Adjustments to debt payment schedule

February 2, 2009 at 11:12 am (budget) (, , , )

I’m making some adjustments to my bill paying schedule. I’m still working on a paycheck-to-paycheck system, but I’ve finagled a method to make it work more smoothly.

 

To explain why I’m going to adjust my payment schedule, I will have to explain when I get paid and pay bills. I tend to have all my big “must pay, no exceptions” bills all due in the first half of the month: rent, car insurance (haven’t built up the whole yearly payment yet, working on it!), cellphone, line of credit payment, and most of my utilities. That comes out to more than half of my budget (about 2/3 actually), and since I get paid on the 5th and the 20th, that always leaves me short until I get my 2nd paycheck of the month.

 

I’ve saved up enough extra so that I have a $400 buffer in the checking account to help in the few times I might get low or have to overpay, but that doesn’t quite handle everything.

 

The last half of the month is when I pay money into savings for my emergency fund, pay my smaller SBA loan, and as of February, my minimum on the discover card. That’s when I would have extra for my principal pay-down on the line of credit loan (my highest interest rate debt).

 

I’ve decided that it makes much more sense to delay that last debt payment from the end of the month to the date that I deposit my next month’s first paycheck, plus pay any non-rent bills due. Here’s how it’s going to work: January 20th paycheck is deposited. Savings gets transferred from checking account to my savings account ($125 total per month right now). I buy food, and any regular necessities as needed. Jan 31 happens and I don’t pay extra on my debt (nothing special happens). Feb. 5 I get paid. Before that time, I pay any bills due between Feb. 1 and Feb. 20th (when I get my next paycheck) – remember, all of these first-half of the month bills have to be taken out of existing money from the previous paycheck. I then deposit the Feb. 5th check (it takes 1 full business day for it to actually deposit). After it gets deposited, and before it clears, I will check my checking account balance. If there is more than $400 in it, that overage will be transferred to my line of credit as my extra debt payment. Whew! Did you follow all that?

 

That means that my first paycheck of the month, which is typically $1200-$1600, will cover my rent + garbage ($915), and the remaining amount can be used for whatever regular non-bill expenses I need to pay for. That leaves about $300+ without even taking into account the $400 extra. That’s a nice comfortable cushion to have and takes care of some of the paycheck-to-paycheck feeling.

 

What this means is that I’m not sweating having enough money to pay for my rent plus most of my bills and STILL have enough left over to buy food for 2 weeks at the start of every month. It also means I won’t over-aggressively pay off my debt and set myself short on having enough and prevents the need to either a) resort to using my credit card (which has happened up ‘til now) or b) have to pull money out of my savings account (which I have not yet done since starting an emergency fund) or c) “borrow” money out of my mini-funds that I have in cash at home (which I am just starting this month, so has not yet happened).

 

The other side-effect of this is that I will not be showing any extra debt payments for the month of January. Effectively I am going to skip over January to make this all work out. So no extra debt payment in January, but it will kick in starting February. I think it will result in a lot more piece of mind and less stress over stretching my budget. That makes me very happy!

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1 Comment

  1. lulugal11 said,

    Keep working on it so that you can build up enough in the buffer so that pretty soon you will not be living paycheck to paycheck.

    It is good that you have the money going to savings and then allocated to pay for each bill as it comes due. My bills fall the same way but I am paid on the last day of the month.

    Luckily I have built up a buffer to work on that so I can get the rent paid on the first and have enough to cover me until payday.

    Let’s keep kicking debt’s butt!

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