How does one end up amassing debt? Usually it’s because of the small things!
As my spouse and I whittle away at our debt and work on a loan modification on our home, we are digging deeper into our finances to find out how we ended up in this unenviable position. Discovering the root of our problem will help us prevent similar mistakes in the future. As we pay off one creditor a month, we are learning where the money went. One credit card was used to pay for heating oil during the winter when I was too sick to work. Another was used to pay a mortgage payment before we defaulted. But what was the third card used for? Like many people in debt today, I’ve realized that we’re in this situation because we haven’t done a good job tracking our expenses and keeping watch over how our credit cards are used.
Where Did The Debt Come From?
My office houses stacks of paper that I am afraid to throw out because of our financial situation. In this particular instance, my pack-rat tendencies served us well. I dug out the old receipts from our credit card and discovered we racked up a balance of over $1,500 on small purchases.
Some appeared to be holiday gifts purchased in October and November. The rest of the purchases were impulse spending such as clothing, shoes and a trip to the restaurant. Did we really have to dine out and pay interest on it? Absolutely not. We certainly could have been more cost-conscious about our expenses, but we weren’t.
I am not alone. According to MainStreet.com, America has amassed massive debt on small purchases. The president of the Association of Independent Consumer Credit Counseling Agencies, Dave Jones, told MainStreet, “Impulse buying is what contributes a lot to consumer debt. It all adds up.” Interestingly, consumers are more prepared for the big ticket items. They are conscientious about tracking those expenses and are responsible about saving and budgeting for them. Supposedly, we are able to make room for those big ticket payments. However, the smaller expenses are what seems to kill many a budget. Basically, the small ones add up, affecting payments on bigger loans and creating a “snowball effect.”
It was quite troubling to realize that the credit card balance was due to extravagant gift giving and spur-of-the-moment spending. So how do I remedy my situation?
Negotiate Your Payments To Pay Off Big Debt
Call the credit card company and face the music. That’s what I did, and the customer service representative was more pleasant and professional than I expected. Go ahead, call your card company — they won’t bite you. I explained that we could not afford to pay off $1,500 at once. She offered to lower the amount due and let us pay it off in three monthly payments of about $350 to settle our debt. This was something we could handle so she offered to mail a confirmation of our conversation.
In just three months, we will have this $1,500 credit card balance off our backs. If I had not called to make payment arrangements, it could wind up as a judgment. This is what happened to the credit card we foolishly used to pay our mortgage payments. If it’s at all possible for you to pay down your debt — do it. If not, call your lender. Don’t hide, reject or abandon it as it won’t disappear on its own.
Use Credit Cards To Pay for Necessities Only
Our days of impulse spending are over. Once we get back on our financial feet, we never intend to find ourselves in this precarious position again. Unexpected illness and loss of work lead to our current quandary and we were ill-equipped to remain afloat. There are several things we will do differently in the future when we face dire financial straits.
- Extravagant gifts are out of the question: we have all learned crafting in our spare time!
- Every purchase must be recorded in a journal, from new jeans for Mom to sneakers for the kids. Before we buy anything, we pragmatically price the items we need, in order to get the best deal. Say no to impulse shopping.
- Last year, we qualified for heating assistance but this year, I’m earning a few dollars over the qualifying level. So we turn down the heat all day when nobody’s around. We also keep the heat lower and carefully budget for it. On occasion, we order 100 gallons of oil rather than fill the tank. It saves us money for the time being, while allowing us to stay warm without having the pipes freeze.
- Recently, we took advantage of affordable deals and sales to secure an Internet, phone and cable package. The alternative would be to turn off these services completely.
- We no longer eat out at restaurants and we don’t plan to, until our debts are paid. Instead, we cut a coupon for a Friday pizza that costs under $10. It gives me a break one night a week from cooking and it’s an affordable way to celebrate the end of a busy week. Afterwards, we play cards or Scrabble, rather than go to a movie. We still have a fun-filled family night without breaking the budget.
- Walks in the park are free and don’t involve the temptation of impulse shopping. We take those walks rather than hang out at the malls. But where do we shop? We visit outlets and free-standing stores with coupons at hand, so we are not lured into any other store. We also use shopping lists to keep us on task and to help us avoid making unexpected purchases.
What small purchases are you foregoing and what are you doing to stay out of debt trouble?
Created June 30, 2007. Updated July 6, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.
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If find it amusing that credit card companies will sometimes offer to lower the interest rate or even waive interest for a certain amount of time. They’ll do almost anything to keep the customer, knowing that in the long term they’ll make even more money from him.