Summer 2007 Alumnae Quarterly Web Extra

Debt: How To Get Out From Under

Consumer Credit Counseling Services reports that “the average consumer owns eight credit cards and the consumer debt level in the United States has surpassed the $2 trillion mark.” CCCS offers tips for managing your credit-card debt, including:

1. Create a budget and stick to it.

2. Make payments to every creditor to avoid late fees and a marred credit rating.

3. Focus on one payoff, and pay more than the minimum on your monthly credit-card payments. Once you’ve paid off a credit card, apply the same payment amount toward another credit card, in addition to the required monthly minimum.

4. Ask for lower interest rates. Credit-card companies will consider your request, especially if you know of lower offers elsewhere.

5. Don’t shy away from consumer-debt counselors. They can negotiate with creditors to lower your credit-card payments and maybe even reduce interest and fees.

Most of all, suggests CCCS, “stay focused on being debt-free.”—Maryann Teale Snell ’86

How I Got Out of Debt

By Peg Atkins Danek ’85

The first steps  Peg Atkins Danek ’85 took to control her financial deficit were to change her shopping habits and buy a book on personal finance.

About ten years ago I got tired of living paycheck to paycheck. While my mom did a great job of teaching me how to manage my checkbook and a half a clue as to handle a budget, she didn't know a lot about budget analysis. I bought Finances for Dummies and read it cover to cover. I figured that they had hired someone that knew finance to write it and they had to know more than me. After that I purchased Quicken. I used checks to pay for everything and carefully entered everything in Quicken. I had to do this for about three months running to get an accurate picture of where we were spending our money (I was married with one child at this point). I had a few surprises. One was it was expensive to eat and the other was that companies nickel and dime you to the tune of big dollars.

The first thing I did was find a cheap place to buy groceries. I then tried generic brands and stuck with them if I liked them. Sorry, I still have to eat Heinz ketchup and Hellman's mayonnaise. Off I went to BJ's Warehouse Club and joined. I purchased all of my dry goods in bulk there. This combination brought my grocery bills down considerably. I found out that the bulk prices for paper towels and laundry detergent were far cheaper than buying a little at a time in a supermarket. In fact, when I did this ten years ago, the household goods isle in the supermarket had the highest markups in the store. This might have changed since the emergence of stores like Target and Wal-Mart, who sell household goods dirt cheap but I haven't checked.

The second thing I did was to look at all of the extras on our bills. Did I need call forwarding? Did I need cable? What services could I live without? Yes, back then cable only cost $30 a month, but that is $360 a year. I would much prefer spend $350 on books rather than cable or I could make an extra car payment instead.

Once I got our spending under as much control as possible (there are always surprises), I tackled the loans. I picked the one with the highest interest rate and started to pay extra on it. In fact, I paid as much as I could afford a month. As soon as the first was paid off, I started on the next one. Of course, this meant not using charge cards and putting money aside each month for special purchases such as clothing and mad money. It is kind of like being on a diet. You have to allow for small indulgences so that you don't go on a binge and overspend. It took two years, but suddenly I was debt free and had extra money every month. What a fantastic feeling!

Even though this was ten years ago, I still adhere to the lessons learned back then. I only charge what I can pay in full each month or, in a pinch, two months. I buy used cars so they don't de-value as rapidly. I have the basic phone package available and the cheapest cell phone service that still meets my needs. I, to this day, don't have cable. It isn't worth it to me. When my husband and I purchased a house we bought an antenna for $80. That was seven years ago and I get the channels I want for free. I always examine my bills closely and cut out any services that I don't need. I still buy dry goods in bulk but now I get them from Target since they don't have a membership fee. I always make conscious decisions about what I am going to spend my money on. I ask the questions; do I want it? Do I need it?, Is it necessary? Can I live without it? Would I prefer to spend my money on something else?

Ten years later I am still debt free and have a credit score in the 800s. Because my income has grown and I have become habitually frugal, I don't have to follow my budget so closely any more, which is nice. That doesn't mean that my work is done. I am currently building up my savings account to equal six months of my salary in order to cover bills in case one of us loses our job or gets sick. My husband is working on saving for our child's college education. We both have 401k accounts that we contribute to monthly for our retirement. I much prefer this to living from paycheck to paycheck.

Courage is the most important of all the virtues, because if you don’t have courage you cannot practice any of the other virtues with consistency. You can’t be consistently fair or kind or generous or honest or giving or loving without courage. I wish I had written that first. Actually, it was Aristotle who said it, but never mind. — Maya Angelou, commencement address, 1987