower interest cards and avoiding monthly service fees (though you may have to pay a one-time balance transfer fee). I don’t pay a monthly service fee for my checking account, either. Our checking has no minimum amount, no monthly fee and no annual fee. In addition to those great perks, I know I can use the ATM more than 10 times a month before I am charged a fee from my institution. That makes this account even better.
3. Start an emergency fund. Sad to say, I am not where I want my fund to be ($1,000.00). I am working on building my emergency fund. I take cash out every pay and add it to my fund and I DO NOT TOUCH IT. I am proud of my small emergency fund, because I am actually saving money! And, it came in hand recently, when my mechanic recommended I replace the original battery in my car.
4. Use cash. When I get paid, I take out an allotted amount for gas and groceries. I’ve been doing this for a few months, and find it easier to stick to my grocery budget when I walk into the store with a $50 bill and nothing else. With gas, if I have money left over, I put it towards my next tank. It is easy for me to take a withdrawal from my account on payday right at my institution, because I am there open to close. If this is not readily available to you, feel free to go to an ATM. Just remember to see if you have to pay any additional fees for using certain ATMs.
5. Spend your change wisely. It is easy for me to cash in my change, because I have a coin machine at my branch. Whenever my wallet gets full, I walk over to the change machine and place the coins on the belt to get counted. I then put this change directly towards the PRINCIPAL of either one of my loans. You want to make PRINCIPAL payments towards your loans to pay them down quicker. If you make an additional payment, it goes towards principal and interest. So, make sure you specify “principal.” Right now, I want to hold off on cashing my change in so frequently. I’ve been emptying my wallet daily, and want to use that next batch of change to go towards my credit card, as I’m trying to follow the snow ball method now.
6. Keep your mortgage payment. Sure, having a loan payment for 30 years is not fun, but why pay off a loan quickly when you can use the interest as a tax write off? In my honest opinion, paying off a 30 year mortgage in five years is unrealistic and stressful. How much would you have to stretch every dollar? Would you be happy in the long run? How stressed would you be? I would be even more stressed about finances than I am now!
7. Check your account every day. This is a great way to see if there is any suspicious activity on your account and catch it before scammers have a field day. This is also a great way to make sure your check book balances. (Yes, I still use a check register.) One time, I had someone come into my work, and they wondered why they didn’t have more money in their checking account. I had to go through a year’s worth of transactions, because this person didn’t read their bank statements, and didn’t have online banking.
These are just some pieces of advice I can offer you after working in the banking industry for six years. I hope these help you reach your financial goals and show you that it is easier to be realistic with your financial goals.
Bridget is 30 years old and still trying to find her way in life.
Image via Pexels