Looking for a lifeline out of debt
© St. Petersburg Times
Doris Davis once took pride in staying out of debt, dutifully paying off her credit cards every month. But lost jobs, family emergencies and three geriatric cats with big vet bills did her in.
"I turned to my credit cards as an intended short-term fix and, without even realizing it, quickly found myself about $12,000 in debt," she said. "It was a nightmare."
Davis, a Clearwater social worker, has plenty of company. Americans owe $722-billion on their credit cards. Often they manage just fine until misfortune strikes. A downturn in income or a surge in expenses throws them for a loop. Suddenly they find themselves struggling to make the minimum payment, getting hit with late fees, maybe even bouncing checks. That downward spiral ends in bankruptcy for about 1.5-million people every year.
Davis, 60, took a different path. Although she isn't out of debt yet, she is confidently headed in that direction.
"I do the best I can every month," she said. "My debts are like a ball and chain. I won't be a free woman again until they are gone."
Her road to recovery began a year and a half ago when she landed a new job as a bereavement coordinator for the Hospice of the Florida Suncoast.
With a stable income, a positive attitude and perseverance, she has whittled her debt down to $5,200.
"A steady cash flow and the elimination of several thousand dollars (of costs) each year in individual health and disability coverage is a good foundation for a payoff plan, to put it mildly," she said.
In fact, a prerequisite for paying off debt is an income larger than your living expenses. In a recent telephone survey, 29 percent of Americans said getting out of debt was their top resolution for the New Year. But if you spend every dime you make, paying off your debts is nothing but a pipe dream.
Davis says she started her debt repayment project by making a chart of what she owed and to whom she owed it, a key first step for anybody who wants to get out of debt.
"Seeing it written down is a sobering thing," she said.
Davis owed money on a dozen cards. "They kept sending them to me," she said. Davis said she targeted those with the smallest balances for the fastest payoff.
"Anybody with a brain would start with the card with the highest interest rate, but I felt more in control to do those with the smallest amounts," she said.
Although targeting cards with the highest interest rate produces the biggest savings, Davis' approach offers psychological rewards that are important, too. Maintaining motivation is a key factor in the success of any debt repayment plan.
The balances that were too big to pay off quickly, Davis consolidated on three cards with fixed interest rates of 9.99 percent. That's a good strategy if you can avoid putting new charges on the old cards. Debt experts recommend closing the old accounts to avoid the temptation. Davis said she no longer uses her old cards, but she kept them around just in case.
"I hate to burn bridges," she said.
Davis said one of the first lessons she learned as she brought her debt under control was to read the fine print on card literature carefully and watch out for late fees and other charges. She says she makes payments on one of her cards in person at a local branch of the issuing bank, so she knows the check got there in time.
"I'm paranoid enough to believe that sometimes they fudge," she said.
A late fee can tack as much as $35 onto your debt and damage your credit rating in the process. Interest rates also can be affected by late payments.
Although she pays cash most of the time, Davis carries her new cards "for emergencies." She said she keeps close tabs on any new charges and aims to pay them in full each month so the balances on her cards keep going down.
But using cards too freely can sabotage a debt repayment plan. Some experts suggest keeping cards in the freezer, frozen in a block of ice, to make them less handy to use.
Davis said she realized right away that she had to make more than the minimum payment each month.
"If you pay just the minimum, you're probably racking up more in interest than the amount of the payment," she said. "You're digging yourself further in the hole."
She charts her payments so she can watch the balances decline.
"I've tried to pay $100 per card every month," she said. "I paid off one of the cards last month, so now only two have balances. That will bring my payment up to $150 per month per card."
When she is able to pick up freelance jobs, Davis uses that money for debt repayment. A bonus she got at work last year went straight to her creditors.
But it still can be tough to find the money to make her payments. Davis said she tries to make a game out of finding ways to cut expenses.
"If it's grim it won't work," she said."I know many ways to prepare a cheap meal; homemade soups are great in cold weather. I've been a brown bagger forever, and I'm the coupon queen."
She said she rarely buys clothing, music or books and doesn't have cable TV. The public library is her substitute for a bookstore.
But Davis hasn't given up everything she enjoys. She said repaying her debts has forced her to set priorities, a good strategy for anyone who wants to find extra money to pay off debts or to invest. She said she kept her cell phone and her tickets to shows at the Tampa Bay Performing Arts Center. When her ailing cats died, she got two new ones.
"The cleaning woman went, but the person who trims the trees didn't because I don't do trees," she said. Davis said she also looks for ways to indulge herself inexpensively, eating her Sunday dinner on good dishes by candlelight and giving herself pedicures.
"Attitude is everything," she said.
Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego, said Davis has the right idea about couponing and careful shopping. He said most people could slash their spending by 20 to 25 percent if they were willing to work at it.
"People are sloppy shoppers," he said. Richard said he saved $864 last year on coupons and rebates alone, "not bad for a single person."
But he said his No. 1 tip is hardest for some people:
"Stop using credit cards, especially for everyday purchases," he said. "When you spend cash, it helps you become more aware of where your money is going. You're always counting it up to see how much is left. That's something you don't do with credit cards."
Davis said she keeps close tabs on her day-to-day expenses. Her biggest problem is unexpected expenses that wreak havoc on her budget. She has no emergency savings to cover them.
"Last week, I had the 30,000-mile checkup on my car, and it was $400," she said. "At the same time, the cats got into a fight, and the vet bill was $140."
Davis said she should be debt free within the next two years but declines to set a target date.
"I can't put down a goal that I might not reach because that would be discouraging," she said. "I don't know what's going to happen, so I do the best I can every month. When I get it paid off, that will be like taking a weight off. I'll never let it happen again, either."
-- Helen Huntley can be reached at firstname.lastname@example.org or (727) 893-8230.
Need help getting out of debt? Here are some useful resources.
Money Troubles: Legal Strategies to Cope With Your Debts
By Robin Leonard and Deanne Loonin
Nolo Press, 8th edition 2002 ($20.97 ordered online at www.nolo.com)
Includes worksheets, forms and letters to send landlords, creditors and collection agencies.
NCLC Guide to Surviving Debt: A Guide for Consumers
National Center for Consumer Law, 2002 ($19)
Offers advice for managing credit card debt, dealing with creditors, which debts to pay first.
By Mary Hunt
Broadman & Holman Publishers, 1999, $14.99
Features her rapid-debt repayment plan and tips on frugal living.
The Everything Get Out of Debt Book
By Cherry Kimball and Faye Kathryn Doria
Adams Media Corp., 2002 ($12.95)
Offers practical information on assessing your financial picture and covering your credit bases.
Get Out of Debt
By Henri Valbon
Made E-Z Books, 2002 ($14.95)
Covers debt consolidation, credit reports and rebuilding credit.
Life After Debt
By Bob Hammond
Career Press, 3rd edition, 2000 ($14.95)
Features a step-by-step plan to credit repair and a credit question and answer.
Slash Your Debt
By Gerri Detweiler, Marc Eisen and Nancy Castleman
Financial Literacy Center, 1999 ($10.95)
Provides insights on debt consolidation and saving strategies.
Nolo (www.nolo.com): "Nolo's Legal Encyclopedia" has articles on debt, bankruptcy and credit.
Institute of Consumer Financial Education (www.financial-education-icfe.org): Tips on saving money, reducing debt and repairing credit. The center also sells books, videos and warning labels to stick on credit cards.
Federal Trade Commission (www.ftc.gov): Click on "consumer protection," then "credit" for information on your rights regarding debt collection, credit reporting and related topics.
National Foundation for Credit Counseling (www.debtadvice.org): Referrals to consumer credit counseling agencies.
MSN MoneyCentral (moneycentral.msn.com): Click on "planning," then on "savings and debt management." Online calculators help you evaluate your debt load and determine how much you might save with consolidation.
-- Source: Times research and Times wires
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