The advice I'm about to share is from my favorite ATL-born-&-bred-get-the-party-jumpin' Morehouse man. I'm trying to figure out why no one has snatched him up yet. He's fun, he's attractive, he's smart and he works for one my clients (so you know he's paid). LOL! I think he's probably hiding his honeydip, but that's neither here nor there.
Here's the clarification he asked for before making a recommendation: The "short term savings" that I have in this post will be saved for 6-12 months, then I'll pay off all the cards in one swoop. *POW* The small percentages shown for paying of CC 1, 2 & 3 are just minimum balances. This keeps my money liquid for the year, so that if I do have an emergency I won't HAVE to use CCs to cover it.
Here's his advice:
"First, figure out how much DI* you can live off of for a given pay period. This would include eating out, clubbin, movies, etc. This would also include trips you want to take, so if you know one is coming up, then you save a little DI from the last pay period to pay for the trip.
Now to your earlier point of not having long term savings, I think that's alright in the short term ONLY when you're using the money you would be saving to pay down debt. In the economical sense, this is still increasing your savings and improving your net worth.
Once you have paid down the balances on the cards, you can immediately cypher that same 20-30% to savings and keep living off the DI you've already been setting aside. And I would go all cash, at least for the next year while you are forming your base. So bring a CC for emergencies, just don't use it. This trains you to keep to the money you actually have, and not overspend."
*(daily income, disposable income, discretionary income, whatever you want to call it)
His advice is so super important because it speaks to what I think my problem is. I think I "over-budget." When I make a budget, every single one of my dollars has a home. So if someone wants to do brunch or Hooters spontaneously, then I have to take it out of short term savings OR use a credit card (OR get a cash advance on a CC. ICK!). This also usually sets off a mini-anxiety attack. Millions of people stress about money daily. I know I'm not alone.
Scott's proposal helps me be more realistic (I'm going to party, eat out and go on trips AND there's nothing wrong with that). Setting aside a DI gives me a big emotional break. Instead of feeling like I failed at keeping some unrealistic budget, I can feel like I set aside a "reasonable" amount of money to do everything I need AND want to do, while still paying a significant amount of debt down. At the same time I STILL have to sacrifice to meet my goal. If something I want isn't within that budget, I can't do it or buy it. Period.
So my rejiggered budget is calling "discretionary funds" daily income. DI has increased from 5.0% to 8.1%. And my short term savings (also known as my make it rain on these punk ass CC companies in 2010) is decreasing from 29.7 to 27.3%.
Building an Emergency Fund will be 2011's goal and like Scott suggested I'll cypher the 27.3% savings into my EF, hopefully without skipping a beat.
I crunched the numbers and I CAN still meet my goal of getting the CC to 1-20% by year's end with this budget. It's going to be tight, but I'm going to try. Now, if anyone has a baby or gets married this year, you're getting a handmade gift. #ImJustSayin