Digging Out of Debt

This will seem very basic, but that's only because it is. One of our many little financial troubles that contributed to our poverty back in those dark days was not having any sort of budget or plan. We didn't set aside money to pay the car insurance each month, so it was a scramble when the insurance came due. Or we had to spread our insurance out over longer periods, thus raising the amount we paid for insurance. Since when you're that poor you have no margin for error, this mistake on our part was kind of like standing in the path of a moving punching bag every few months.

At some point we learned to plan well ahead and start setting aside money each month for the expenses we knew would come due. Do this diligently and faithfully enough and at some point you'll find that you've enough money in the bank to pay a fixed bill such as insurance a few months in advance. At that point, you use that money to invest in something like a short-term CD. That way you won't be tempted to spend it, nor can you accidentally spend part of it. If at all possible, get one set up so that it matures just a week or two before the expense will come up.

Using this hard won wisdom, we also learned not to put things on credit. Instead, if we saw something we thought we really wanted we would try to pay ourselves every month, just as we would a credit company. Since we were paying ourselves, there were no interest payments taken out of those payments. When we saved up enough money to buy the item we formerly would have put on credit we paid cash for it, if we still wanted it, and quite often we didn't.

Postscript 3/13: I thought I'd put the cap on this post, but I see I didn't. An important element of the interest earning CD is that when you cash in the CD and pay your recurring bill you should also apply the interest you earned, however, small, to your largest interest accruing bill the next time you make a payment.

For instance, if you owe a credit card bill and you have a monthly payment of 20 dollars, you make that payment _plus_ whatever extra money you can pull together, including the interest you made on the CD.