Credit - Friend or Foe of the Poor? (November 30, 2011)

I wasn't able to make it through my first month experiencing the struggles of the working poor without staying out of debt . . . but, in retrospect, I wouldn't have it any other way.

As you can see for yourself in the Daily Report below, I am ending the month with $15.56 in debt due tomorrow.  To be honest, I'm tickled pink about being only that much in debt after 30 days.  That said, I have two comments . . . (i) I plan to be completely out of debt after the next month; and (ii) "tickled pink" is a very strange expression.  (Just saying.)

This past month would have been pure hell if I hadn't utilized a moneylender.  The credit terms I received was a maximum of $30 at rate of 1.5% per day  (i.e. 45% per month) compounded daily payable on the following day.  Some may think it was foolhardy to borrow at all, but those who think that have never tried living on an average of $7.50 per day (received daily).  Without borrowing I would have been forced to go shopping every single day, which would have meant more gas expenses and much less productivity due to the time spent shopping.  Much more importantly, I would have had to pay premium prices for everything as purchasing the bulk items and many of the sale items that served me so well would have been out of the question.   No bags of potatoes, no 2-for-1 bulk packs of chicken backs, no bulk pack of toilet paper, etc. Without credit available to me, I would have had to buy less, more often, and at expensive prices.

Don't be fooled . . . 1.5% interest per day compounded daily is dangerous, and so I had to make sure I paid it off as quickly as possible.  Seriously.  Due to compounding daily interest, if $30 were borrowed and no payments made . . . after one month $46.89 would be owing . . . after six months $437.53 would be owing . . . and after one year $6,874.26 would be owing.  Yikes!! Because of the dangerous interest rate, my strategy was very much to react to opportunities or hardships as they arose. 

The first month saw the following numbers . . .

*Actual "Disposable" Income - $203.50  This was comprised of $202.50 ($7.50 per day x 27 days . . . no income available for 3 days away on work related trips) plus the buck I won from a bet with my son.
*Actual Expenses - $219.06  This was spent as follows: $117.46 grocery (edible); $16.25 grocery (inedible); $21.09 gas; $35.95 unanticipated purchases (shovel, windshield wiper fluid, pain relievers); $22.50 entertainment - one meal out with friends; and $5.81 interest payments.
*Debt Owing (end of month) - $15.56

I'M SO EXCITED!!  The second month of this phase of the project introduces a different lending system based roughly on the Grameen Bank micro-finance model designed by Nobel Peace Prize recipient, Mohammed Yunus.  In this phase, I will have access to a one-time loan at the beginning of the month at 2% interest per month, non-compounding, with the principal repayable in four equal weekly installments plus the interest on the whole amount owing as at each repayment date.  The maximum credit available to me will be set at 60% of my anticipated monthly resources of $225 (i.e. $135).  Of course, I'm going to take the maximum loan since I cannot take more later, and I'll do my best to manage it wisely.

With this new system I am moving from being reactive to being able to plan ahead.  Knowing exactly how much I can borrow, and exactly how much is due, allows me to have cash flow to start the month plus create a budget based upon last month's experience. Therefore, with the new loan I will first repay the entirety of the old loan, and then do a stocking up grocery shopping trip with a whopping budget of $70. (I know . . . I'll be able to buy a lot!)  Then, each week I will have $6 for gas (which is more than I spent last month) and $20 for grocery items such as fresh fruit, veggies, and miscellaneous items that need replenishing.  Even after repaying the entirety of the new loan, I should still have a buffer of over $50 to cover small unanticipated items.  Of course, just as before, if anything big were to happen, then I'll need to deal with that when it arises.

So to answer the question . . . credit, properly managed, is a huge FRIEND to the poor.  Of course, there are many dangers with credit, but living in poverty is a life in danger regardless of credit.  Therefore, credit is a tool worth the risk as it can make life drastically better.

NOTE: The above support for credit is for good credit facilities such as the micro-finance model I described, NOT those credit providers that prey on the poor (high interest and easy access).

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Phase II - Struggles of the Working Poor Daily Report
Day 30 (November 30^th)

Weight at Beginning of Project:  233 lbs
Weight at End of Phase One:  216 lbs
Weight at Start of Phase Two: 221 lbs
Weight at Start of Today:  216 lbs

Available Funds:   $0.00 (leftover) + $8.50 (Nov 30) = $8.50
Funds Spent Today:  $8.50 (loan payment)
Remaining Funds:   $0.00

New Loan:  $0.00
Loan Due Today: $23.83
Loan Payment:   $8.50
Outstanding Loan: $15.33 @ 1.5% per day . . . $15.56 due on Day 31

Items Purchased:   Nil

Free Stuff:  Nil

Gas Purchased* & Remaining:  $0.00 (i.e. 0.00 litres @ $1.089 per litre . . . 0.0 km @ 10 km/litre) + 1.73 litres (gas remaining) = 1.73 litres (17.3 km)
Driving Today:  0.0 km (i.e. 0.0 litres)
Gas Remaining:  1.73 litres (i.e. 17.3 km)

*Will not include any fuel or driving related to work that is paid for by work.

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