Stop the craziness: Cut debt and preserve your sanity
Stop the craziness: Cut debt and preserve your sanity

By Paula Burkes Erickson

Published: November 19, 2007

In a recent “Saturday Night Live” skit, a couple sat at their kitchen table, bemoaning a stack of bills, while a narrator discussed an unusual new program he developed for the millions of Americans like them who can’t control their debt. It’s called “Don’t Buy Stuff You Can’t Afford.”

“I think I got it,” said Steve Martin, who played the confused husband. “I buy something I want and then hope I can pay for it.”

“No,” the narrator said, “You make sure you have the money, then you buy it.”

The spoof is funny because today’s consumer scenario is just that silly, said Troy Jones, certified financial planner in Oklahoma City. “It’s craziness,” Jones said. “People buy crap they don’t need with money they don’t have.” They’re eating out several times a week, taking expensive vacations, buying fancy cars and bigger houses, and spending every dime they make and more, he said.

Studies from the Federal Reserve prove it. In 2005, the median family income was $43,200, while annual spending averaged $46,409. In 1985, Americans were saving $11 for every $100 they brought home; now the savings rate is around zero, and debt is at a record $880 billion.

Though the median credit-card debt carried by the typical American is $6,600, 13 percent of respondents to a recent online poll reported balances higher than $25,000, according to CardTrack.com.

“Today’s credit gives us the ability to spend over our heads,” said Todd Cook, president of www.debt.com. Someone who makes $30,000 a year can have a $10,000 credit line that gives them an open door to fi nd fulfillment in $30 hair gels to high-definition TVs, Cook said. “The cheap cup of Joe has been replaced by the $5 Venti Latte, and Levis by $300 Rock & Republic designer jeans.”

Every money decision someone makes reflects his or her personal and community values, Jones said. He recently slashed $1,700 from the annual budget of a couple teetering on bankruptcy. “The woman told me she’d already cut way back to one manicure a week,” Jones said. Conversely, a laborer who’s done work on his home has spinner wheels on his truck but probably no health insurance or retirement savings, he said.

“We as a culture need to ask ourselves, ‘What’s discretionary income?’ ” Jones said. “Driving? Air conditioning? If we decide AC is a necessity, where do we set the dial?”

Consumers need to get rid of their debt because it can “eat them alive,” said Bill Hardekopf, chief executive of Birmingham, Ala.-based www.lowcards.com. Among other things, they can carpool, pack sack lunches, and transfer and consolidate credit-card balances to a card that offers zero interest for 12 months on balance transfers.

The average credit card interest rate is about 13 percent. So making the minimum monthly payment on a $6,600 balance will take 250 months, almost 21 years, to pay off the debt including $4,868 in interest.

Most people have no idea what they’re spending and have no emergency savings, said Jennifer Wallis, vice president of Consumer Credit Counseling Services of Central Oklahoma. “They go through every month with their fingers crossed, hoping nothing is going to go wrong,” she said.

Wallis said Consumers should track their spending and budget accordingly. In general, women’s spending is tied to how they feel, she said. Meanwhile, men lack planning and attention. That explains why men notoriously wait until Dec. 24 to shop for Christmas gifts, Wallis said.

Are you an over spender?

TRUE OR FALSE

1. You spend money on the expectation that your income will rise.

2. You take cash advances on one credit card to pay off another.

3. You spend more than 20 percent of your income on creditcard bills.

4. You often fail to keep an accurate record of your purchases.

5. You have applied for more than five cards in the past year.

6. You regularly pay for groceries with a credit card because you need to.

7. You often hide your creditcard purchases from your family.

8. Owning several credit cards makes you feel richer.

9. You pay off your monthly credit-card bills but let others slide.

10. You like to collect cash from friends in restaurants, then charge the tab on your credit card.

11. You almost always make only the minimum payment on your credit-card bill.

12. You have trouble imagining your life without credit.

Scoring

1-4 true answers: You don’t seem to splurge uncontrollably.

5-8 true answers: You have entered the caution zone. It’s time to draw up a budget, pay off bills and re-evaluate spending habits.

9-12 true answers: You must stop. Consider consulting a credit counselor or fi nancial planner for help in changing your habits.

SOURCE: S.T.O.P online support group for overspenders.

MORE TIPS

Carrying a wad of credit cards can make you feel rich until it’s pay-off time. See page 12 for more tips from experts on ways to get spending under control.

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