If this isn’t rock bottom, it’s pretty darn close. I have over $41,000 in credit-card debt, and now it’s time to take control of it! It’s the first Monday of 2017 and I’m trying to map out the plan from here and how I’m going to be meeting my big, hairy debt pledge and paying off my debt.
- Initial Emergency Fund
- Pay off the payment plans & payday loans
- Pay off the interest-bearing component of my GEM Card
- Pay off the ANZ Card (entirely interest-bearing)
- Pay off the AMEX Card (entirely interest-bearing)
#1 – Saving an Initial Emergency Fund
I need to save an emergency fund to cover life’s unplanned expenses. In the long term I would like to have $5,000-$10,000 readily available, however in present circumstances I’m going to set aside $2,000. I will do this by:
A) Clearing my $1,000 overdraft account – which will reduce both my fees and interest payable. This will occur on my next pay-day, the 15th of January.
B) Parking $1,000 in the redraw facility of one of my personal loans. It’s readily available, but in the interim will be reducing the interest payable on those loans.
#2 – Paying Off My Debt: Closing Payment Plans
As I probably mentioned in my last post, I have a long list of “payment plans”. None of these are technically interest bearing, but they do all involve fees and (if I’m completely honest) emotional pain. Some of these will end naturally in February and March, but a couple run all the way to May.
A) $205: Certegy Ezipay (expires Feb) – this one can run out naturally. I’ve asked Certegy to close my account immediately on receipt of my final payment.
B) $590: Flexirent (expires March) – There are a handful of payments remaining, plus a final settlement figure. This is one I could defer $300 worth, by paying an additional $96, at which point I’d have no further obligations for another 24 months, and the $300 remaining would likely be further reduced. I haven’t decided what the smarter option is here, but my gut says to just pay this out and be done with it.
C) $1000: Overdraft – this will be dealt with as part of Objective #1 (Emergency Fund), but is absolutely priority number one!
D) $1,400: DebitSuccess – this is probably the one I am most mortified by. I was absolutely gullible, and committed myself to $2,400 in skincare products and facial treatments. I have 2 more facials and 2 “skin assessments” that are paid for as part of this program, plus a good 12 months of skin-care products. When I look at what I could have brought equivalent products for at PriceLine or the chemist, I’m even more horrified at how stupid this decision was. The only saving grace, is that there’s no interest… however the fees are probably the same as if I’d plugged it onto my credit card. Psychologically, I need to pay this off to feel like I’m back in control of my spending.
E) $240: Ferratum – I was so skint in December, I took a $200 payday loan. This will end up costing me $40 in fees and interest, and is being repaid on payday in January!
#3 Paying Off My Debt: Getting rid of interest-bearing debt on GEM Card
There are a number of credit cards in Australia which offer interest-free promotional periods. You’ve probably heard of some of them before: GEM Visa (got that), GE Creditline (got that), Lombard (applied for that), GO Mastercard and Buyer’s Edge.
Well, I have a GEM Visa with a $7,500 limit, which is at its limit. I’ve used it for a number of interest-free promotions, but I’ve also used it for every-day transactions since I don’t have card access to my savings or chequing accounts (more on that later, I think).
There is no real science to why I want to pay down the GEM Visa first, but I think it’s really because it triggers certain emotions for me and I will feel more in-control once it is under control.
GEM provides 6-month interest free finance for all purchases over $250, plus each month they tell you how much to pay to minimise interest payments. So, if I can make those payments each month, then (in theory) it will go a long way towards paying off my debt. Within six months, I should have paid this off in 6 months with the absolute minimum of interest. In January, that means I need to find $1075.07!
#4-5 Paying off my debt: Other interest-bearing debt
I’ve bundled the ANZ and AMEX cards together, for the purposes of this section, because they are simply the same exercise. Together, however, these add up to the largest chunk of debt-repayments.
A) The AMEX card should be the highest priority, because it’s got the highest interest rate. However, my ANZ Card tends to offer very favourable balance-transfer rates (like 1% for 18 months).
B) In about July, my credit-rating should have improved dramatically (particularly because I’ll have been in my new apartment for 6 months, and my job for 9), and I may be able to apply for clever balance-transfer options or refinancing my debt to a personal loan with fixed-repayments at a level that allows me to pay it off in 12 months. However, I will not be taking out further debt (balance transfers, refinancing or otherwise) until I feel like my budget is under control.
This last objective is definitely a work in progress.
So, how exactly am I going to be paying off my debt?
The next challenge, beyond prioritising my debts above, is to work out what I’m going to do to make sure I’m paying off my debts and meeting each of the specific goals above:
A) Immediately on my return to Australia, I’m cutting up my credit cards. Unfortunately, as much as I wish I could cut them up now, I do think it’s a bit of a risk to be overseas without some emergency cash. However, I will be cutting my trip costs (see point B).
B) I am returning my hire car today, which is 12 days early. This will save me about 200 Euro, which I’ll try and keep as my budget for the remainder of my trip. It’ll be a stretch, but I think I can do it (or pretty close).
C) I’m selling all my crap. Yes, that’s right. I’m going to sell pretty much everything I can – my laptop, old technology, Apple Watch… All the crap I’ve acquired in recent years which is weighing me down financially (and physically) – I’ve already listed my beloved MacBook Pro on eBay and I’m pleased that it’s jumped $500 from where it started.
D) I’m going to learn to cook– and I’m going to try and be frugal as I do so! Which could be interesting, because cooking has never been a strength (or an interest) of mine, but I’m going to try and live on $100/week for my 3 meals a day.
E) Following on from learning to cook, I’m going to start packing my lunch each day. I would love to give up my diet-coke habit (my version of a three-coffee a day diet), but I think that might be a stretch at the moment.
F) I am moving into a two-bedroom apartment in three weeks’ time, which offers a few avenues for bringing in some extra money to help in paying off my debt:
(i) Carpark rental – I’ve found a lady who wants to rent my carpark, for $250/month. This is well above average, so I won’t rely on it (market standard seems to be about $150/month).
(ii) Spare room rental – I’m going to try and find short-term flat mates of 3-6 months, or maybe even try out AirBnB as a host. If I could make $400/month, that would be nice. I really really don’t want a flatmate, so it will depend how desperate I am as to whether I take a longer-term flatmate.
G) Unfortunately, I am going to have to furnish the apartment – but I’m setting myself a challenge of doing so as cheaply as possible and without incurring any more debt. So I’ll be trying to pay cash for everything – hanging out on gumtree (the Australian version of Craigslist) and the trading post, to see what I can pick up for low cost – and I’m going to try and DIY my decor as much as possible. I’m also going to save up for the big items that I want to splurge on, so that I can pay cash upfront (for example, the second sofa).
H) I have a beautiful puppy joining my family in mid-February, and while I will not be skimping on essential expenses for her, I’m going to be trying to find cost-effective ways of meeting her needs (home-grown hydroponic toileting grass, anyone?).
So, everything in this list is new and strange for me. Who knew it was possible to get to 30 without cooking? This is going to be a big fat learning experience as I go about paying off my debt. I’ll be doing what I can to share the challenges and triumphs and tips I learn along the way – hopefully people will have their own suggestions to add as well!