Ten years ago, I was in major financial trouble and facing possible bankruptcy. I was a single mom with three kids and $36,000 in debt. I was sick of waking up every day trying to live in denial but always having that sick feeling in my stomach, from the bills I wasn’t dealing with and were not going to go away. I was tired of the pile of bills on the counter I couldn’t bring myself to open. One day I decided to change that. After taking a good long look at my money situation, I made a plan. Now, ten years later, I’m not only debt free but I wake up everyday free from the weight of all the money worries I had before.
If you find yourself deep in debt and constantly worrying about money, you are not alone. Statistics show the average American is deep in debt and living paycheck to paycheck. CNN Money.com reports that “the American consumer has become deeply addicted to spending, running up ever higher levels of debt in order to live in a fashion that is beyond his means.”Many would face financial ruin with an extended illness or loss of a job. Experts say money is the number one issue couples fight about and the number one cause of divorce. Filing bankruptcy is becoming an epidemic in our country, leading creditors to change laws to make filing even more difficult. Most people don’t want to file bankruptcy, but they don’t know what to do as an alternative.
First, you have to GET REAL. Get your checkbook, your pay stubs, your bank statements, and all your bills together. Sit down (If you are married, sit down together) and make a list of exactly what bills you owe, listing the total outstanding balance on each account in one column, and the minimum payment in the second column. In the third column, list the percent of interest rate the creditor charges annually on that debt. List not only mortgage, car payments, and credit cards, but also outstanding doctor bills, loans to family, and any other debt you have. This is not the time to hide things from your spouse. You will need their help and cooperation to get out of this mess.
After you have made your list, total it. This figure is usually MUCH higher than most people realize. It can be daunting or even depressing. However, denial isn’t getting you anywhere. Then get up and walk around a bit. Get some fresh air. You may need a break at this point. After you’ve calmed down from the shock, sit back down with your pay stubs. Make a list of any sources of income you have each month. Don’t just list your regular jobs, but also any side jobs you may do that bring in money each month. Look at your bank statements and get an accurate view of your income from all sources.
Now take your checkbook and add to your list any other bills you routinely have but may be paying for with cash. Do you eat out every night? How much do you spend each month for groceries and eating out? Do you pay childcare? How much do you spend for gas and car repairs? Make sure you list everything. Don’t forget cell phones, insurances, parking fees, dry cleaning, and any other expense you have on a monthly basis. Compare what you have going out each month to what money you have going in. You now have stopped the denial and faced your situation head-on, and you should be proud of yourself for that.
Now, what do you do about it? If you have more going out than you have coming in, some changes are inevitable. Look over your expenses and see if there is anything you can eliminate. A five-dollar latte on the way to work each day adds up to over a hundred a month. Eating at home is less expensive than eating out. Carpooling may be an option. Disconnecting your home phone and just using your cell phone may save you some money. Having your friends over for a potluck dinner instead of your buying steaks for the grill is an option. Buying your children’s clothes second hand instead of new will definitely save money. Look online for ways to save money. There are multiple websites about living frugally.
Be realistic. Don’t cut your budget so much you don’t have enough for groceries or gas. However, be realistic in that fact that you can do without a new pair of shoes every week, or a case of beer for your friends on the weekend. You don’t have to go to a movie every weekend. Cut back wherever you can. Turn off any services that are not absolutely necessary. Cancel the gym membership and get out and take a walk or run every afternoon. Cut up your credit cards NOW. From here on out, you need to operate on a cash basis and only write checks to pay bills.
However, what if you do all this but still can’t pay the bills? That is the situation I found myself facing. Just the fixed bills I owed took up all my money, and nothing was left for other necessities. At this point, you have options. You can file bankruptcy. Most lawyers will not charge you to sit down and look at your financial picture and tell you what your options are and if you qualify for bankruptcy. If creditors are calling constantly and you see no end in sight, this may be an option for you. Getting a second job or a third may be an option. I worked eight to five but took in extra money by babysitting in the evenings or on the weekend for friends. Ask your single male friends if they would pay for a home cooked meal they could take home and heat up after work. Offer to do their laundry for pay or clean their house.
If you have no options for extra work and don’t want to file bankruptcy (or don’t qualify), contact a money counseling service. I took this option. Credit counseling services charge you no fees, but they will act as a go-between between you and your creditors to lower monthly payments and interest rates. Creditors are willing to work with the counseling services to recover a lower portion of the balance than to risk your filing bankruptcy or delinquency on their account. Most credit counseling services can lower your monthly payments by at least 25% and usually more. In return, you agree to have them close your accounts to further charges (You will never pay them down if you keep using them anyway) and to set up a consolidated payment to them each month. You pay them. They distribute this to your creditors. You will continue to get monthly statements from your creditors showing that payments are being made.
If you do decide to go with a credit counseling service, you need to live up to your part of the bargain. They can help you decide how much of a monthly payment you can afford, and then you need to be faithful about paying this payment. If you don’t pay, all bets are off with your creditors and they can go back to charging you the higher payments and interest.
Above all, don’t let the length of time it takes to pay off your debt deter you. You don’t get into debt overnight, and you won’t get out overnight. I kept in mind each day that I was 1) not making any more debt and 2) moving in a positive direction in reducing my debt. Any time I had any extra money in the form of a birthday present, tax return, etc, I immediately paid it toward my debt. This was the hardest part. Even though there were things I wanted to buy, I knew that getting rid of that debt would make me feel so much better than the momentary pleasure from my shopping spree.
Don’t despair. The light at the end of the tunnel doesn’t have to be a train. Ten years later, I am now debt free. After I paid off my debt, I used a small inheritance to pay off the balance on my town home mortgage. I don’t have a new car every year like some people, but I don’t have a car payment on my used one. Now I lived differently. Money is automatically deducted into my savings account from each paycheck. I weigh my purchases carefully. My favorite tip is, when faced with a purchase I want to make, to wait for two weeks. If I still think I need it then, I look around for the best buy. I finally have a clear picture of the difference in my wants and needs. I’ve learned I feel as happy with a new book from the bookstore (or checked out at the library) as I do buying jeans I don’t need. It’s just a matter of priorities.
I can tell you, though, that there is nothing that compares to the feeling of being able to live consciously, being able to open my mail without a stomach ache, and of not being afraid to answer the phone. This can be possible for you, too. Don’t hide from your money problems any longer. Life is like a contest-You have to be PRESENT to win.