Reader Hollie came to me with the following email:

I owe just under $1,000 on my credit card. They really got me this last time. In July they tacked on the late fee because I didn’t pay by 2:00 on the deadlined day!
Have you ever heard of this? Now it’s just getting worse every month. What can I do? My credit report is not excellent either and my future is grim? What can I do? Please help.
Thanks
Hollie

The usual disclaimer: I’m not a financial adviser, and even if I were, I don’t know the specifics of Hollie’s situation or anyone else’s who might read this. All I can do is tell you the processes I go through, and what I might do myself in Hollie’s situation.

First of all, Hollie’s future is not grim. There are no money problems that can’t be fixed with time and effort. Things fall off of credit reports eventually. Debts can be repaid. And late fees can be waived.

Unfortunately, the credit card companies are well within their rights to charge a late fee for not paying by 2:00 on the due date – assuming it’s in the lengthy and unreadable terms and conditions, which it probably is. Unfortunately it sounds like it might be too late to do this in Hollie’s case, but it might be possible to get such a late fee waived. A polite call or email to the credit card customer service might just get that late fee refunded.

Whether or not that late fee is refunded, it’s now time to take steps to make sure it doesn’t happen again. Here’s the system that I use to avoid late fees and overdrafts. In fact, the following is the basis for my whole financial plan (it isn’t really a “budget” per say, but it could be the basis for a budget):

1) Calculate how much you have to pay each month
This is the bare minimum you have to pay on every bill. For me, this is my minimum credit card payment, my car payment, my laptop payment, and my student loan. Later on in life, this will include rent, utilities – anything that absolutely must be paid each month.

I like to add a dollar to the minimum payments for the credit card and student loan, for credit reporting reasons – that way it won’t show up as “minimum payment” on my credit report. But if I were really strapped for cash, I could go back down to the absolute minimum payments.

Once I have all of those things written down, I add up the total.

2) Calculate how much you have coming in each month
This can include one-time “cash reserves” – in other hand, the money I already have in my wallet, checking, and savings accounts. I add that to the amount I expect to make over the next month. I keep in mind though, the cash reserves are “one time only,” – but I’ll come back to that in a later step.

3) Is the total from Step 2 more than the total from Step 1?
Hopefully, the total from Step 2 is more than the total from Step 1 without counting the cash reserves. If it isn’t, I have a small problem: eventually, I’m going to start running out of money and start falling into more debt than I’m already in.

The problem is even bigger if the total from Step 2 is less than the total from Step 1, including cash reserves! Either way, if the answer to this question is “No” (with or without cash reserves), then I need to go to Steps 3a and 3b. If the answer is “Yes,” then I can move right onto Step 4.

• 3a) Can I cut any expenses?
  Are there any expenses from Step 1 that I can cut or reduce? In my case, it would be rather difficult. I can’t return my laptop or my car, and I can’t stop making payments on my credit card or student loans.
  However, if I had things like cable, Netflix subscription, or anything else that isn’t completely necessary, I could find ways to temporarily reduce the price (drop down to a lower tier package) or I could temporarily cancel them.
• 3b) How can I make more money?
  If I can’t cut any expenses, or I do and it’s not enough, I absolutely need to figure out how to make more money. Pick up more hours on my job? Get a second job? Make some money online? Whatever I can do to get the bills paid.

4) Pay the bills when they come, not when they’re due
This step is key. Instead of opening my mail and saying “ok, the credit card is due on the 25th, I have to remember to pay that” – I ignore the due date completely. I head right to my computer and pay the bill online. Or I cut a check and mail it off right then.

Why? Because this completely removes the chance of late fees. And, as an added bonus, it gives the balance on my credit card less time to accrue interest. And it saves me from having to remember to do things “before they’re due” – which is something I’m horrible at!

What if I don’t have the money in my account to pay the bill the minute it comes? Well, I stick it in my “inbox” and as soon as the next paycheck clears, the second thing I do is pay the bill. What’s the first thing? I put 10% of the paycheck into my savings account. My savings are the most important bill of all – they get paid first.

5) Keep it going
Find a way to keep track of it all: “How much is going out every month? Do I have enough coming in to pay it? Did I pay that bill this month?” I keep track of everything in an Excel sheet I made myself, but there are many other free options available on the internet. The one I most recommend is Pear Budget. It’s free and extremely easy and simple to use. And it gets the job done.

Hollie: Don’t fret. You can do this, I can tell. Since you’re reaching out to me for help, I can tell that you want to fix this. And that’s all you need to get started: the will to help yourself. It’s where I started out, and it’s what helps me get through every single month.