Abolish Income Taxes

The Debt Elimination Game

If you are having problems managing your debts, here are some things you can do NOW. The rules of the game are really simple.

Rule 1: Stop running up more debt
If you are having trouble making the payments on your current debts, you have to face reality. You can't keep spending money you don't have in hopes of being able to pay for it in a few months. "Ninety Days Same as Cash" deals don't help you unless you know where the money is going to come from in 90 days. You have to freeze your debts, at the current level by freezing your spending.

No new spending, means no new debt. If you are short on self-discipline, give all your credit cards to a trusted friend or relative to hold for you until you pay them off and are ready to redeem them.

If you have high interest credit cards with large balances, you might try to transfer the balance to another card with lower interest, but if you are just paying minimums, it might be hard to qualify for a new card with a low introductory interest rate and no transfer fee. And if you fail to pay at least the minimum or are late even once, they usually jump your rate up to the maximum allowed, plus tacking on a late fee of $25 to $35 dollars. Some credit cards let you charge more than your limit and then hit you with a whopping "over limit" fee.

Rule 2: Examine your finances and make a plan
Make a plan that takes you from deep in debt to debt free. To do that, you'll have to figure out just how much your total debt is and how long it will take to pay it off, given your current payments. You need to SEE it graphically. Once you map it out, you can look forward to the day when your debt is gone!

Step 1: This step needn't be that hard. Sit down at the kitchen table with your family, a pad of paper, a calculator, your check book, your latest bank statements, and all the bills you have pending, including those "90 Day" or "6 Month" deals coming due.

If you have a computer and can enter it into a spreadsheet like Excel or Lotus, so much the better, but you can do this on paper as well. You'll just have to rewrite your lists a time or two.

Make a list of everything you owe money on: mortgage or rent, utilities, car payments, insurance, credit cards, store charge accounts, property and other taxes, medical bills, college loans or tuition bills, everything you pay something on each week, month, quarter or year. Jot down the name of the debt, balance, interest rate (APR), minimum payment (usually 3% of balance), payment frequency, and the date the next payment is due.

Step 2: If you don't currently track your household expenses, try to make a reasonable estimate of the amount you need each week or month (depending on how often you shop) for groceries, gasoline, lunches, laundry, and other day-to-day expenses. Any birthdays coming up? What are you likely to spend on gifts and parties? School fees? Club dues? Subscriptions? Put it all down on paper. Christmas, Chanukah or other holiday expenses will need to be planned for as well.

Step 3: Next make a list of your cash and sources of income: bank account balances, cash on hand, each family member's next few pay checks with dates the cash will be available. Count any income your kids receive also. They are part of the family and have no doubt contributed to the debt problem. They will want to be part of the solution to the problem once they see that they can help. If your kids get an allowance from you, don't count it as income (unless they want to use it to pay defined expenses), but do count it as an expense in Step 2.

Step 4: Sort your expenses by due date and income by available date with the available date for current cash being today. Keep a running total of the balance, that is, current cash minus minimum payments plus income for each date covered. Your third grader can do this on the calculator. (Be patient! It's great practice and doesn't feel like homework.)

Now you can see your cash flow. Where the money is coming from and where it needs to go. Don't forget to repeat each monthly payment with the next likely due date to plan out several months.

Step 5: Question is, does the running balance ever go negative? If not, go to Step 6.

If it does, you have to figure out where you can come up with more income, cut day-to-day expenses, or reschedule some flexible payments to come up with at least the minimums before the due dates. And always, always, always pay before the due date so as not to run up outrageous late fees and higher interest. This will also improve your credit rating.

I try to mail my payments at least 5 days before the due date to allow for slow mail processing.

Which reminds me of a joke I used back in 1989, when postage was 25-cents. "When I was a kid, postage was a nickel and mail was delivered within a day. Now it's 25-cents and it takes five days. Well, now that I think about it, it's still only a nickel a day."

Today it is 6.8-cents a day on a five day schedule. It's still a nickel when it takes 7 days. I just received a letter postmarked 28 days ago. Maybe at the next rate increase, I can come up with a new joke.

If you are really behind the eight-ball and need to come up with more cash, look for ways to generate some. Sell something. Hold a yard sale. It'll get rid of stuff you don't use and free up space as well as bring in a few dollars. The kids will enjoy parting with old toys when they can count the quarters and dollars they earn. Just don't let them get carried away and sell that new toy for $1 that you just paid $40 for.

Pay check advances (using post-dated checks) are not usually a good idea as the cost is excessive. Friends or relatives can help if you have a good reputation with them. If you're on good terms with your employer, ask what the company's policy is for an advance, or see if you can cash in some unused vacation or sick leave. Ask if you can put in some overtime or work as an independent contractor on some special project. Kids can mow grass or shovel snow, run errands, baby sit, clean up yards. Let them use their imaginations.

You can also up your exemptions on your W-4 so less tax is withheld from your paycheck. Just remember that you may have to pay it come April 15, but by then you should be in better shape financially if you follow these steps.

Though I don't recommend taking cash advances on credit cards, if it means the difference between making a payment on time or being assessed a late fee, I'd opt for a cash advance. Some credit cards provide a blank check or you may have to go to a bank or ATM. Be sure to read the terms of your credit card to make sure it is advantageous. Generally you are going to pay 3% of the amount advanced with a minimum fee of $5.00 or so, so on any advance less than $167.00 you'll be paying more than 3%. Remember, you'll be adding this amount to your debt balance. (You also might have to coax Aunt Edna to let you have one of your unmaxed credit cards back.) Use this method only as a last resort. Also, it's not a good idea to pay your credit card payment with a check from the same credit card. Better deposit the credit check into your checking account and pay the bill with your own check.

Step 6: If the running balance stays positive, look at your credit card balances and see if there is enough cash to pay one of them off within a few months. Make an effort to retire one by paying more than the minimum each month until the balance is zero.

Then wrap that card (or mortgage or whatever) in a shroud and bury it in the back yard in your own private debt cemetery. (Use a plastic bag as a coffin liner just in case you ever have to exhume it.) Or if you are afraid someone might dig it up and use it fraudulently, you can stash it in a crypt in your mausoleum in the basement or a closet. Just do something dramatic to show yourself and your family that you are done paying it off, and you aren't going to use it again except in dire emergency.

Step 7: Apply the extra money you free up as each debt is paid off to pay more than the minimum on the next smallest debt. Do the same with each debt until you have them all paid off. If there is a similar balance on two debts, pay off the higher interest debt first.

You'll enjoy the funerals so much, that your whole family will pitch in finding ways to kill off the next debt, and you'll all learn to love living beneath your means.

Debt management takes vigilance and determination, but you can do it. Making a family game of it can be even more fun than getting into debt was. It also increases family unity and teaches kids to use their ingenuity to find ways to cut costs and generate additional income.

Be sure to plan a few prizes or rewards for achieving various milestones (or tombstones). Just don't make them anything that requires further debt. A weekend campout or a special meal for the family, or a pair of movie tickets or special treat for the kid with the best idea of the month. Homemade ribbons and certificates work great for younger children, especially if presented in front of the entire family. When you get your finances under control, you can take that trip to Disneyland or a cruise to Jamaica.