Monday, March 07, 2011

Need to make some financial decisions

My finances are troubling me a lot at the moment.  I have been less than disciplined with my money over the last couple of months but mostly I was stubborn about not wanting to finance the payments for my tooth implant and so spreading the payments out over only six months.  Longer than six months or starting payments more than one month after receiving the bill means paying interest.  Which has meant lots of payments coming together as bills overlapped over the last few months.

I also wonder if I am just being unreasonably stubborn in insisting that I pay off my credit card and overdraft as they are, rather than getting a loan, which would be at a lower rate of interest.  But I spent a few years caught in the trap of constantly consolidating and refinancing everything, which is why I ended up with such a massive loan five years ago and I don't really want to go down that road again.  So in a way, the higher interest is the punishment, so to speak, for having let so much build up on the credit card again, and the length of time it takes to pay it off is the reminder needed to not do it again.

So basically I am wondering if I should just go to the bank and see if I could organise a loan to cover everything and just take the pressure off a little bit (not to mention allowing the credit card to once more function as my security blanket, only to be used in case of emergencies but actually capable of being used in emergencies, which it isn't at the moment since it's nearly at the limit).

Here's what I am faced with paying at the moment:
  • Loan payment of 490 euro - last payment due at the end of June
  • Dentist bill of 60 euro - one more payment due at end of March
  • Dentist bill of 184 euro - three more payments due, last one at end of May
  • Credit card - 3,820 euro
  • Overdraft - 2,415 euro
So what I owe right now is around 8,800.  The thing that's getting me is that paying my loan and a bit of my credit card each month is more than enough and having the dental bills on top of that the last few months has really been pushing me to the edge (I've just made the last payment of the previous bill, which was 150 per month for six months - so for the last three months my loan and dental bill repayments have been nearly 900 per months, just too much to leave anything spare).  Now, I am expecting a refund of around 300 from the health insurance, which will help to pay two other bills that I've been putting off (actually, I haven't received one of them but if I wasn't worried about cash I would have phoned up by now to remind them to send it to me - the other one is due for payment next week so I'm hoping the refund comes in before then) and I also have the possibility of requesting some input (could probably get around 2,000 euro) from my company's financial aid scheme.  But I cannot apply for that until I have paid the dental bills in full, which means waiting another three months. On a side note, I finally added up all the bills for the tooth implant I got done last year and it comes to just over 2,800 euro.  I have now changed dentists to one who actually understands my financial situation properly and isn't going to try and persuade me to get the most expensive of anything done (he said any implant costing over 2,000 is really just kind of taking the mickey).

I think I have a severe case of debt fatigue or rather juggling debt fatigue.  Which is leading me to think that getting a variable rate loan might be a good idea.  If I took out a loan over 24 months I would have payments of around 450-500 per month.  But it would allow me to apply for that financial aid and whenever I received that I could put it towards the loan immediately and, for example, if I get a tax refund, that could go towards it immediately too.  So that I would still hope to pay it off in full before the end of the year but would give myself some breathing space for the next couple of months.  Or else I just need to suck it up and get through the next three months as best I can, hoping that nothing else happens that will require any kind of financial input.

In the greater scheme of things and compared to how long I have now been paying off debts, three months really isn't a long time.  Once I've made my final payment for the dental bills I could then apply for the financial aid and put that towards clearing my overdraft, which would leave just the credit card.  Just!  Ha!  But with no payments needing to go towards my loan anymore, I could divert that, plus the little bit I've been using to chip away at the credit card and overdraft as best I could all to the credit card and clear it within a few months, especially if I get a tax refund in the meantime as well.

Any constructive comments appreciated (but please, none about how stupid with money I've been and sometimes continue to be, I know all about that and am really not sure my self-confidence, lacking as it is, can take any more beating).  Am I just being tempted with the idea of a loan because of debt juggling fatigue or does it really seem to be a sensible option?


Stephanie said...

I don't know what your income is, but you may do well with Dave Ramsey's plan He has a few books out that you can probably get at the library.

The basic gist of his plan is:

(1) Make a budget
Figure out what you really NEED rather than want.

Make a plan what you want to do with your money when the month starts. Give every euro a name and put the money in an envelope. Don't obsess over getting the budget perfect. If something does not work, you can adjust it in the next month.

Pay everything with cash so that you are not tempted to spend money you don't have - i.e. credit card.

Pay shelter, lights, heat, water and food first. Everything else can be a want, if need be. Plan your meals so you don't throw food away. Look at the wants and see what you can do without - just for a short time, not forever.

If you don't have enough income to pay the basics, see if you can increase your income temporarily.

(2) Emergency Fund:
Save money so that you have a 1000 euro emergency fund in the bank. Things happen, and you want to be prepared.

(3) Debt payment (Debt snowball)
Pay off your debts smallest to largest as fast as you can.

He does not go by interest rate, because he wants you to have the feeling of accomplishment when the smallest debt is gone.

I think that's what you need right now - a feeling of accomplishment.

So, throw as much money as possible into the smallest loan and pay the minimum on everything else. Then throw as much money as you can at the next loan.

Do NOT get any more loans. Shifting money around does not do anything to get your loans paid off. As you said, that's how you got in trouble to start with.

Good luck!

Moonwaves said...

I've heard of Dave Ramsey and use some of the techniques he promotes, although mostly because I've come up with them myself or heard other friends or bloggers talking about them - haven't yet actually read any of his books.

I do have a budget every month, use mostly cash (much easier since moving to Germany I have to say) and try to make sure that not only am I taking care of what needs to be paid immediately (rent, pension, bus ticket etc.) but also putting a bit aside to cover less regular/annual expenses (insurances etc.). Whatever is left over after all that is divided by the number of weeks in the month and that's my food/everything else budget. If I'm particularly stuck, the annual expenses fund essentially has to function as my emergency fund so that bills are paid on time although mostly I manage to keep enough in there to cover what's coming up (for example, at the moment there is only 30 euro in there but most of my annual expenses fall due in August, September and January so that's to be expected and it will get built back up by next August).

At the moment though, because I had extra dental bills this month as well as having been away (on a choir event that I booked nearly two years ago, not forseeing that in early 2011 I would be strapped for cash), there really wasn't a huge amount of money left over. So at this stage, I have about 18 euro in my purse and that's pretty much it. What's left in my bank account is already accounted for by other bills later in the month (pension, electricity & gas). I will get about 30 euro worth of lunch vouchers from work by the end of next week and have plenty of food at home so although it doesn't sound like a huge amount, it actually should be enough.

Unfortunately, I don't really have any way to increase my income temproarily as I specifically have a clause in my work contract which prohibits work anywhere else and since the financial crisis overtime is frowned upon/needs pre-approval, which is never forthcoming.

My loan is at a fixed rate with fixed payments every month - by now, it is indeed the smallest of my debts but that's not the reason it's getting paid off first, it's only the smallest because it's nearing the end of its term.

Three months is not really enough time to make any life-altering changes. I am also trying to pull myself out of a serious depression (I'm on a waiting list for counselling) so while I normally am very good about eating frugally, the last fews months have involved far more lunches out and takeaway than I can really afford, which has added to the pressure of the additional bills sucking away my income.

Thanks for commenting. I think I know deep down that getting another loan is not the right thing to do, not least because contrary to a feeling of accomplishment, I suspect it would feel very much like failure.

heather in europe said...

Just another idea...does your contract preclude casual work, such as making a few euros babysitting or occasional English tutoring? I had done one of the free online classified sites and there were plenty of responses from people who wanted 'English conversation with a native', such as they were going to the US on holiday, etc. and wanted to build up some confidence in practicing rather than via formal lessons.

Might help to be able to squeeze a little more into the budget--in addition to Stephanie's suggesitons.

Moonwaves said...

What it actually says is something like "Sie sind verpflichtet ihre ganze Arbeitskraft [company] zu widmen" (but with better grammer, too lazy to go and look it up now). I think it's a fairly standard clause but I've asked around and it seems to be fairly strictly adhered to. Of course, it's really intended for the professionals who might otherwise end up working chargeable hours for someone else but they apply the same rules to everyone. My local rewe supermarket recently started to open until midnight and I was very tempted to try on get work there for that late shift a couple of nights a week, which is why I had looked into it. That would have suited pretty well.

Albedo said...

I was going to comment yesterday but then my server went down for maintenance so here I am again.
I've been heavily in debt until recently (many times your amount!). The biggest pain, and the thing which gets you into more debt, is the interest. Lucky for you the interest rates are lower now than they were for me for many years, but I struggled and rejigged loans and consolidated like mad just to get the lowest interest rates I could. I even at one stage upgraded my bank account to the highest (most expensive) option because the interest rates on loans were lower and I saved more than it cost in extra fees. I don't think that would work now though, but you get the point I'm sure. Avoid paying high interest rates, switch to 0% interest rate deals by changing credit card providers, that sort of thing.
Me? I'm debt-free now, but have been out of work for 5 years. Moving to a remote island wasn't good for my employment prospects, but it means there isn't much to spend my money on!

click clack gorilla said...

Well high fives to you for getting this far. Seems punishing yourself with the whole interest thing isn't the best way to get it paid off quickly, and if it's not, why not look into the loan? Less interest is always a good thing. I'd say hey, you made some mistakes in the past, but don't let them bring you down in your plans for the future and the way you want to handle your money ideally. Good luck!