Double down on debt for a happier New Year
by Anita McSorley
A poster used to adorn my office.
It pictured a ship at sea, sinking slowly beneath the waves.
The caption read:
Mistakes: It could be that the purpose of your life is only to serve as a warning to others.
I am here today to serve as a warning to you. And to invite you, as the new year begins, to learn from my mistakes.
This article is for folks with debt.
No, I don’t mean you’re poor. In fact, you’re probably not. You’re probably a middle-class American who at some point started spending more than you’re making.
It might be for a sad reason: Perhaps you’re spending like you’re a two-income family, when at the moment you’re not. It might be for a happy reason: Maybe your daughter got into the college of her dreams — and your nightmares.
Regardless of whether it’s for a good or a bad reason, you’ve got to get out of debt — for your financial, psychological, and spiritual health.
How this will help your financial health is self-evident. But I will explain it anyway.
First, you will stop having to pay a high percentage of your hard-earned money to other people, simply for the privilege of using their money. (In earlier centuries, this practice was so vilified it was called usury and was outlawed by the Catholic Church.)
Secondly, the money you have now freed up can be used to make you more financially secure — able to weather a major car repair or even a brief period of unemployment — without having to pay money in order to borrow money from other people again.
Thirdly, it will increase your credit score, so you will be a more desirable “risk” to the lenders offering the lowest rates on items — like houses and cars — that you pretty much have to go into debt for.
Finally, the extra money can now be used to build long-term security, through both emergency and retirement savings.
There is nothing as stressful to the human body as to feel totally out of control. You can’t sleep at night if you’re busy juggling payment schedules, mentally robbing Peter to pay Paul.
But that’s nothing compared to the emotional stress it creates. Ever put off paying something down or saving for retirement “just until the kids are launched” then wind up practically wishing their childhood away because you’ve grown so panicked by your lack of savings and your growing debt that you can’t wait until they’re grown?
If you can’t name the approximate balances on your family’s credit cards off the top of your head; if you’re paying double-digit interest on ANYTHING AT ALL in this time of low-interest rates; or if you’ve ever decided against a car repair or a doctor’s visit because of the cost, your debt is affecting your mental health — and your common sense!
I’m no theologian. But if you spend more than you make buying things you don’t need, I’m guessing you’re trying to fill empty spaces that even a big-screen TV or the latest Uggs just won’t fill.
Whether it’s to keep the kids happy or to keep up with the Joneses, the price you’re paying is too high.
Nor is it really who you are. Think back to the happiest period in your own life — the time when you were at the greatest peace with yourself and your place in the world. Did it have anything to do with the material possessions you had at the time? Of course not.
How about the people you admire most in life? Do you admire them for their wealth? Or did they model for you something more important?
Finally, there’s no getting away from the fact that we can’t go to church every Sunday and hear the Gospel message that we’re supposed to be spreading, walk out the door for a week of personal consumption that rivals Imelda Marcos, and then be surprised that we’re not getting much out of Mass.
Where to start?
Any faithful follower of Dave Ramsey or similar TV or radio financial gurus can stop reading now, because you’ve heard this a hundred times before.
But if you have not, or if for some reason this is hitting you at a time when you’re open to the message when you weren’t before, read on. What follows is a step-by-step process by which you can get your debt — and your life — back under control.
1. Start off by recording every single cent you spend in the month in which you start. Make this a family project if you can — but a nonthreatening one. You’re not looking at cutting right now. You’re just trying to identify where your money is going. You’ll decide later — hopefully as a family — whether you still want to keep it going there.
2. Next, go through every bill you received this month and confirm that it’s accurate. With active credit card accounts, in particular, check for add-ons — $1.99 a month here, $3.99 a month there — for various “insurances” or “services.” Then call and cancel those services unless you have an overriding reason for keeping them. Also note how the various credit cards are being used — are you charging only major purchases? Online purchases? Or is gas and fast food being charged to the card as well?
3. For now, set the grocery, cable, utility and other bills aside. Take your various credit cards in hand, and record the name of each credit card. Right next to it, record the balance owed and the interest rate you’re being charged.
4. Next, get on the phone. Call every single credit card company with a balance. Explain that you are consolidating your bills and might be transferring balances as you prepare to pay them off faster. Ask them whether you are currently receiving the very lowest interest rate you qualify for. Also ask what your credit limit is and if they have any promotional offers for balance transfers. (Accept an increase in your credit limit only if you are very, very certain you are serious about paying everything off, or you will only be compounding your problem.) This can be complicated and even discouraging, but persevere. It is one of the most important steps in the process.
Here’s the goal. Ideally, you’re going to transfer all of your credit card debt, or as much of it as possible, to the card(s) with the lowest interest rate(s). You will pay a transfer fee (probably 2-5%), but if you’re successful, you’ll transfer debt with an 18%-plus interest rate to a card(s) with 18 months of something like a 3.99% interest rate. You can usually do this over the phone, once you’ve decided on the creditor to use. Then you’re going to stop using the other cards. Yes, really. And you’re going to have a very austere — and busy — 18 months.
5. OK. Your first mission is accomplished. You’re no longer hemorrhaging money in the form of high interest rates. It’s time to take a look at what you’re spending. Group your expenses into categories — housing, utilities, insurance, groceries, gas, car payments, car maintenance, household, clothing, medical, and investment/savings, for a start — but add tuition, lessons, etc., when appropriate. What you’re trying to do is identify where your money is going.
6. For purposes of this article, we’ll assume that certain costs are pretty fixed — although if your situation is serious enough, even downsizing housing or cars should be considered. So we’ll leave housing and car payments alone — and shop insurances, trim the utility bill, and compare gas station prices later. Now carefully examine the categories you can do something about. How much are you paying for your cable package? Your cell phone plan? Your groceries? How about clothing and household supplies? Kids’ sports programs and equipment? Entertainment? And finally, the dreaded dining out/fast-food bill. Shocked? Well, at least you know where all your money is going now.
7. The next step is up to you. If you successfully transferred most or all of your debt to cards with low-interest rates for a specific amount of time, take the total amount owed, divide it by the number of months you have to pay it off at the low interest rate, and you’re left with the amount you need to come up with each month. Since you’ve probably rolled several smaller bills into one, you’ll free up some money from not having to make those individual payments. But you probably still have cuts to make — some of which will be painful. And you might have to get creative. Do you really need your landline? How about a lot of shared minutes when your kids only use text anyway? Can you do without cable? Can the kids take their lunches instead of buy them at school? And what about the fast-food bill? Some families might decide to outlaw the drive-thru until the goal is reached; others might decide to make the most of all the dollar menus now available and limit their purchases to that.
8. The important point is that you all agree that the goal is a worthy one and the time is now. If you’re like me, it will be harder to institute changes that affect the kids than yourself. By the time the draconian measures came along at our house, however, my kids were old enough to understand that they’d really rather take their lunches to school now than have Mom come live with them in her old age (which no doubt seemed to them only a few years off).
9. Next, once you’ve cut all you can cut, look for ways to increase your income as well. I’m always surprised by people who are drowning in debt, but wouldn’t think of getting a part-time job. Think how much faster you can pay down your debt if you’re cutting expenses and increasing your income at the same time!
10. Finally, if you’ve stuck with me this far, you now know this stuff is not rocket science. But it can be complicated. And it’s not something most of us were taught in school or learn on the job. For that reason, you need to find your Beth. Some folks, like archdiocesan director of accounting Beth Coleman, just get this stuff. As easily as proofreader catches a typo, they catch money mistakes — it’s the language they speak. Now I’m not saying you should call Beth with all of your financial questions. But I am saying that everybody like me needs somebody like Beth. So find your Beth, and every time you are preparing to make a major financial decision, ask him or her what would be the wisest choice. Then comes the hard part. LISTEN TO THEM.
If you do nothing else . . .
1. Dial it down.
Contact your local energy company and ask if it is running any promotions. Some are installing free thermostats in exchange for the ability to adjust that thermostat by two degrees in times of excessive usage. You, in turn, get a thermostat that you can program to automatically raise or lower the temperature in your home, enabling you to save energy day or night.
2. Start a nest egg.
Run, don’t walk to your company’s accounting office. Fill out the requisite paperwork to have a small amount of your paycheck directly deposited to an account other than your main checking account. Start with $25 or $50 if you must, but set up the deduction, then forget about it. You’ve just started your emergency savings account.
3. Trash the ads.
Christmas is over. And the good news is you can now trash everything but the grocery ads. If you actually need something — like kneepads for your basketball star or rock salt for your driveway — you don’t need an ad to tell you where to find them. Missing the “sale” price on a necessary purchase won’t cost you nearly as much as purchasing stuff just because it’s on sale.
4. Shop generic.
Stick with your Jif peanut butter if you must or your favorite pop. But like generic medications, most generic dry goods, paper goods, etc., are cheaper than name brands, and you’ll never know the difference. Start with just one product. Add one per week, returning to your name brand favorite if a family member actually notices the difference. Soon, you’ll be netting a little grocery savings without ever feeling the pinch.
5. Shop used.
I’m one of those people who is afraid to die — without having read all the good books in the world. Fortunately, I’ve discovered that even books not available at my library are available used online — often for only a penny plus shipping and handling. Sure I miss that new book smell — but I don’t miss the $24.95 hardcover price tag. Leaven freelancer Jill Esfeld, meanwhile, has furnished two kids’ apartments in style entirely from thrift stores. Unless you specifically need something new, consider shopping used and, when you do, award yourself points to be redeemed on something new at a later date.
If you’ve missed a payment, are reconsidering switching service providers, or just want something cheaper, always, always ask. First, most credit card companies will waive the fee on a tardy payment if the rest of the year’s payments were on time — but only if you ask. Phone, cable, and Internet companies are operating in a fiercely competitive environment. If you tell them too much of your budget is going to your cable bill, they’ll probably find a way to make it less. Finally, local retailers are far more open to negotiation than most people realize. Shop during off hours, ask for a manager and offer a reduced price for a display model. All they can say is no.
7. Keep a list.
A wish list, that is. If you love to shop online and think it will be a hard habit to break, use Amazon’s wish list or the shopping cart at various retail sites to “save” your purchases — before purchasing them. Revisit them for an entire week before making your purchase. By the end of the week, you might have discovered you’ve moved on to a new heart’s desire.
8. Keep receipts.
I’m sure neither brick-and-mortar nor online stores would appreciate this recommendation. But oftentimes we purchase in a fit of self-indulgence and repent at our leisure. Instead, keep your receipts, and be careful to order online only when shipping is free. That way, you can return the items and turn your buyer’s remorse back into cold hard cash. It’s not the ideal way to save money — but it sure beats keeping a lot of stuff you don’t need.
9. Switch shoppers.
This one takes some effort, but can yield some serious savings. If someone in your family is more able to stick to the shopping list than your regular shopper, trade out tasks for a month and see if it makes a difference. It’s not generally what’s on your list that breaks the bank, but all the great “deals” you spot making your way in and out of today’s superstores. Fortunately, some shoppers seem genetically indisposed to notice them. They’re usually called men.
10. Learn to cook.
Consumer debt just hit a historic high. And the average American eats fast food four-to-five times a week. Think there’s a connection? Fortunately, thanks to websites like allrecipes.com, it’s easier than ever to learn to cook. Start with a $15 crock pot and a cheap cut of beef. The savings you’ll realize eating at home will astound you.