I wonder what word went through your mind when you read the title. Being a master of finance and budgeting, the D word for me is DEBIT, more specifically, Direct Debit and Debit Cards. I know there’s people that don’t like Direct Debit, and what’s the point of a Debit Card if you can have a credit card? Well, let me educate you on lifestyle, budgets, savings and the D word.
Let’s look at Direct Debit first.
Why are people so afraid of it? One of the most common answers I hear is that you’d rather be able to pay the bills when you want to, instead of having a company just take their money when they want it. Plus, it’s always so difficult to get out of a Direct Debit arrangement.
In my ‘It doesn’t matter if you pay your bills late, right?’ blog, I talked about juggling money and down side of paying your bills late, so having the option to pay when you want might not be a good idea. Direct debits are all about planning. If you know exactly when direct debits come out of your account, if you know the money is in the account to cover it, and you know exactly how to exit a direct debit plan, then there’s nothing to worry about.
Every time you sign up to a direct debit arrangement, you need to establish 2 things:
- The exact date the money is going to be taken out of your account. Usually this is an ‘on or around’ a date scenario, to allow for the date falling on a weekend.
- What you need to do if you want to cancel the direct debit. Get this in writing. It’s usually in the terms and conditions. Have it explained to you if you need, so you are clear on how to leave.
With this information you can plan and budget for all your direct debits.
Open a bank account JUST for direct debits. Make sure every direct debit agreement uses this account. In your budgeting and planning, make sure you transfer enough funds to this account to cover all your monthly direct debits. And DON’T TOUCH IT. Then you don’t have to worry about the direct debits and you won’t be hit with penalties for paying your bills late.
Now let’s talk Debit Cards.
I’m a big advocate for Debit Cards because they have the same functionality as a credit card, but you’re spending your own money, and not getting into debt. The whole reason I help people with their savings plans, is to get them out of debt, or reduce it to only intelligent debt like home loans. Credit cards are not smart debt.
Too often people spend on their credit card with the intention of paying it back before they get charged interest (typically credit cards have an interest free period, commonly 44 days). Don’t be fooled, it’s still debt – you’ve still spent money you didn’t have at the time of the purchase. And if you don’t pay it back within the interest free period, your purchase just cost you a whole lot more than you thought. It only takes one blip in your budget and the credit card is the first thing you put off until next pay day – and so begins the cycle of debt accrual.
The “D” word is nothing to be afraid of. In fact, it can be very powerful in helping you take control of your finances, and learn how to budget and plan, so you’re not scratching around under the couch for coins before your next pay day.
I can show you more budgeting hacks and teach you how to take control of your cash flow, your debts and your bills. If you’d like to find out about our Budget Mentoring Program, contact us today.
Call on 0400 644 170 or email email@example.com
Glenyce Barton | Budget Mentor and Finance Broker | Article ©2017 iBudget Mentoring