I'm no Bob Barker, and this isn't The Price Is Right. But if you fit into even one of these four categories, find the nearest aisle and come on down. (Audience, hold your applause):
No, I'm not one of those pesky creditors who's been calling your church office or haranguing you at 9 p.m. at home. I'm a friend — and a financial expert — who knows what it's like to be drowning in debt, and I want to give you a hand out of the morass. And for those of you smugly thinking, I'm glad this isn't for me, stick around — I have something for you, too.
For most of you, the downward spiral began with three words: "Just charge it." Though your ministry may provide you with a house or car, your paycheck didn't cover all your expenses — new clothes for growing children, unexpected medical costs, car repairs. It was easy to whip out the Visa and comfort yourself with the thought of 25 days of "cushion."
But when you added these consumer debts to prior bills, such as school loans, you were overwhelmed. You realized that the $5,000 you borrowed at 18 percent interest will turn into more than $9,000 if you make only the minimum payments for eight years.
So here you are, sunk beneath a pile of bills. If you're doubting whether your resources will ever be enough to relieve your financial burden, you've come to the right place — a little planning, some discipline and a few lifestyle changes will make that possible. And for all you doubters out there, repeat after me: No situation is impossible.
What should you do if you're sinking in an ocean of debt — or already at the bottom of the sea? (See "Are You in Over Your Head?" in the box below to find out if you're a candidate.) Bail yourself out with these tips:
Should the temptation to pull out your Discover card overtake you the next time you're on vacation, remind yourself of these tips:
Doug and Kelly made a comeback after finding themselves knee-deep in debt. Kelly tells the story to Mary Hunt, editor of Cheapskate Monthly:
Shortly after we were married, the first credit card application showed up. At first we were dead set against filling it out, but after a little discussion, we finally gave in. We were approved almost immediately.
Soon after, other cards followed. Each time we had an emergency — car repairs, unpaid taxes, a weekend getaway — we'd pull out a card. It all seemed so easy. Before we knew it, we had three or four cards that were charged to the limit.
We tried setting up a plan to pay off the debts. The money was always there on paper, but somehow we never saw it in the account. My husband and I would tell each other that things would be much better once the next raise, next promotion or next job came along. But it never worked out that way.
Five years into our marriage, we were $20,000 in debt. We were paying for extravagant meals we had long since forgotten and furniture that had already worn out. The more we made, the more we had spent. We looked around in desperation and asked each other, "How did we get here?"
That day, my husband and I began researching ways that we could turn around. We gathered all the information we could find about living with a cheap mind-set, contacting creditors, tithing, creating a spending plan — you name it.
Our efforts at debt repayment did not come without sacrifice. I was determined to remain at home with our three young children, so I began baby-sitting at home. My husband began delivering newspapers. At the time, it was an embarrassing thing to do, but that didn't compare to the burden of debt we were carrying.
Now, three years later, we have completely paid off the debt. For the first time, we are actually saving money and look forward to buying our first home. We have even set up a separate account for emergencies. We are committed to avoiding consumer debt altogether.
The National Foundation for Consumer Credit has Consumer Credit Counseling Service (CCCS) offices around the United States that give free help to those struggling to pay back debts. Find a CCCS office near you by calling (800) 388-CCCS.
Here's the formula for determining whether too much of your paycheck is going toward debt repayment:
If your mortgage is paid by the church, subtract 30 percent from these categories.
Eight years ago, Mary Hunt found herself $100,000 in debt. Since then, she and her husband have repaid every penny. Here's what the editor of Cheapskate Monthly says about facing your creditors when you're broke:
"I know that some of you out there aren't even close to being able to pay the minimum on your credit card statement. Your income barely buys groceries. But no case is hopeless — you have to believe me on this.
"Let's say you have $75,000 in total consumer debt (unsecured debt, such as credit-card loans) and you haven't made payments for months. Now is the time to face the music. You must communicate with these people.
"If you can't speak coherently with them on the phone, write a letter. Even if your letter says you are going to pay each creditor $5 a month, that is where you should start! You have my permission to use the following letter verbatim — but plug in your own numbers!"
April 4, 2000
The XYZ Company
1111 W. Royal Ct.
Anytown, U.S.A. 99999
RE: Account 123-45-6789
I am writing to you about my account referenced above. I regret that I have failed to abide by the original terms of our agreement. I want you to know that I am committed to full repayment in the amount of $________.
I have undertaken a financial recovery program and have received assistance in assessing my financial situation. I am doing all I can to avoid filing bankruptcy.
Your account is one of the many that I owe on; my total debt is $________, and my monthly payments total $________. You can understand that my present net monthly income of $________ less my living expenses does not leave me enough money to pay even the minimum monthly payments.
Enclosed please find my check for $________, which is the amount I will be able to pay each month on my account for the next six months. At that time, I will review my situation and may be able to increase my payments. Also, I respectfully request that the interest rate you are charging be reduced so that a greater portion of my payment will go toward principal reduction.
I look forward to learning that you have processed this payment. If, however, you are unwilling to work with me as outlined above, please return the enclosed payment so that I can send an additional payment to another of my creditors who has agreed.
Thank you in advance for your cooperation.
Debt-free living is a nice ideal, but for most of us, it's not very attainable. The issue, then, is to make sure the debts we have are "good" debts.
Having a regular date night doesn't mean having to spend a wad of money. With a little creativity, you can enjoy a regular night out with your mate -- even if money is tight.
The first step to getting out of debt is simply recognizing how you got into dept in the first place. Three common financial traps are easy to fall into: the Can't Wait Trap, the Comparison Trap and the Commendation Trap.