Getting Out of Debt
Clark Howard, WSB-TV consumer adviser
Part 2: Getting out of debt
Sixty-percent of us carry a balance on our credit cards every month, and the average balance is over $5,000. If you're above average and having trouble paying, what can you do?
"Stuff -- junk, is what we buy," says Yvonne Wheelis. "We have three or four Visas, a couple of Mastercards. We make a lot of money, but we spend a lot too."
The Wheelis family is your typical American family: four kids, a dog, and a mountain of credit card debt. Just how much?
"Oh, about $35,000," she says. "We want to get out of debt."
The Wheelis' family agreed to sit down with me and find the problem. The first thing I had them do was chart all their expenses.
"You manage to feed six of you for $700 dollars a month? "That's really good. I thought you were going to cut that," Yvonne Wheelis says. "No, but I quickly found something we could cut: $1,346 of 'miscellaneous' spending," responds Clark.
"It's just stuff, and it may even be more than that," Yvonne Wheelis confesses.
Getting out of debt first requires figuring out how you got there. You have to sit down and put everything on paper. Then, grade those expenses like a school report card. Absolute essentials like mortgages, and car payments, get an "A". Non-essentials like eating out, magazines, give a "C." Truly frivolous things ... give an "F". Anything rated "C" or below, needs to go.
Yvonne has something else that needs to go -- her checkbooks. "I write checks for everything," she says.
"How many checking accounts do you have?," asks her husband, John. "About four," she says.
"You're done with that," says Clark. "A check doesn't feel like real money," he explains. "Money feels like real money. So, if you want to know how to get control again, it's going back to what people did 50 years ago and just go with cash."
"Cash is king when it comes to getting out of debt. It forces you to get some discipline and stick to a budget. No checks! No credit cards! Id like you to cut up the cards. If that's too drastic, then put them in a bag of water and freeze them. Only thaw them when you really need them. "
Clark advises them to use $500 in cash every 14 days, and send it directly to the highest interest rate credit card they have, and you try to get that wiped out in short order. Then you move on to the next highest, and the next highest, and on like that.
"I think we have a plan now, I feel better" said Yvonne Wheelis.
Clark has some further advice. "You have to have a plan and you have to treat a credit card like an ATM card," he says. "Don't use it unless you have the money to pay it. I can't stress this enough, if you can only afford to make minimum payments, you have a major problem."
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