What To Do About Your Holiday Credit Card Debt

Sure was fun buying the gifts. Paying them off now that the credit card bill has arrived? Not so much. Breezy Mama turned to Jerrold Mundis, a financial therapist and author of the bestselling book How to Get Out of Debt, Stay Out of Debt, and Live Prosperously for help. Plus! His tips on steps to take to keep your family spending in-line (ahem).

All right – we overspent on the holidays and are getting the credit card bills – now what? In other words, what’s your advice for paying off the bills?

Make paying them off a priority. Especially if you were already carrying a balance on your cards before you started buying gifts. Pay off what you spent over the holidays in the first month of the new year if you can, within three months at the most. Otherwise, the amounts are likely to linger forever, the total amount of your balances will grow steadily, and the interest will truly begin eating you alive.

To pay off what’s already been spent, how do you recommend we cut back on current costs?

Challenge every new expense or purchase you want to make over the next three months. Distinguish between needs and wants. If it’s simply a want, then skip it and apply the money you would have spent on it against your credit card balance. You can begin thinking about your wants again after you’ve paid off the
balances you ran up.

What are your suggestions for staying out of debt in the future?

Very simple: Don’t spend money you don’t have. If you don’t have the money to buy presents, to buy designer boots, to take a vacation, to upgrade to a new and better computer – then you can’t afford to do those things.

You know when the holidays are coming, you know when birthdays will arrive, you know when you’ll want to go on vacation. So put money away for those events in the months that precede them. And don’t buy that new computer or those designer boots until you have set aside enough to pay cash for them. If you have to go into debt to buy or do any of these things, then you really can’t
afford them.

Remember: You cannot get out of debt by going deeper into debt. And you cannot stay out of debt, once you’ve gotten out, by incurring brand new debt.

A lot of families are still adjusting to the current state of the economy. What are your suggestions for living within your means on a budget of less?

There are only two ways to live within your means if you’re not currently doing so: cut expenses or bring in more money. That’s it. There simply isn’t any other way. Obviously, we’d all like to bring in more money, and it’s a good idea to look for ways to do that, but for nearly everyone who starts working to live within their means for the very first time, or in the face of reduced income, cutting expenses is nearly always essential. And most people in these circumstances, if they’re honest with themselves, will find they they’ve had more than a little fat in their expenditures when they take a good, clear look at them – a fair amount of wants in them.

Also, if there is a serious shortfall every month, and expenses for true needs seriously exceed income, work overtime a few hours a week or take a second, part-time job for a few hours or for one full day on the weekend. Keep it till you’ve stabilized, that is, have been able to match income to necessary expenses.

What are some common extravagances that can easily be cut out?

Restaurant dinners. Movies. Eating lunch out during the work week. Premium services from your cablevision supplier. Unneeded clothes. Expensive haircuts. Spa treatments. Club or gym membership. Costly hobby. Too much house. Too much car. Alcohol and/or drugs (there are other reasons to be concerned about these, too, but those aside, they also cost money, sometimes a lot of money). Children’s tuition at a first-rank university, when another and more economical one would do just fine.

Do a careful, honest analysis of your spending and life to find where your own hemorrhagic spending is happening.

What are some easy, but sometimes overlooked ways for families to save?

Keep a record of your spending. Break it down into about 25-30 categories. Too few, and you’ll remain unclear. Too many, and you’ll overcomplicate the record and probably stop keeping it. Use any of the many free Excel budget spreadsheets or templates you can find online or any of the several good and inexpensive programs available for that. Record every dime.

Take a good look at where your money is going at the end of the month, how much you spent in each category. (Most people don’t have the faintest idea of how much they spend and on what.)

We’re not even talking about budget here, but simply a record. Just a record of what’s real, a clear look at your finances. This knowledge – this seeing of what is actually going on, possibly for the very first time – is power. It allows you to begin making some beneficial changes.

Also, as a bonus, the simple act of keeping such a record, without any effort to control spending at all, often reduces spending by 5 to 10 percent a month.

Keep the record for at least 90 days. Some people – including many of those those who are the most effective and healthy in handling their money – simply do this on an ongoing basis.

You once found yourself in serious debt – can you explain what happened?

I thought I was different. I thought I was special. I thought that because I was a writer, with an uncertain and irregular income, that I couldn’t be expected to handle money like other people did. Also, I really had no clear idea of what my actual monthly expenses were or sense of putting money aside each month to cover cyclical expenses such as quarterly insurance premiums or property taxes. I simply didn’t know how clear, healthy, and effective handling of money worked. I also thought – vaguely, hazily – that somehow, in some way or another, that everything would finally work out all right in the future.

What were the steps you took to get out of it?

I finally bottomed out, got so deep into unsecured debt that I couldn’t imagine how I was ever going to get out, and was living in daily pain and distress because of it.

I finally realized that something was terribly wrong, that I had a serious problem that was damaging my life, and getting worse.

The very first thing I did was draw a line in the sand – I resolved that I would not incur so much as one more dollar’s worth of unsecured, no matter what I had to do.

To accomplish that, I did everything I’ve said above and much more – including selling some possessions that I had in order to get money to pay bills by their due dates, taking on work that in other circumstances I would have preferred not to do, learning about money and about how people who used it healthily handled it, and developing a meditation practice that helped calm and steady me through the times that were challenging.

Are there financial considerations for parents that you can recommend?

1. Eliminate all unsecured debt from your lives. You’re never really going to get comfortable, or even ahead, if you keep carrying ongoing amounts of unsecured debt on credit cards or department store accounts or bank signature loans, personal loans, or in any other way. And every dollar’s worth of that unsecured debt you pay off, which has an interest rate of, say, 20 percent, will have the same practical impact in your life as if you had invested it at 20 percent rate of return, year in and year out, for the rest of your entire life!

2. Every self-supporting adult and family ought to have a minimum of three months’ total living expenses set aside in some liquid form, like a money-market fund or e-savings account. (Ideally, they will have six months’ worth of total expenses.) This is their prudent reserve, their contingency or emergency fund. It’s what protects them and keeps them from going into debt when a job is lost, or four new snow tires have to be purchased, or a child needs dental braces, or any similar kind of circumstance.

3. An easy way to save? Take $5 out of every $100 you plan to spend or need to spend and put it into savings. You can have just as much fun and accomplish almost exactly the same things that you have to accomplish with $95 as you can with $100.

Any other advice in general?

Sure. Read How to Get Out of Debt, Stay Out of Debt, and Live Prosperously. Buy it, borrow it, take it out of the library, or sit in a Barnes and Noble superstore and read it. But read it. It will help you do exactly what the title says. Truly.

About Jerrold
Jerrold Mundis is a financial therapist and author of the bestselling book How to Get Out of Debt, Stay Out of Debt, and Live Prosperously.

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