The least important bill
Posted
Nov 28 2008, 02:30 PM
by
Karen Datko
Rating:
This post comes from Trent Hamm at partner blog The Simple Dollar.
Recently, I happened to be leafing through Elizabeth Warren's worthwhile personal-finance book, "All Your Worth," when I stumbled across an interesting statement on page 244: "If things get really tight and you don't have enough to cover all your expenses, pay the most important bills first."
Obviously, Warren intended this advice for someone who's really struggling to pay all of their bills -- and it's great advice for that situation. Make absolutely sure your essentials are covered -- your home, your transportation to work, your food. Those are the things that you need and thus they take priority over everything else.
But my mind tends to work in the opposite direction sometimes. When I read that passage, my mind immediately moved to the least important bill.
Play along with me for a moment. What's the least important bill you pay each month? It's not that easy to answer right off the bat, so I encourage you to make a list of all of your monthly bills. Your mortgage or rent. Your car payment. Credit card bills. Phone service. Food. Electricity. Internet service. Netflix. Maybe even your World of Warcraft bill.
Got that list? Now, cross off the ones that cover your necessities, such as your mortgage, your food, your electric bill and your car payment. Next, cross off the bills that, if left unpaid, will detrimentally affect your other bills, such as your credit cards and other debts.
What you're left with are your nonessentials, things like your cell phone, your Netflix subscription, your cable subscription. Now, rank them. Which is the most important to you? What's the next one?
Eventually, you’ll be down to one bill -- your least important bill. And now comes the soul-searching. Do you really use whatever that bill pays for? Does that service really provide any value for your life? Could you easily replace that bill by regularly visiting the library or getting a digital converter box or finding a non-subscription game to play?
Then think about this fact. If you cancel a $20 monthly bill and instead apply that $20 to a credit card bill that has a balance of $5,000, a 12% interest rate, and a $100 minimum payment, you'd turn 302 payments of $100 a pop into 55 payments of $120 a pop. (I used the minimum-payment calculator to get this number.) Your credit card balance would disappear in about 4 1/2 years instead of 25 years, just by getting rid of that Netflix account.
What about my least important bill? My least important monthly bill is easily my eMusic account. I've already eliminated my Netflix subscription, my World of Warcraft subscription, and downgraded both my cable bill and our cell phone bill. Even though I get a lot of enjoyment from eMusic, I think of it this way: If I took the value of my eMusic subscription and applied it to my remaining student loan, I'd shave several months off the repayment period, bringing debt freedom that much closer.
I've already saved $50 a month shaving away some of my least important bills and applied that savings to overpayments on my wife's student loan (along with a healthy dose of our debt snowball), eliminating my wife's student loan almost six months earlier than planned (and years before the final payment was due).
Will I eliminate eMusic? I haven't decided yet whether I'll downgrade or eliminate it. I listen to music roughly nine hours per weekday. I always have music playing in the background, and almost all of it comes from eMusic. In other words, after cutting away some of the fatty monthly bills, I've reached the point where I'm starting to get close to the meat of the matter.
But without that consideration, I'd still be paying a student loan bill that's now paid off. And I'd be paying it for quite a while yet.
Spend some time thinking about your least important bill. Is it actually important enough to hinder your debt repayment plans or your investing goals?
Other articles of interest at The Simple Dollar:
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