Irregular Income, Erasing Credit-Card Debt and an Overdrafting Fiancé

Every week I get at least a couple of letters from readers whose situations prompt them to start out something like, “I’m embarrassed to ask, but ….” Then they pour out their hearts, often lamenting what they believe to be their own stupidity and ignorance. Nothing could be further from the truth!

The only stupid questions are those we don’t ask because we’re afraid of what other might think. It warms my heart to know that so many of my dear readers find my inbox a safe place for even their most embarrassing questions.

Q: My husband has two jobs—he is an artist and a salesman. He earns commissions from both jobs so we never know what our income will be. I work part-time and am paid hourly. I’m so embarrassed to admit that I have no idea how to go about setting up a budget. Is our situation impossible?

A: The mistake many who live on “mystery means” make is to spend whatever amount of money they earn as they earn it.

They multiply a good month’s income by 12, call that their annual income and set their lifestyles accordingly. Then they starve during the lean months, allowing all the bills to go past due hoping a good month will follow soon.

The secret to living on an uncertain income is to determine the very minimum you need to live each month. Now put yourselves on that “salary.” No matter what comes in during any month, pay yourselves only that set amount.

Now you know exactly how much your income will be in any given month so you can budget. Allow any overage to sit in reserve to cover your salary during coming lean months.

Being self-employed (or commission-based, which to me is the same thing) can be either rewarding or horribly debilitating. It all depends on your willingness to be disciplined and to exercise great restraint when one month it appears that your ship has come in. Don’t believe it.

Next month could produce little if any income at all. You have to learn to handle both. And if you cannot, what you have may be a hobby, not self-employment.

Q: I recently found a website that promises to take our credit-card debt and have it erased. They can do this because it is technically illegal for banks to issue credit cards. So this company takes your debt and challenges it in court, legally dissolving the debt. I am skeptical but hopeful. Do you know—is this legal?

A: I don’t know which is more shocking: that anyone would suggest such a thing, or that you would entertain for even a moment that it might be legitimate.

Of course, this is not legal. Don’t believe it for a second.

It is another in a long list of Internet scams that will hit you up for a big fee and leave you holding the bag. By the time they’ve fleeced your finances, you’ll be in default on your payments and then you’ll be in worse trouble than ever.

My best advice is to stop looking for loopholes and shortcuts. Get busy getting out of debt—the right way.

Q: I have “ready reserve overdraft protection” on my checking account. Occasionally I dip into it. I typically repay the entire balance within a week or two, but every few years I may pay it off over a couple months because I’ve used a larger amount. 

My fiancé is threatening to close our shared account because of this. He claims that every time I use the ready reserve, the bank reports it to the credit agencies and it is a ding against his score, even if I repay it before the billing cycle is complete. Is this true? Is this different from other lines of credit?

A: It all depends on how your bank handles its business. Some banks do report to the credit reporting agencies (CRAs), while others do not. If your fiancé says this bank does, why are you doubting him?

OK, can we talk just the two of us? Listen to me: An overdraft account is not a savings account. It is not your money. It’s not even a credit card. It is emergency protection—very expensive insurance—like fire insurance, something you have but hope you never have to use. Using it on purpose, with intention, is unconscionable.

Every time you write a check or use your debit card for more money than you have on account, you get socked with overdraft fees even if they are less than what they would be if you did not have this protection in place.

But worse, every time you overdraft, your fiancé loses faith and trust in you. That’s huge and something I hope you will think about.

Got a question you’re embarrassed to ask? Relax and ask it HERE.

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