I’m a married father of four in NorCal. We scratched our way out of homelessness and poverty but can’t seem to avoid being smothered by credit card debt.

My family spent a few years homeless following one huge and several small layoffs for both my wife and myself in a very short period of time. We lost our home, our vehicles, everything material and moved 6 times in just a couple years (always sleeping on couches or sharing one bed with our four kids… whatever it took) in pursuit of stability and jobs that always ended up falling through. Three years ago a local program helped pay the deposit on an apartment and provided interview clothes and within days I landed a reliable job working for our county and we’ve been in that apartment and I’ve been working at that job ever since. I’m even expecting a raise in November. My wife recently went back to work part time to help us catch up on payments. Unfortunately she can’t work full time because we have to rely on family members for childcare for our four children.

Two of our children overcame some pretty serious medical conditions during these past few years of stability, requiring us to live at hospitals for long periods of time. Having only recently started working and barely moving into an actual apartment at the time, we relied heavily on credit cards to stay afloat during those periods, even taking out several cards and maxing them out to cover living expenses, groceries and even our own costs while staying with our children at the hospitals. I know, I know: It’s bad. And just when we were finally financially recovering from the first child’s medical situation, our youngest ended up in the hospital (recently) and we dug ourselves back into credit card debt all over again.

We want to have an emergency fund. We want to have savings. We want to have financial stability and maybe even eventually buy a house. So we’re asking for your help. Any guidance and suggestions is deeply appreciated.

So far, we’ve downsized as much as we can at the moment. We live in northern California and our family of 6 lives in a tiny 800 square foot 2 bedroom/1 bath apartment. Our internet/cell phone bill is the minimal speed and data plan needed for my wife’s job, which requires her to work from home fairly often. Basic cable comes with the apartment for free. We are also responsible for maintaining a storage unit until a family dispute has been resolved and the contents can be distributed, most likely in a couple months. We have one vehicle that we bought used about a year ago and have never been late paying on. It has $4,500 remaining to pay it off and is really only used to take the kids to school and get groceries since we walk to work. We get an excellent rate on car and renters insurance through my work, which is deducted from my paycheck with my other benefits and therefore not reflected in the following breakdown. And yes, we know the payday loans are bad but they are another product of our daughter’s recent hospital situation but we are forced to renew it for the smallest possible amount each month until we can pay them off in full. We regret ever taking them out but are stuck until we can inch them down to an amount we can afford to payoff in full. At the time, it was the only way to pay rent while sleeping on folding chairs in a hospital several hours away from our home and our other children while our baby was fighting for her life. Here is the complete breakdown:

Income:

• $1,075 and $400 (so $1,475 total) bi-weekly (which will go up to $1,675 in November)

Expenses:

• $880 Rent
• $600 Food ($150 per week for a family of 6)
• $450 Credit card payments ($11,000 spread over 13 cards)
• $225 Car payment ($4,500 remaining balance)
• $150 Electricity
• $250 Other necessities (Diapers, wipes, toiletries, school needs, medical copays, gas)
• $100 Propane
• $100 Phone/Internet
• $90 Storage unit
• $88 monthly fees for rolling payday loan

Like I said, we understand the credit cards are the biggest problem but we need advice on the best way to tackle them and start a savings so we can build an emergency fund and never have to rely on cards and payday loans again. My wife does all kinds of odd jobs from home when she can (independant writer, mystery shopper, making things to sell, you name it) to bring in bits of extra money when possible while avoiding us from having to pay for childcare for her to work full time. We did the math and she would be actually making significantly LESS than she does now if she worked full time and we paid for childcare. I’ve also been submitting applications for higher paying positions, so fingers crossed one of those comes through. In the meantime I need advice on how to tackle our situation. THANK YOU.

Solution

Your main problem does not lie on your credit cards but on your payday loans. It causes a lot of deductions on your possible savings so if you can renew them and make it roll over on the next smaller amount at least by next month, it would be a good option. Furthermore, based on your expenses, you can still narrow down your food cost through these tips: (Note that these are Californian prices)

• Since your wife works only on part-time basis, cooking from scratch could save you money. Rice is very easy to cook and can be available at only 10 bucks on sale. There are even cheaper ones on thrift store but that will depend on your taste preference.
• As you can see, you really need to keep your children healthy as getting them to hospital really cost a lot. Potatoes can be a cheap source of carbohydrates. You can try to get at least 5 lbs per dollar but there are also available sales costing 20 lbs/dollar. You can also make them last longer by keeping them on dry area. Boiling can be a good option if you want to keep the nutrients inside.
• Beans are an extremely expensive source of protein and can even be partnered with rice to become a complete meal. If you want to go healthier, eggs can also be relatively cheaper. If you have an Aldi nearby, they often have eggs on sale for under a dollar a dozen when they get a fresh shipment in. It’s a good time to stock up.
• If you want some variety of pancakes, you can make your own batter. Three or four boxes of pancake can be mixed with a 1-dollar batter.
• If you want a snack for treat, you can have some popcorn kernals cooked in some oil in a large pot with a lid.
• Finally, an important note on food: You’ll probably hear stories/advertisements telling fat is bad for your health. I tell you they are mostly sponsored by the sugar industry trying to get commercial food to replace fat with sugar. A lot of scientific studies have debunked this notion for years. However, you still need to consider that trans-fat is still bad for your health. Nonetheless, other forms of fat will keep you full.

In addition, I also noticed that your rent amount is pretty good. But in the case that you are worried you’re getting into the maximum occupancy for the unit, you don’t actually need to. The Landlord Tenant Code for maximum occupancy only applies for UNRELATED PEOPLE. It means as long as you’re living together with your immediate family, it would be legal to stay in your current apartment. Best regards!

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How to allocate and budget for the week?

I’m living with my parents so no money on rent or food. I bring home about $400.00 AFTER taxes every week. Here’s what I need to pay off (1) $2,500 Capital One / (2) $2,031 PayPal / (3) $1,300 college course / (4) $2,200 another college course at different school. All together: $8,031.00 (I rounded up and made the figures flatter).

Each week I automatically put $100.00 straight into savings. Then live off of the $300.00. I’m paying most towards the Capital One because it’s the highest interest and I’ve been neglecting the college courses. Today after I spent about $160 on shoes, I was overcome with guilt and almost cried that I keep making such bad financial choices! I’ve tried many times in the past but I just relapsed. I’m at that enough is enough moment and want to put things right! How should I go about this? I’m hoping by the end of the year I can pay everything off.

Also, bear in mind – each week I spend about $25.00 on transportation just for a week. Some week’s I’ll need personal expenses like buying body wash, and small things like that. I’m willing to stop buying food/lunch when I go to work. Or at least never spend more than $5 on lunch, so a few slices of pizza and a drink.

I think I just have a fear of losing money, going broke so everytime I make a major purchase I’m just overcome with guilt and can’t stop beating myself up about not using that money towards a bill. Was life meant to just be paying bills all the time?

Solution

It’s actually good that you already have computed the important numbers in your expenses. Here’s a detailed guide on how you can properly budget your financial resources regardless of your situation. This can serve as your future reference if ever there are significant changes in your life such as moving into another place, getting a new job, etc.

• MONTHLY INCOME: Budget out with four weeks of take-home pay. There are lots of “after tax paycheck calculator” to get some rough numbers. If you already have done this, you proceed to the next step.

  If you’re paid twice a month, you might want to compute your February pay stubs and see what 10 workdays of pay looks like, then multiply by two. This will help you budget out the worst-case scenario. If your monthly income fluctuates, list your worst-case or lower-than-average scenario. Allocate your budget based on that results instead and anything that’s left over should be allowed to float in your checking as a buffer.

• MANDATORY SPENDING: You can skip this step if you already know/computed all of your mandatory expenses. Mandatory expenses are those related to safety and survival. This includes but not limited to:

  • Mortgage, rent, and insurance
  • Electric, natural gas, water/sewer
  • Groceries
  • Transportation

  Note that this does include discretionary items such as Cable TV, Dining out, bars/clubs, and shopping.

• RULES OF THUMB: Below are some scenarios where you should make a major change in your lifestyle if it applies to you.

  • Your monthly mortgage/rent is more than 30% of your take home pay. In this case, you should consider getting a roommate, or moving into a cheaper place.
  • Your monthly car expenses are more than 15% of your take home pay. In this case, you should consider a carpool to your work, travelling less, or taking the bus or a bike. You may also want to move closer or sell your car.
  • Your groceries cost more than $300 per person. If you want put an amount for your savings, you should look at more frugal options for buying groceries such as buying in bulk, going for store-brand foods, or going to less expensive grocery stores.

• DEBT, GOALS, and RETIREMENT: The amount you save for here is actually subjective and depends on you. But the faster you take care of this, the quicker you can become financially independent. Note that this does not mean putting these expenses as your topmost priority. Mandatory expenses are still above these payments.

• DISCRETIONARY SPENDING: These are anything left over from your goals. These include shopping, hobbies, cable, fast food, coffee, dining, and so on. Always remember to live within your means and save for your capital expenses before buying.

As an additional advice to your current situation, I assume you are able to pay $1000 for your listed debts. That means you can allocate $250/week for those payments instead of putting it to your other expenses or savings. Doing this, you could be completely free of debt in January 2018. This maybe a month sooner or later depending on the exact amount you put in for it. From that point, you can then have an extra $1000 per month to save or invest. Thank you and my best regards!

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How to avoid getting ripped off at the mechanic’s shop

If I need to take my car in for routine maintenance, (oil changes, tire rotations, transmission changes and such) what are some things that shops will try and sell you that are really not necessary? For those of us unfamiliar with the inner workings of cars and most other machinery.

To all those jumping to defend mechanics: I realized that there are many wonderful, talented and honest people in this industry, I was simply hoping to foster a discussion so that those who are, shall we say, less than mechanically inclined (johnson bars and headlight fluid and such) will not needlessly waste money when their cars need service. I think the general consensus here is that we need to take the car to someone who IS reputable, but the problem is finding them. Knowing which things are completely unnecessary can help to determine this, and find those good businesses out there.

Solution

If your goal is to save financial expenses from your car maintenance, the best thing you can do is learn how to get things done. Below are some practical issues that you can easily solved or at least search on the Internet for a solution.

• Learn how to change your engine air filter (filters the air inside your engine) and your cabin air filter (filters the air that circulates inside your car). Each of them only takes 5 minutes to change. You can watch a Youtube video for each tutorial. The air filter is located under the hood, and the cabin filter is easily accessible behind the glove compartment on most models.

  Mechanics often suggest changing both of these every time you requested for an oil change charging you $40 – $50 for parts and labor, which is a massive markup. The fact is you only need to change each one about once a year and the filters can be bought by $12 on Amazon. Filters and the likes are where mechanics make their money.

• Learn to change your windshield wipers which is just another once-a-year requirement. You can inquire to an auto parts store what size of blades your car needs or you can refer your model to Amazon. This also takes just 5 minutes. In addition, there are actually other auto parts store who install these for free.

• Learning to change your bulbs could also save you $100 or so on labor. Depending on your model, it might take a little longer.

Note that mechanical problems could differ for each car. You need to understand your vehicle and know what are the common issues or reasons for bringing it in a mechanical shop. Searching for videos on the Internet can save you time and cost if you can learn the steps. Furthermore, before going to a mechanic shop, you might want to consider warranty repairs (if it still applies) which is part of your dealership. Thank you and my best regards!

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What is a good credit card to start with for a 20-year-old who’s never had one, but wants to start building credit?

Solution

Before jumping to picking a card, you can follow the steps below to better assess your situation. This is a detailed guide on how you can get your file started up to the lenders.

1. Assess your financial situation – First things first: your financial health. Your credit score is not everything, it is only a SUPPLEMENT to your financial activity. Your priority must be to ensure that you already practice good financial habits. To know this, you must be someone with:

   • Emergency funds.
   • Plans on living not beyond his/her means.
   • Income.
   • Spending habits that have been dealt with.
   • Budget.

2. Consider becoming an Authorized User – If you have a family member or a spouse who has an old credit card with a solid history of on-time payments, you may want to take advantage of this by asking them to become an Authorized User (AU).

   AU’s will sometimes have the benefit of getting the credit history of the account copied to their report. This can then accelerate the process of credit building which is commonly termed as “piggybacking”. However, you must note that every creditor has different policy on this. Some creditors only allow certain family members to be reported as AU’s.

3. Pick a card – As a general note, you should avoid cards that have an annual fee. You do not need to pay a dime in interest or fees to obtain an excellent credit score. Below are some scenarios where you can pick out something that best fits your situation. If you are done with this process, you can skip to step 4.

   • If you are a 20-year old student or graduate who has student loans: Since you already have student loans, you probably have a decent (but short) length of payment history in your life. In this case, I would recommend at what generally referred to as a “starter card”. Most common choices for this situation are the Chase Freedom and the Discover It . Another option could be CapitalOne Quicksilver (do not confuse this with the Quicksilver One which has an annual fee).

     You can also consider looking at the bank where you currently have a deposit account. You are more likely to get an approval for a credit card if you’re in a position where the institution can clearly gauge your financial health.

   • If you are not a student and also no payment history: You can still try to apply for a “starter card” and see if you can get approved. Freedom It and CapitalOne Quicksilver are good choices for taking chances on thin and new files. Again, you may want to look at the bank where you currently have a deposit account. You are more likely to get an approval for a credit card if you’re in a position where the institution can clearly gauge your financial health. If you’re having a bad luck on starter cards, you can consider the options below.

   • I can’t get approved for any cards listed above: If you already exhausted all of the options above, you can try to get approved for a secured card. This is card where you lay down a security deposit, which becomes your credit limit. However, most of these cards tend to have annual fees. You can still search online for secured cards without annual fees or find some local credit unions. Magnify Money provides a comprehensive list of secured cards available from credit card companies, banks, and credit unions. If this still doesn’t work out, try to go to your bank or local union to explore more options.

     If you were able to get approved on a secured card, usually, within 6-12 months of on-time payments, you can request to move from a secured card to an unsecured card, or do a product change to a different card entirely.

   • You can’t get approved for a secured card: In this case, it is likely something is keeping your credit file back. Do you have an account in collections? There could also be a mistake on your credit file (which happens frequently). At this point, you can check http://annualcreditreport.com/ to pull a report. If there are any inaccurate items, and they have been disputed successfully, you may go back through your denials, call the bank and ask them to reconsider your application.

4. Understand the Rules for Using your Card – Of course picking a card is not your end goal. You must be able to manage carefully your finances and expenses. You can follow the tips below to guide you on the process.

   • Use your card only for planned expenses.
   • Do not change your spending habits simply because you are using credit instead of cash. Rewards are nice, but spending a dollar to earn a penny is not a good idea.
   • Always pay your statement balance in full by the due date. NO EXCEPTIONS. Remember you are building your credit. You cannot build a house with weak foundations.

   In addition, a typical billing cycle looks like this:

   1. You charge a planned expense, sticking to your budget and not changing your spending habits especially when you have established a good one.
   2. The bank will sum up of all of the activity in 1 and will send you a statement or a summary of the information it believes to be correct.
   3. Review your statement for errors, and pay your statement in full by the due date. As long as you pay in full, you will not be charged of interest. Any charges that were not listed on the current statement will appear on the next one.
   4. Go back to 1.

If it seems confusing, here’s an easy analogy. Consider your Electric bill. Your institution monitors your charges and sends you your bill. As long as you pay your bill in full, there will be no extra charges or interest for late fees.

Again, credit score is only a supplement to your financial activity. Your priority is to establish or maintain a good financial habit. Thank you and best regards!

The post Getting started to build credit appeared first on Financial Planning Tip.

We hope to highlight various tips and strategies that will help our readers overcome their financial burdens and struggles that they are facing and achieve a level of freedom. It takes careful planning and plenty of patience, but once you get to that sweet financial freedom, it will have been all worth it

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