Dear Liz: I’m 28 and trying to get better with money. I’m enrolled in a debt management plan through a consumer credit counseling service and have paid $21,000 in credit card debt down to $8,000. The debt was left over from my divorce three years ago — my ex is nowhere to be found, so it’s all on me to pay it off, which should be done by early 2013. The biggest chunk of my paycheck goes to this debt and rent. Otherwise I don’t spend much. I use coupons for groceries and anything else I need. My car payment is reasonable (less than $200 a month) and my student loans are in forbearance. I spend less than $50 a week on food. I don’t have cable, only Internet and Netflix. I cut my cellphone bill to a manageable rate. I’ve switched car insurance companies several times to get lower rates. I usually bring my lunch to work and rarely buy clothes, eat out, get haircuts, travel, give gifts or do anything extra because I don’t have the cash at the end of the month. I went from paying everything late to paying everything on time. This is a great achievement for me. But all of this cutting back hasn’t helped. I still don’t have any money in savings and very little in checking. I transfer money into a savings account but then take it right out when it’s needed. And it’s always needed. I’ve been trying to find a second job or even a new job that pays more, but I feel like it’s impossible right now. Do you have any advice that could help me?
Answer: What you’re experiencing is frugal fatigue. You’ve cut and you’ve cut, but you still have a long way to go. It’s easy to look at the road ahead and feel discouraged.
But you have to give yourself credit for paying off $13,000 in debt. That’s a huge achievement. Give yourself another pat on the back for staying current with your bills.
The discipline you’re learning will help you enormously in the years to come. You’ll be able to build a substantial emergency fund once the debt is paid off simply by redirecting a portion of the money you’re now sending to creditors.
In the meantime, don’t sweat the fact that you don’t have a huge savings account. Work on setting aside just $500 or so, which should cover most small setbacks and keep you from having to use your credit cards. If you have to drain your savings for an emergency, that’s OK — the fund is serving its purpose. Just build it back up again.
Earning more money is usually the fastest way to dig yourself out of a hole. If you can’t find another job or a better job, create your own job. Perhaps your work skills lend themselves to moonlighting. If your job allows you to take on freelance clients, that’s a good way to bring in extra money. Otherwise, if you have a talent or skill you can teach, do that. If you don’t, consider providing services that others need: house cleaning, house sitting, dog walking, errand running.
You can look for some ways to give yourself more breathing room. If you’ve cut all the small expenses, then it’s time to look at the big ones: your rent and your debt payment. You may be able to free up more money for saving, and for living, if you find a roommate. Also, ask your credit counseling agency about the possibility of reducing your payments a bit. It will take longer to pay off your debt but it could make life more pleasant in the meantime.