Bride-to-be doesn't want debts to crash wedding
By Daniel Jimenez • Bankrate.com

An accounts payable clerk finds herself slipping further into debt. Our makeover candidate appreciates the irony, but she still wants an answer to her dilemma before she heads to the altar.

Setting financial goals has long been one of the basics of any debt management program. However, problems can arise when a debtor sets goals that are unrealistic. This week's Money Makeover winner wants a quick solution to her money problem, but she may not have the resources to meet her deadline. Here's what she wrote:

"I need to know what to do with my money. It's, like, I take it out the bank, put it in my pocket, go out on the weekend and it's gone. Never mind that my boyfriend pays for everything! I can go pick up some stockings, buy a CD, fill up my car, pick up the dry cleaning, go pick up some Weight Watchers dinners from the store and it's gone. My fiancé is an accountant who doesn't know about my financial situation. I'm trying to pay all my bills off this year, so when we apply for a home loan next year my record will be better."

The 21-year-old works as an accounts payable clerk in New Jersey. Adrienne earns $14,400 annually after taxes ($1,200 per month). She doesn't own a savings account, but she has just started contributing 8 percent of her paycheck toward her company's 401(k) plan.

The money problem

Adrienne is engaged to be married next year, so she wants to resolve her financial situation before the wedding. Her primary concern is her $2,383 credit card debt on which she is just making the minimum monthly payments. She also has a $700 telephone bill run up through unauthorized phone calls made by acquaintances.

We asked Joe Zunzunegui of Consumer Credit Counseling Services of South Florida, which can be reached at (800) 928-2227 to create a financial plan that would meet our makeover candidate's needs. The counselor suggests that she begin by keeping careful track of all her expenses for one month. Adrienne may soon discover that her actual expenses are very different from what she originally thought.

"She should keep a small writing pad with her at all times so she can write down everything she spends money on," Zunzunegui says. "Even if it seems trivial to her, it will add up. For example, buying a can of soda and a package of snack crackers at work costing $1.25 per day adds up to $325 per year. If there are many small ‘incidentals' like this, it can quickly snowball into thousands of unaccounted dollars per year."

Tracking the expenses

Adrienne is fortunate enough to live with her parents, so she doesn't have to pay rent. Her biggest monthly bills are for groceries ($200), clothing ($200) and a car loan ($190).

Zunzunegui believes that it will take Adrienne a long time to eliminate her credit card debt if she doesn't increase the amount of her payments. He advises that she consider adopting a debt consolidation program, such as the one offered by his agency. The program involves making one monthly payment to the agency, which in turn makes her payments after negotiating with her creditors to receive interest rate or fee concessions.

The money planner thinks that our candidate's debt repayment goals are unrealistic and not prudent. He argues that putting all of her extra money toward her credit balances means that she'll also have to reduce the amount of money she saves, which may affect her ability to qualify for a mortgage next year.

"Mortgage companies do a comprehensive credit check that goes back at least two years," Zunzunegui says. "Paying off her debt steadily in larger-than-normal payments demonstrates a consistent repayment pattern, which is of course ‘good credit.' But having all her accounts paid in full does not demonstrate a person's ability to make consistent payments."

He recommends that Adrienne increase her savings amount for wedding expenses. She should not incur more debt for wedding expenses, for which the couple has 15 months to plan and save. Adrienne should also try to explain the circumstances of her $700 phone bill to her telephone company. They may be able to reduce the amount owed.

Consumer Credit Counseling Service's conclusion

Zunzunegui laments that Adrienne's case is yet another example of a young person who lacks basic money management skills. He states that many members of Generations X and Y are experiencing situations similar to hers.

"Often it starts with obtaining student credit cards in college and sometimes even in high school," the counselor says. "Credit is casually used for senseless reasons (dining out, movie tickets, etc.) or when cash is unavailable. Unfortunately, most of these lending institutions do not offer any type of money management courses on the correct usage of credit cards. This is having a negative impact on today's youth as they graduate and enter working society with a large debt load."

Zunzunegui offered the following tips:

• Contact a local credit counseling agency for a free session with a counselor. They will teach her basic budgeting skills, and she will learn how to live without credit cards. There are also many books available on the subject.

• Pay off the credit cards as quickly as possible. Credit card interest rates are extremely high and late or over-the-limit fees are as high as $35 for each occurrence. Credit cards do have a useful purpose, such as in an emergency or when one's cash flow is uneven. However, if she is having difficulty managing her money, she should seriously consider closing her accounts and strictly paying cash for everything.

• Write down several financial goals. Where does she want to be financially one year from now? Five years from now? Perhaps an achievable goal would be to become completely debt free in two years, and own a home in five years.

• Put away as much as possible in her employer's retirement or 401(k) plan. She probably doesn't want to work forever, and she can't count on Social Security to be around 40 years from now.

We'll report on whether Adrienne's makeover results in a happier financial outlook in a future article. The Money Makeover is a weekly feature that offers our readers a chance to have a money expert help them untangle their finances. To read more makeovers click here. Professional planners and credit counselors volunteer their time to help our winners create a customized financial plan. Click here to enter the Money Makeover contest.

Joe Zunzunegui is a certified credit counselor and team leader with Consumer Credit Counseling Services of South Florida. He has worked in the credit industry for 11 years and has held positions in credit card collections, credit reporting and credit counseling.

-- Posted: Sept. 1, 1999