Getting out of debt, a plan built to survive a bad month

Why ambitious plans collapse

An ambitious plan sends everything left of the salary to repayments and keeps nothing for surprises. Then the first unexpected bill is paid with a new loan or a late instalment, and "I am getting somewhere" becomes "I am back at the start". That feeling, more than the money, ends the plan. A plan that lasts rests on four rules instead.

Rule one: the minimums are the floor

List every debt and what is due on it each month: the appliance plan, the phone plan, what you agreed to repay a relative. If you have not listed them yet, start with Lesson 3.1: Listing every instalment and commitment on one sheet.

Their sum is the floor of the plan, paid on time every month, good or bad. A plan is judged by whether the floor held, not by its speed.

Rule two: one debt takes every extra pound

Whatever is left after the floor and the essentials, however small, goes to one debt until it is gone. Why one? Spreading the extra across every debt finishes none of them soon. Concentrating it finishes one, which frees its payment to join the attack on the next.

Which debt goes first is the subject of Lesson 3.2: The repayment order, smallest first or the one that weighs most?. What matters here is to choose once, write the choice down, and not change targets every month with your mood.

Rule three: a small buffer before any extra

Keep a small sum somewhere separate, neither spent nor used for repayments. Its only job is to absorb small surprises: a doctor's bill, an urgent repair, a gift. Without it, every surprise becomes a late payment or a new debt.

Start with an amount you can gather in two or three months, then begin the extra repayments. When you draw on the buffer, refill it before the extra payments resume.

Rule four: the restart rule after a missed month

Write this down now, while you are calm, because in the bad month you will not be:

1. Do not try to make up the lost month by doubling the next one. That is how the second month fails too.
2. Next month, pay the floor first, then refill the buffer, then make the extra payment if anything is left.
3. If you know before the due date that a payment will not be made, talk to the lender or the person before the date, not after it.
4. Write one line about what happened. If the same cause keeps coming back, it is not a surprise; it is a line missing from your budget.
5. After two missed months in a row, lower the extra payment to what you can actually keep up. A slower plan that continues beats a faster one that stops.

A hypothetical example: a bad month and the way back

A household has three debts: a fridge plan at EGP 900 a month, a phone plan at EGP 600, and EGP 12,000 borrowed from a brother, to be repaid at EGP 1,000 a month. The floor is EGP 2,500. After the essentials, EGP 700 is left, and all of it goes to the brother, making EGP 1,700 a month. A buffer of EGP 1,500 was gathered first and sits apart.

In month four a car repair costs EGP 2,200. The floor is paid on time; the buffer covers 1,500 and the month's 700 extra covers the rest. No extra repayment that month, but no late payment and not a pound borrowed.

In month five the floor is paid and the 700 goes into the buffer. In month six another 700 brings the buffer to EGP 1,400. In month seven EGP 100 completes it and EGP 600 goes to the brother. In month eight the EGP 1,700 resumes. The last payment to the brother comes a few months later than planned, but the plan never stopped.

A ten-minute monthly review

Two days after payday, check three things only: was the whole floor paid, is the buffer full, and how much is left on the target debt? A plan that needs an hour every month does not last either.

Where Masareefy helps

In Masareefy you record each instalment plan with its payment and number of payments, and see the payments left, the amount still owed and the expected date of the final payment. Money you borrowed from a person goes under loans, with the person's name and the wallet's currency, and each repayment is recorded against it so you can see what remains. One reminder arrives on the due day, and nothing is sent to the other person. The buffer can be a wallet of its own that you transfer into; a transfer between wallets is neither spending nor income. Loans are part of Premium.