Monday, May 21, 2007

One Couple's Debt

Here's a story from the NY Times about a couple deep in debt. Isn't this story all too common these days? This couple is having serious debt issues, with thousands of dollars in credit card balances, more in personal and credit union loans, and the list goes on.

Is it so surprising that they don't even know what the interest rate on one of her cards? It "took her by surprise". I can only conclude that this is because someone else signed up for the card, received the card, spent on the card and was paying on the card, and she just recently inherited it, right? Since all my credit card statements show the balance, charges, interest rates, and other fees right there on the front, I'm not quite sure what to say about this couple.

I bet organizing their bills and statements instead of dropping them in a plastic laundry basket would be a great start.

What a great trend this is:

Americans spent one in seven of their take-home dollars on debt payments last year, up from one in nine in 1980. Experts say few consumers are able to calculate the true costs of such payments.

Unfortunately, all those thousands of dollars in credit card purchases and no one is buying a computer with Internet access (it took me exactly 5 seconds to find that link on Google).

The article goes on to blame easy credit as the source of American's woes. As the couple puts it

It doesn’t matter what you do, you always have that credit card debt.

What a great way to take responsibility for your actions. Here's another beauty:

[They] used a debit card rather than a credit card to make nine purchases, ranging from $5.38 to $48, hoping to avoid finance charges. But he miscalculated their checking account balance. Each purchase incurred an overdraft charge of $32...Every two or three months they send in a payment late, running up a late fee of $30 or more.

I know what this couple's problem is, and its not the $800 42 inch TV sitting in their living room, although their $50,000 wedding and new bathroom didn't help (do not use home equity loans for upgrading your home, or anything for that matter!). Their problem is that they do not MANAGE THEIR MONEY. They spent a whole lot of time making it, and quite a lot of time spending it, but when it comes to managing it, they "can’t do it every day because we both work full time". But what it really comes down to is that they just don't feel like dealing with it, "we don’t want to spend time going through the bills" they say.

Well no wonder they're in debt, haven't a clue what their interest rates are, and can't manage to pay a bill on time more than a couple months in a row.

Any solution for this couple? There are many ways to get out of debt, so they have their pick. But nothing is going to work unless they do this:

STOP! All of your financial problems are your own fault. Yes, even that unexpected $500 vet bill you can't pay is your fault. Why? Because you've already spent yourself into oblivion. The cat getting sick isn't even remotely part of the problem. Get those darn bills out of the plastic laundry basket and sort, organize, and make a full inventory of all your bills, loans, miscellaneous expenses, income, credit cards and interest rates. Find out where you stand, create a system where bills come in, how they get sorted, how they get paid (which will result in them getting paid on time!). This couple overspends ridiculously and they need to be put on a restrictive budget. Then they need to work on paying off their debt. First and foremost however, they need to organize their finances. Nothing will work until they admit "We did this to ourselves, we are disorganized and lazy with our money, and we need to start managing our money with the same effort we put into making it."

1 comment:

Jim said...

I finally had time to actually read this article. They are most likely not alone as there are many others out that do the same thing. There is a personal accountability factor involved and the debt is a result of poor choices and judgment. I'm in debt too, but I am learning to manage the money I make to pay the bills and try to lower my debt. My wife is a spender and I'm a saver, so we are working on the balance. Budget used to be more of a cash flow analysis at the end of the month to assess how we spent our money. Now I'm working on budgeting where our money goes before we have it in hand, so that when we have it, every dollar has a purpose.

This couple clearly spent themselves into a problem and then tries to justify their spending habits. Putting everything in a basket seems like a way to just put it off and ignore it until they need to act. They need to get their stuff together so they know where they're at. Not everyone knows how to do this or understand that they need to do this. I didn't like the quote about there always being credit card debt. If you have the money available you don't need credit to buy it. Sometimes it's harder to break old habits of the past, but if it were easy it wouldn't be worth doing.