|   Dear
Steve,
I was thinking about filing for Chapter 7 bankruptcy
because of my out-of-control spending habits. I am 28 and unsure how to get myself
out of debt with a low paying job. There is also a lot of debt from when I was
younger. -- Confused
 Dear
Confused,
What jumps out at me when I read your letter
is the phrase, "my out-of-control spending habits." Please read my column
Credit counseling vs. bankruptcy
to help you decide the best option for getting out of debt. No matter how you
decide to handle your current situation, I encourage you to explore all your options
before deciding on bankruptcy. In any event, if you do not learn to control your
spending you will only end up in the same or worse shape.
Following
the four steps below will help you rein in your spending and begin to put you
in control of your money, not the other way around! First:
Pay in cash
To break the habit of using credit for
purchases, put your credit cards on ice! Literally!! Get a Tupperware bowl with
a top, fill it with water, put the cards in and put the bowl in the freezer. Your
cards will be available if you really need them, but this will put a chill on
impulse spending! From this point forward, use cash,
debit cards or checks for all purchases. The goal is to give yourself enough time
to stop and think about how you ultimately will pay for the item that you want
to charge. It is much more difficult to make the right decision if the cards are
within easy reach in your wallet or purse. Determine your
fixed monthly expenses such as mortgage or rent, utilities, car payment, insurance
payments, etc. and pay those by check or debit card. For all other variable expenses
like food, clothing and entertainment you will need to keep track of the money
you have left after paying your fixed expenses. I would recommend
that you split the money you have after paying fixed expenses into daily or weekly
allotments depending on how long it is until your next paycheck. Then you get
to make all the choices as to how you spend it. The catch is that once you spend
what you have allocated, you must stop spending. If that means you have no money
for groceries midweek, you will have to eat what is left in the pantry until the
next week. When a friend of mine goes down to the local tavern for a beer he puts
the amount of money he is willing to spend on the bar. When the money is gone,
so is he! It's simple but effective. This will force you to
prioritize your spending because you do not have credit to make up the difference
in your income and expenses. Keep it up until you are consistently making it to
the end of the week and month without running out of money. Second:
Plan
I know. No one likes to plan. After all, all real adults are born
with an innate sense of what to do in every situation. Planning is something that
only actuaries and insurance salesmen pretend to do! Maybe
in your dreams. But in reality, a spending plan gives you the power to decide
how you will spend your money. Begin by writing down all your
expenses for a month. This gives you a broad view of where your money goes. You
may not realize you are spending $300 a month eating out if you do not write down
and total your expenses. With a plan you can make adjustments in different expense
areas so that you are spending money in the areas that are most important to you.
For instance, instead of spending $300 per month on eating
out you may want to create a college tuition savings plan, or save for a down
payment on a huge flat screen TV. You pick! After you have used a spending plan
for awhile you will be better able to get more of what you really want out of
your financial decisions and avoid overspending. You will be less likely to overspend
because you will know what kind of monthly expense you can manage and still do
the things you want. Third: Save
A savings cushion of three to six months of living expenses is the best way to
avoid unwanted and unplanned credit expenses. That being said, a savings cushion
of one day is better than none. Start with any amount and you will be amazed at
the result. Make it a priority to put aside money each pay period into a savings
account. One relatively painless way to do this is to have
it deducted directly from your paycheck or have it deducted once you get your
next raise. You won't even notice it! Once you reach the goal of an emergency
savings cushion you can then begin to save for other financial goals both short
and long term. Some goals may include vacation, college tuition, retirement or
a major purchase such as furniture or appliances. Fourth:
Enjoy
I hope I have given you some useful tools to help control your
spending. Most people think that if they create a spending plan they will feel
boxed in and controlled, but just the opposite is true. If you take control of
your spending habits and plan, you make all the decisions and are in control as
opposed to money and debt having power over you. Lastly, about
that low paying job you mentioned. Do something about it. Don't settle for less
without trying to do everything you can to make yourself more valuable as an employee!!
Good luck!
The
Debt Adviser, Steve Bucci, is the president of Consumer Credit Counseling Service
of Southern New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question. | 
