How To Ditch Debt
The National Retail Federation says consumers spent $220 billion this holiday season, and while many shoppers said they were going to put the deep freeze on their credit cards, there are plenty of people now facing a blizzard of bills that will take months, even years to dig out from.
The Early Show consumer correspondent Susan Koeppen says consumers who braved the holiday crowds put plenty on plastic this holiday season, and now that the joy of giving is over, they're bracing for the pain of paying.
While some were responsible and put money aside each month to pay up front for holiday purchases, others weren't as conscientious.
Susan Shain told Koeppen her debt is "very stressful."
Shain is a single mother, working two jobs so she can pay off more than $35,000 in debt.
Nearly $9,000 of it is from the Christmas shopping she's done over the past few years, about $1,000 of it this holiday season.
"I did it for my daughters, and it made them happy; there are just some things you can't put a money amount on," Shain says.
Her daughters, Melanie and Nicole, got new toys and jewelry this Christmas, but Shain added more bills to an already large pile.
Bankruptcy attorney Charles Juntikka observes that, "There's a lot of consumer debt that is built up right at December because of the holidays."
He says many consumers don't realize the financial damage they're doing if they overspend using credit cards. "If you can't pay that off within a month or two, you didn't spend $4,000 or $5,000 — you're hooking yourself into spending — if you're taking a couple years to pay this off, (it's more) like $10,000."
Shain has a New Year's resolution: to get out of debt.
She's signed up with a credit consolidation company to help her pay her bills. "That is my goal," Shain stresses. "And I will achieve it. And I will make sure that I never get back into it again."
Shain still plans to give her daughters a wonderful Christmas in 2005, but she'll be doing it on a budget.
Howard Dvorkin, a credit counselor and founder of Consolidated Credit Counseling Services, is also the author of "Credit Hell: How to Dig Out From Debt," due out next month.
It was Dvorkin's firm that Shain called.
Dvorkin says she made right move when she called a professional. From that conversation, he says, she was able to figure out a good solution and stuck with it. Shain called a credit counselor, put herself on a monthly plan, and she'll start digging her way out.
Seeking help from credit counselor is a good idea, he says, because you're getting some good advice from a neutral party. In an age when everyone is trying to sell something, the last thing you want is someone trying to sell you their advice or some get-out-of-debt scheme.
Dvorkin outlined some steps you can take, to The Early Show co-anchor Hannah Storm:
STOP USING CREDIT CARDS
First thing, stop charging. Put away the credit cards. Make up your mind that you are not going to rely on them any more. You need to learn when enough is enough. If you're paying down one card and still charging on another, you're not going to make a dent. If you find it really difficult to stop charging on your cards, then you should physically get them out of your possession. Give them to your mother-in-law, stick them in a freezer, lock them away in your bank – do whatever you need to do to stop yourself from charging. There's no way you're going to make any progress if you keep racking up charges on your statements.
DETERMINE HOW MUCH YOU OWE
Next, determine how much you owe. This is often a scary thought; people don't realize how much they owe, because they spread the charges out over numerous cards. But, when you sit at the table with all your credit card statements, medical bills, and other debts you may have, take a calculator and add up all the numbers, the total can be overwhelming. And it should serve as a wakeup call. Many Americans don't even know the total amount of money they owe, and that's
simply because they are afraid to add it up!
PREPARE A HOUSEHOLD BUDGET
Once you know how much you owe, you need to draw up a budget. A budget is the key to getting out of debt and gaining control over your finances. Once you know where your money is going, you can decide whether or not that's the way you want to spend it.
SELECT AND COMMIT TO A PLAN
Make a full commitment to pay down your debt. Cut out fancy coffees and lunch dates and put that money toward paying off debts. If you are really serious about it and have the resources, get a part-time job to help. Also, go through all necessary expenses -- phone bills, mortgage payments, etc. -- and see if there's any way to lower the payments on them. When I look at a person's financial situation -- all other necessary expenses -- I can usually find a way to cut expenses by 10 to 15 percent Once you've selected your course, you need to stick with it.
SEEK HELP FROM A CREDIT COUNSELOR
Many Americans do not have structure or expertise to do it on their own. So get help. Call a credit counselor and see what he or she advises. Nonprofit agencies can help people with their financial situations and help them develop a plan, reduce interest rates, and assist them is becoming debt free.
ONCE YOU'RE BACK IN THE BLACK, HOW CAN YOU STAY OUT OF DEBT?
Let's be realistic, debts will not disappear overnight, so be patient and don't give up on it. You will learn to live without credit cards and on cash once you go through the full process. You will learn tricks over the course of the time it takes you to pay off your debt. Believe me, it's a hard lesson to learn, and you don't want to end up back in the red.