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Thread: How do you deal with debt?

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    LoveToSave wimbly11's Avatar
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    Iím not sure how to manage our current situation and Iím looking for advice.

    Myself and my husband are both freelance workers. Therefore our income varies month to month (this is a relatively new lifestyle for us). So I never know quite what will come in each month.

    We had started an emergency fund but have used quite a bit from that now. We also have a considerable amount of debt (pushing $38,000) which seems to keep creeping up.

    We are not big spenders. We sale shop, hardly spend any money on ourselves. We are fairly frugal but obviously something has to change if we want to get on track.

    How does one manage a budget when you donít know your monthly income?

    Also where do we start? Do we put any extra money into an emergency fund? Or towards debt? We also need to co tribute to rrsps as we wonít have anything through our workplaces for retirement. I should add we also have two kids and a step daughter.

    Iím feeling a little lost and overwhelmed. Itís seems things keep creeping up on us and I donít know how to manage it anymore. Was hoping someone here might have some insight. Thanks.


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    My husband and I are also contractors. I would definitely put any extra money toward debt because it "pays" you an impressive return in terms of interest rates avoided. On credit cards, you can be paying 13% on interest alone. Get rid of all cc debt first because they are debt sinks. We pay off every cc every month.
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    @wimbly11 ,

    I'm currently in a Personal Finance Class and learning how to deal with situations similar to yours (mainly through out major project).

    A tips I can think of with the knowledge that I do have (although I am sure some of it is common sense a bit)

    - For the debt ($38,000), is that all one piece of debt, or different debts, and if so, what is the interest on them? It is always best to try to pay off debt first with the highest interest rate (I.E. Credit Card)
    - Emergency Funds are ALWAYS a vital thing to have. Anywhere between 3 to 6 months of your living expenses, even having a small emergency fund could be a life-saver in times when you have to pull from it
    - Contributing to an RRSP can be helpful too as you can use it as a deduction against your taxes next year, reducing what you will have to pay to the Government a little and starting to work towards the goal of retirement

    I would say, try to make out a budget of all your current or average expenditures to help determine how big an emergency fund would be appropriate for your family. Then, although your incomes always fluctuate, try to determine an overall average that you might get in a month (based on prior months income). I would say with a debt load that size, paying that off first should be a major priority, while, if possible, even putting $25/month into RRSPs for you and your husband.

    Having three children is going to/could be a major financial pain in some ways (increased grocery costs, schooling, sports, etc.) I would make sure to (if your kids are old enough to understand it) explain to them that money is not plentiful and that at times, things might have to be cut and put towards more vital expenditures (I.E. Debt). I know my family friend has 3 kids and she constantly has to explain to them this same thing.

    I hope some of this information helps you even a little. If you have any more questions, feel free to ask me anytime, and I will do whatever I can to try to answer them.
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    Although there's no simple formula that is sure to work for everyone, one REALLY good thing to do is to record and review every cent you spend. For a good majority of people, this is an eye-opener because doing so makes it easy to see and realize which purchases were either unnecessary at all or where the amount spent could have been lower. The latter includes both individual purchases and repeated ones that can be quite easy to underestimate because they're individually small.

    Another is only to use credit cards if you pay them off in full every month.

    I know from many years of experience that working for oneself and/or freelance brings major swings in monthly income. That said, I suggest you estimate as best you can the level of income that you're confident you'll earn this year, then budget accordingly. Note that this isn't the amount you think you'll make with normal luck. It's the amount you think you'll make if the year goes brings more bad breaks than good.
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    Quote Originally Posted by johnb56789 View Post
    @wimbly11 ,

    I'm currently in a Personal Finance Class and learning how to deal with situations similar to yours (mainly through out major project).

    A tips I can think of with the knowledge that I do have (although I am sure some of it is common sense a bit)

    - For the debt ($38,000), is that all one piece of debt, or different debts, and if so, what is the interest on them? It is always best to try to pay off debt first with the highest interest rate (I.E. Credit Card)
    - Emergency Funds are ALWAYS a vital thing to have. Anywhere between 3 to 6 months of your living expenses, even having a small emergency fund could be a life-saver in times when you have to pull from it
    - Contributing to an RRSP can be helpful too as you can use it as a deduction against your taxes next year, reducing what you will have to pay to the Government a little and starting to work towards the goal of retirement

    I would say, try to make out a budget of all your current or average expenditures to help determine how big an emergency fund would be appropriate for your family. Then, although your incomes always fluctuate, try to determine an overall average that you might get in a month (based on prior months income). I would say with a debt load that size, paying that off first should be a major priority, while, if possible, even putting $25/month into RRSPs for you and your husband.

    Having three children is going to/could be a major financial pain in some ways (increased grocery costs, schooling, sports, etc.) I would make sure to (if your kids are old enough to understand it) explain to them that money is not plentiful and that at times, things might have to be cut and put towards more vital expenditures (I.E. Debt). I know my family friend has 3 kids and she constantly has to explain to them this same thing.

    I hope some of this information helps you even a little. If you have any more questions, feel free to ask me anytime, and I will do whatever I can to try to answer them.
    Thank you for the response! We consolidated debt and it is all on a LOV with a 7% interest rate so one payment.

    Our children are young (4 and 18 months). I do talk to our oldest about money through. Our step daughter is 17 and lives with her mom who is careless with money and spends ridiculous amounts on items and we end up on the hook for things we did not consent to. But thatís a whole other conversations

    So would the smartest idea be to put all extra money into an emergency fund until weíve built up enough and then work on debt?


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    Quote Originally Posted by wimbly11 View Post
    Thank you for the response! We consolidated debt and it is all on a LOV with a 7% interest rate so one payment.

    Our children are young (4 and 18 months). I do talk to our oldest about money through. Our step daughter is 17 and lives with her mom who is careless with money and spends ridiculous amounts on items and we end up on the hook for things we did not consent to. But thatís a whole other conversations

    So would the smartest idea be to put all extra money into an emergency fund until weíve built up enough and then work on debt?


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    While I am not a true financial advisor, I would personally say that with any extra money you might get at the end of the month, week, year, etc., determine a percentage that works best for you to split between debt and savings. I would say maybe of extra money, put 70% of it on the debt and 30% in your emergency fund. Since on the debt you are paying 7% (while not a horrible rate), while on savings you might only make 3%, therefore, in paying off your debt, you are "making" back that 7% instead of having to pay the interest on the debt.
    I hope that makes sense. From what I have learnt/understand, debt is almost always the monster you want to get rid of first
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    We are following the Dave Ramsey baby steps. It has been life changing for our family. He has lots of videos on YouTube explaining this method to pay off debt, stay off debt and build wealth.

    We also own a business and the best think weíve ever done financially was set a salary. So Iím the months when you make extra you leave it in your business account and use that to supplement months when you make less
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    Great tips and I would like to suggest cutting down on unnecessary expenses. For example have you contacted your cable/internet provider loyalty department for a better rate? What about phone plans, etc. Do you have memberships and subscriptions that you don't use? Definitely log all your spending including little incidentals like fast food, coffee, etc. That should give you an idea where you can cut back. While saving is great, earning 1.25% interest in a bank account versus 7% debit - I would prioritize paying that down. Let us know what works best for you.
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    personally, since both of you are self employed.. i would build my emergency fund to 6 months. . withdraw from it as needed.. but add it back first before anything else.

    after ef is at 6 months... tackle debt.

    track income.. as it has been said.. it is a eye opener.
    also ... figure out a true figure on what you need to bring in a month on min bills. that also is a eye opener. take that figure.. and make it yur goal figure... put it somewhere you see every day. your fridge.. your screen saver somewhere. that way .. every day .. you know what you need to do .. it is motiviating you to bring that amount in .

    i am self employed.. and when my hubby would be ... under employed.. i would look at him and be very clear nice but clear. this is the amount. i need from you this amount this month. he did a amazing amount of side jobs.. scutt work.. you name it .. he did it. it made us stronger. and we got it done.



    david ramsey says.. 1000 in ef. and smallest debt to biggest. and while i love him...

    6 months of a ef , that way if everything tanks.. you have time to find another income. highest intesest cut the debt. hugs you got this
    Quote Originally Posted by wimbly11 View Post
    Thank you for the response! We consolidated debt and it is all on a LOV with a 7% interest rate so one payment.

    Our children are young (4 and 18 months). I do talk to our oldest about money through. Our step daughter is 17 and lives with her mom who is careless with money and spends ridiculous amounts on items and we end up on the hook for things we did not consent to. But thatís a whole other conversations

    So would the smartest idea be to put all extra money into an emergency fund until weíve built up enough and then work on debt?


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    Quote Originally Posted by Giseledta View Post
    also ... figure out a true figure on what you need to bring in a month on min bills. that also is a eye opener. take that figure.. and make it yur goal figure... put it somewhere you see every day. your fridge.. your screen saver somewhere. that way .. every day .. you know what you need to do .. it is motiviating you to bring that amount in .

    i am self employed.. and when my hubby would be ... under employed.. i would look at him and be very clear nice but clear. this is the amount. i need from you this amount this month. he did a amazing amount of side jobs.. scutt work.. you name it .. he did it. it made us stronger. and we got it done.
    In a similar vein, I knew what my average income per month had to be to reach my annual target. When I had months where I knew my normal billings were going to fall far short, I found other ways to bring in money. I basically never made close to my usual rates and quite a bit was completely unrelated to my field. But since the alternative was making $0 for those same hours and days, the choice to make something instead of nothing was very easy.
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    Quote Originally Posted by wimbly11 View Post
    Iím not sure how to manage our current situation and Iím looking for advice.

    Myself and my husband are both freelance workers. Therefore our income varies month to month (this is a relatively new lifestyle for us). So I never know quite what will come in each month.

    We had started an emergency fund but have used quite a bit from that now. We also have a considerable amount of debt (pushing $38,000) which seems to keep creeping up.

    We are not big spenders. We sale shop, hardly spend any money on ourselves. We are fairly frugal but obviously something has to change if we want to get on track.

    How does one manage a budget when you donít know your monthly income?

    Also where do we start? Do we put any extra money into an emergency fund? Or towards debt? We also need to co tribute to rrsps as we wonít have anything through our workplaces for retirement. I should add we also have two kids and a step daughter.

    Iím feeling a little lost and overwhelmed. Itís seems things keep creeping up on us and I donít know how to manage it anymore. Was hoping someone here might have some insight. Thanks.


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    I see a few people have given some really good suggestions - pay off debt first, have an emergency fund of 6 months expenses available etc.

    I might suggest working with cash only for a while - check out Gail vazOxlade - til Debt do us Part etc.

    It takes a but of work, but figure out your expenses and what you would normally put on your credit card - pay with cash - not debit...cash. It gives you a true feel of how that purchase affects the bottom line.
    And write down absolutely everything you spend.
    There are a pile of free apps that make it convenient. But having a book and receipts sure helps the visualization

    Weíve been self employed for over 20 years - have had a couple of businesses that pretty much only made expenses but have managed to now be (sort of retired) and the house is paid off.

    We all just have to remember it is far easier to live within your means than dig out of debt.....but temptation sometimes has to be denied


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    Last edited by endi2000; Sun, Mar 31st, 2019 at 06:55 PM.
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    Quote Originally Posted by Brasileira View Post
    We are following the Dave Ramsey baby steps. It has been life changing for our family. He has lots of videos on YouTube explaining this method to pay off debt, stay off debt and build wealth.

    We also own a business and the best think weíve ever done financially was set a salary. So Iím the months when you make extra you leave it in your business account and use that to supplement months when you make less
    I too enjoy David Ramsey. We skipped Step 1 and Step 2, as we don't carry debt. Did Step 3 and now we are on step 4 and 6.

    Which step are you on?
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    Weíre on step 2. Unfortunately we have debt from school. But hoping to finish step 2 this year. Really looking forward to step 3
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    I've trained myself to always think I am poor, even though I am not. That way I avoid frivolous spending, and I've come to always ask myself "is this a want, or a need" when buying something. I don't need "needs." I put all the extra money towards the mortgage, which is the only debt I currently have.

    My biggest financial debt success was my $24k in student loans which I paid off 2 years all by myself after graduating university.
    Last edited by mulock; Wed, Apr 3rd, 2019 at 12:32 PM.
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    Quote Originally Posted by mulock View Post
    I've trained myself to always think I am poor, even though I am not. That way I avoid frivolous spending, and I've come to always ask myself "is this a want, or a need" when buying something. I don't need "needs." I put all the extra money towards the mortgage, which is the only debt I currently have.

    My biggest financial debt success was my $24k in student loans which I paid off 2 years all by myself after graduating university.
    Great idea - but from experience - one does have to get the odd Ďwantí otherwise you feel like your hands are tied all the time.



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