Digging Out from Under
Posted by Gail | Filed under Credit Wise, Good ideas
Okay, you messed up. Big-time. You owe a ton of money. You’re working, but not making enough to deal with your life and your debt. What’s a body to do? Here are some things to think about.
Sell your stuff. It doesn’t matter how much you paid for it, or how little you can sell it for, if you have stuff that can bring in a buck or two, sell it. Old textbooks can be sold at Amazon. Craigslist and eBay are other great sources for hawking your stuff. From fitness equipment that’s now just a hanger for dirty clothes, to old furniture, electronics and toys, you probably have a few hundred dollars sitting around taking up space. Convert it to cash and pay down your debt.
Get a second job, a third job, a better job. You’ve heard me say this before. I don’t care how hard you have to work. If you’re in the hole you need to find the will to work harder. There are 168 hours in a week. Assuming you keep half for yourself, you can still work 84 hours a week until the debt is gone.
Sounds harsh? Grow up! When young doctors are interning, an 80-hour week is a slow one. When investment bankers are earning their stripes, 80 hours are a walk in the park. Ditto lawyers who want to make it to partner, and farmers who want to make a profit.
Wait tables, work retail, stuff envelopes. If you need to be home with the kids, find work that will let you earn an extra paycheque right from home. They’re out there.
Start your own business. Do you have a skill that someone else is willing to pay for. Play the guitar or piano? You can teach music. Love to sew? Start an alternations or custom sewing biz. A great academic? Tutor kids. Speak a second language? Teach conversational Spanish, Chinese or Russian. Or start a translating business. Are you a fabulous touch-typer? Start your own transcription business. Great eye for web design… well you get my drift. Loads of people start a side business only to find that as they follow their passion, more and more of their money comes from doing something they love. From house painting to gardening, people find joy in doing things they love while they make extra moolah.
Rethink your housing. If doesn’t matter if you live in an apartment or a house, rent or own, taking in a tenant or getting a roommate are terrific ways to lower your housing costs so you can plough more money into debt repayment. Exchange students from other countries, kids who are in college or university, friends who are in a similar debt dilemma are all looking for a place to live and your place may be just the ticket. So it’ll be a little cramped for a while. So it’s a pain having a “stranger” in your home. Ya know what, you should have thought about the mess you were making when you went out and charged up a storm. Now your priority has to be to get it paid off. And this is one way to make an extra $400 – $700 a month.
Dead set against living with strangers? Then find a cheaper place to live. Or find a friend or family member you can cotch with while you pay down your debt. How about managing an apartment building for a free apartment? As long as you’re available the required number of daylight hours to deal with building maintenance, this could work for you.
Cash in non-retirement savings to pay off your debt. If you have money in an GIC that is paying you 4% and you have a credit card that’s charging you 18%, cashing in the investment to reduce or pay off the debt will save you gobs of interest. This does not apply to registered assets that would trigger a tax bill. Leave your RRSPs alone.
Adjust your withholding tax. If you usually get a tax refund, you’re paying too much in tax. Fill out Form T1213 (in Canada) or a new W-4 (in the U.S.) and get your tax reduced at source so you have more money to put toward debt repayment each month.
Grab your cash value. If you have a life insurance policy that has some cash value built up, you can borrow that cash value and use it to pay down your high-cost debt. You may have to pay some interest on the loan, but it won’t be a patch on what you’re paying on that department store credit card. Once the debt is gone, pay back the loan from your insurance policy asap because the amount borrowed will reduce your beneficiary’s payout.
Sell your car and take transit, or buy a cheaper car. I meet people who are obsessed with the cars they drive. They have to looook gooood in their cars, so they lay our hundreds of dollars a month for payments, pump premium fuel and pay whopping insurance so that the people they drive by on the road – strangers – will be impressed. Friends and fam won’t be so impressed because they probably know just how deep your hole is, and they’re scratching their heads and wondering what possessed you to go out and get that stupid car. Lose the luxury. Get a putt-putt and get debt free.
May 5, 2009 at 7:25 am
Excellent post!!…It applies to everyone and the suggestions are real and very doable!..
May 5, 2009 at 8:02 am
I did a lot of these things:
1. Sold 50% (actually maybe 60%) of my wardrobe/jewelery/shoes to pay down debt
2. Didn’t own a car until I turned 25 and bought a used one in cash, $2k outright, and paid the insurance on it ($300/year) in full.
I lived for 25 years taking public transportation and it worked fine for me until I started my own business.
3. Started my own businesses since I was 16. Am now a freelancing IT consultant.
4. Lived WITHOUT an apartment, in hotel rooms for about 6 months, paying no rent or bills except my debt and miscellaneous things, because I was travelling on business & I just stayed in that city and the client footed the bill
5. Held about 2-3 jobs ever since I was 19 in college, because I cannot stand to be idle.
6. Re-thought my whole life, and am now becoming a minimalist. Am going to move to the U.S. ASAP with only 3 suitcases and 2 carry-ons. So far, so good.
FB @ FabulouslyBroke.com
May 5, 2009 at 9:03 am
Selling *stuff* you don’t need/want anymore is a great way to make some cash.
I sold 2 years worth of childrens clothes to a friend for $150!
-Sell books & nic-nacs on Ebay etc, kijiji, Craigslist.
Check *wanted* ads on line and see if you have things others are looking for. I was able to seel some cookbooks for $10 each this way. Had we simply sold them at a yardsale, we might have got $3 each.
I also sold a discontinued Partylite candle holder on Ebay for $30, when I might have got $5 otherwise. You never know what people are looking for!
Even magazines are a good thing to sell. People are often looking for old issues of things like Martha Stewart Living or specialty mags.
Do you have extra tools you don’t use? Maybe you have grandmas old linens or dishes you will never use or simply have too many of – people love them!! Consider a consignment store if you don’t want to sell them yourself.
Another ideas is to sell items on E-bay/on-line for other people and take a commission.
Turn your hobbies into extra money.
-Can you refinish furniture?
-Teach people to cook/cater
-walk dogs/clean up yards
-type reports
-weed gardens/help someone start a garden
-clean houses
-babysit
I’m looking forward to reading other peoples ideas.
May 5, 2009 at 9:39 am
I turned my hobby (bellydancing) into a second job for about 4 years. I had a regular gig at a restaurant, plus weddings, plus teaching classes. But on the whole, except for those 4 years of semi-professional dancing, it was an excellent money pit.
Excellent, because I used it mostly to declare losses out of my main income for 3 years, thus reducing my taxes greatly.
And also, excellent for many, many non-financial other reasons, including inspiring my own mother to take bellydance.
May 5, 2009 at 9:55 am
“Sounds harsh? Grow up! When young doctors are interning, an 80-hour week is a slow one. When investment bankers are earning their stripes, 80 hours are a walk in the park. Ditto lawyers who want to make it to partner, and farmers who want to make a profit.”
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Thanks for the reminder Gail that I could be working harder to be more successful – even if I don’t have to worry about debt.
FabulouslyBroke, you impress me everytime I read more about you. Such a busy body with a strong entreprenuerial spirit. People like you are inspiring.
May 5, 2009 at 9:56 am
I give these suggestions to clients who want more credit to pay off credit (not a good idea and usually will not qualify for it anyway!)..yard sales and selling unwanted items are the easiest ways to make an extra buck or two…:)
May 5, 2009 at 9:56 am
I’ll be taking on a 2nd job that I work weekend evenings, doing at home call centre work. I’ll be considered self employed, so anything that I had to purchase to startup, will be a tax deduction. I’m in need of 3 things now: voip service, a new phone set and a headset. Taking on this job to pay for braces for myself. Because I am a working adult, metal braces are not an option for my daytime job, so I am going with the invisible ones, 2x more expensive, but results in half the time of metal ones.
Some said type up reports, unless someone doesn’t own a computer or have access to a computer and printer, this job is pretty obsolute these days. JMO. The garden/mowing/lawn cleaning is an excellent summertime job for those who love the outdoors, and I’m sure there are plenty of people who can use the help, especially in this city with the enw by-law saying your yard and unbuilt property has been clean and neat.
May 5, 2009 at 10:26 am
Thanks for the suggestions! I just took a big bunch of clothes to the consignment store, as I mentioned yesterday. I was considering selling them on eBay but didn’t, because the posting/shipping, etc was bound to be a time-drain, and this way the store does all the work for you. For small items like clothes I think a consignment store is the way to go. The payout for each item will be small.
For big ticket items, though, craigslist or eBay is the best.
I am interested in selling some artwork but don’t really know how to get started. Should I hang my work in restaurants/cafes? Create an etsy shop? Will any of this even be worth my time?
May 5, 2009 at 11:01 am
Doing everything you can to get rid of debt makes complete sense to me. But for some reason when I am reading some of the responses I get the impression that some of the respondents are working more to get more stuff. Once the money is under control (debt gone) why do people still have such a strong desire to buy crap, to keep up with the Jones’, to have that next new better thing. Right now my husband and I work slightly more than 40 hours a week – we could work more to earn more – but we want a life outside of working and we have no desire for excessive stuff. I feel we are in the minority though. Why has stuff becoming so important in peoples lives?
May 5, 2009 at 11:29 am
EchoLake — there’s nothing wrong with accumulation or working more to accumulate more. And it’s not all ‘crap’ — some people, myself included, enjoy owning nice things that we enjoy (ie a comic book collection or vintage arcade machine) that aren’t everyone’s cup of tea. To some, it’s never enough and if they can afford it, who are we to judge? Just as there’s nothing wrong with your approach, be careful on judging others. Now going into debt for stuff is just dumb, but Bill Gates has a bowling alley in his house which I think is awesome and I think he can swing the monthly payments…
May 5, 2009 at 11:52 am
I am curious what Gail thinks of using up an E-fund to pay down credit card debt?
May 5, 2009 at 11:54 am
We are a single income family and we did think about my husband getting a part time job to help out paying down our debt. Yes, we can work harder but we also need to balance work and family.
We looked at the amount of debt owing and figured out that we could pay it off in 3 years just on my income alone. This was before my raise and bonus. Now it looks like it will be paid off a lot sooner than the three years.
I like Gails advice to use 2 to 3 years as a timeline. If your debt is so high that you have to work 2 or 3 jobs to get it paid off in 3 years then go for it, but if you can do it without going insane and working 80 hrs a week the stay the course.
Having family time on the weekend, having time to invest in my marriage to me is worth taking a bit longer to pay off the debt. No time with hubby might equal debt free but it might also equal a divorce lawyer. I like my husband enough to go skip the laywer idea.
Now on that note if our situation was a lot worse than what it is then he would have had to have got a job, so I am grateful that it isn’t! My message is balance!
May 5, 2009 at 2:33 pm
I completely agree with Geoff (although comics are not my cup of tea).
If you can afford nice things, go for it. I would rather save and get something wonderful from Restoration Hardward than buying junk at Jysk.
Your environment is an investment in your life and happiness.
Some people seem to be a bit smug about living the life of an ascetic, which I don’t think is Gail’s point. Rather living the life you can HONESTLY afford but which still fills your heart. Not necessarily a battle between “stuff” or family or travel, but a happy compromise of all things while still maintaining a safety net of money.
Unfortunately, we all have to face the reality that some people will always have more of all those things than we will, oh well, c’est la vie.
May 5, 2009 at 3:55 pm
I have been off work for 1.5 yrs with an illness. In the past several months I have begun the slow process of returning to work. While I was off, I was on LTD. This was a huge help but fell short of what my salary once was. This was an eye opener for us. We took a second morgage on our home to pay off our debt and are determined NOT to get into that situation again. As a celebration (hopefully not premature) of my return to work, we are going to go to a concert this summer but we made the agreement to pay for the expenses not on credit. We are having a yard sale in a few weeks, my finacee gave up his coffee run on the way to work (brings it from home); putting the money he would have spent in a jar, and since we are living on cash (thanks to Gail) we are saving our change. Normally our way of dealing with this would be to pay for it with credit of some sort, but no more. It is ok if you do want something, you need to be able to afford it and plan for it. Buying without thought is where we get into trouble.
May 5, 2009 at 4:07 pm
EchoLake and the others weighing in on the subject –
I actually find that most people on Gail’s blog are pretty down to earth and not all that materialistic. If you were referring to Erran’s comment, well, I don’t think there is anything wrong with working hard when you are young (Erran, I think you are around 30 years old?) to save for what you will want for the future (dp on a home, etc.) For that matter, there is nothing wrong with working hard for other monetary goals. It’s a matter of personal choice.
I consider myself very frugal and easily satisfied. I don’t place a lot of value in “stuff”. That being said, there are still things I want to buy. Traveling, for example, is a particular passion. I think that most people here would agree that once you pay down your debt, money is yours to do what you want with, as long as you are saving the suggested amount and living below your means.
I don’t disagree that for some folks, having less stuff is worth the increased family time. But I would caution against making sweeping judgements on this crowd.
May 5, 2009 at 4:07 pm
As always Gail, you are the voice of reason.
Thank you for putting it so sensibly and thoroughly and giving us the little kick in the pants!
May 5, 2009 at 4:09 pm
Diana – I liked your comment. I think it’s about aligning your values with your spending.
May 6, 2009 at 12:43 am
Here’s a question for you, Gail.
If the choice comes between working an extra 20 hours a week, or paying some more interest on your debts, which is the better choice? I know, I know, you preach “get out of debt” like there’s no other answer, but what if your interest rate isn’t that low. Wouldn’t it be worth the extra few dollars to live a somewhat normal life?
Obviously this can only be the case IF you’ve stopped charging credit, getting into debt, and have a debt repayment plan.
Like, if you work the math, and it turns out that your extra job will save you like, $400 in interest over the next two months, isn’t it worth the extra 20 hours a week at home with your family for $400?
May 6, 2009 at 7:32 am
Alan, if family time is important to you, then you’ll make sure that the time you spend with them is rich and full of love. However, when you were out creating the debt, the thought of the cost in family time didn’t even come up. Now that it has, perhaps that will be what keeps you on the straight and narrow in the future. For the present, however, getting the debt paid off has to be the priority. The risk to the family in towing that debt around is just as real and the pleasure you get from being with your family.
Jesse, I do not think using your emergency fund to pay down debt is a good idea. If something were to come up, having no stash of cash would push you right back to your credit.
I know a lot of you are on the minimalist path, but please don’t think that what I preach is minimalism… my house if full of stuff, stuff I enjoy looking at, stuff I enjoy sharing with friends: plants, books, movies, nice dishes (including that white china.) My message is simple: you can have whatever you want provided you are paying for it with money you’ve already earned, you’re not carrying any consumer debt, you’re saving something, and you have all your risks covered. It’s a case of taking care of the details first. You aren’t entitled to stuff you must pay for with credit! That’s just dumb. And no matter what mistakes you may have made in the past, it is now time to pay up and move on to a life that is rich with joy and experience.
Planning like a pessimist so you can live like an optimist means that once the details are all in the bag, you can go about doing whatever the hell you want with you money. It’s your money. You earned it. Have a great time!
May 6, 2009 at 9:12 am
Hey I own that car your talking about, Premium Fuel, Extra Insurance (I have 2 other cars), the only problem is that to sell it at a big loss turns my stomach. There are to many smart folks here thought to post a “Car for Sale” ad.
LOL
May 6, 2009 at 10:00 am
Sunflowermel:
I have been where you were…best of luck in coninuing to be well and work. the psychological cost to a couple of a long term illness is huge, so I think if you can afford the concert you really must celebrate!
Hugs!
May 7, 2009 at 4:22 pm
Great thoughts… but let’s not forget to be very VERY careful about the “work from home, make more money” scams that are out there. Not all, but enought that have bitten people in the butt before.
September 21, 2009 at 3:48 pm
I will be laid off from my job in the next 3-6 months – I don’t know the exact date for me, the end is drawing near. I am of course looking for a new job, but because my company is in bankruptcy protection there won’t be any severance package to tide me over if I am laid off and haven’t found my next job. Our only debt is our mortgage and we live way below our means (~50% of take home), so while it won’t be desperate immediately I want to be as prepared for the worst as possible.
I am planning to get a part time job now and bank all the extra income as my DIY severance package. My thinking is that if I wind up on EI I won’t be able to have a part time job at that point or I’ll just cut into my payments. I’ve only ever collected maternity leave benefits which is a special case so I’m not really sure now the whole EI thing works. If I find a new job before I’m laid off none of this will matter, but in case I don’t I figure I should double up my hours and build up a little extra now while I can. Does this line of thinking sound reasonable? Does anyone know if you can earn any PT income without impacting your EI payments? I’ll qualify for the maximum EI payment based on salary, but is there some amount I can earn in addition without screwing that up. I hope to move seamlessly from my current job to a new one, but I just want to have all the information ahead of time.
September 21, 2009 at 3:58 pm
Forgot to mention above that the EI payment I would receive will more than cover the amount of my salary which is required to balance our budget, so as long as we stop investing, saving or travelling (which is what the rest of my salary buys) we’re fine financially. We don’t have an official emergency fund set up as my DH works for the government and would get a good severance package, and EI covers enough of my salary to balance. If we want a little wiggle room we’ll simply cut a little more from the grocery budget and opt out of a few Christmas events and gift exchanges. I’m really just wondering if I am allowed to earn anything if I wind up on EI, or should I get busy with that PT job now because I’ll need to quit it if I wind up in EI for a little while.