Los Angeles Bankruptcy Blog

Does credit card management or debt consolidation work?

While there are some good arguments about why it might work, my experience is that there are many reasons to avoid credit counseling and consolidation.

All it does is delay the inevitable… kind of like paying your mortgage with your credit card.

Today is the day after Christmas. How do you feel?

Did you indulge in the power-shopping at the malls and stores prior to Christmas? Did you whip out the credit cards at Best Buy and say “charge it!” Did you hang out at home, sipping brewed coffee, comfortably shopping online at Amazon, having all your gifts shipped as you “spent” hundreds of dollars of money you never had? (”borrowed” is a more accurate word).

How do you feel today?

Excited? Is it a good day to go shopping for after-Christmas sales? Borrow and spend even more?
Depressed? Feeling like you overdid it and wondering how you’re going to repay those loans?
Avoiding? Not thinking about it? After all.. you won’t get billed for another few weeks.

What are those balances up to now? How long will it take for you to pay off those loans at the rate you pay them?

“But it’s Christmas! My family deserves nice gifts!”

Your family deserves to have money saved for college.
Your family deserves to have money saved for an eventual downturn in income.
Your family deserves to have money saved for retirement.

All of those happen from saving, not borrowing. All of your extra money is going to go to pay down debt. How much will be left for you to save?

How will you live when you retire?
What is going to be different in your budgeting and spending and borrowing patterns between now and then?

When do you change to avoid the collision course?

Just a cookie stick to stir into your $4 latte.

http://www.msnbc.msn.com/id/20464621/

I’m seeing people who borrow from the credit cards to make their mortgage payments.

At some point, that strategy will stop working.

The result contributes to the defaults of credit card debt.

Some interesting findings from a recent study about the increased number of applications people get before a bankruptcy as opposed to credit after bankruptcy.

Can you guess?

3 to 1 .

As an attorney that specializes in consumer debt, I see a lot of people’s personal finances during the helpful consultation. A common problem is that they have no idea what they spend each month and don’t realize they’re often spending more than they earn.

When you are sick, you pay careful attention to the medicine that the doctor prescribes. When you’re on a diet, you pay attention to the food you eat and weigh yourself every day. Yet most of us don’t track how much we spend each month. You may know how much you spend on fixed bills like rent, but chances are that you don’t know to the nearest $100 how much you spend in total.

A budget is essential to taking control of your finances. Maybe there is a place you can tighten your belt. Maybe there isn’t. How do you know where to cut back if you don’t even know what you’re spending?

Try this for one week (or better yet, for a month): you don’t need to track every penny, but why not track every dollar you spend during the day? Save your receipts and jot down your daily expenditures. Keep a running tab so you know your month-to-date spending every day. When given a choice, use your debit card, not cash. Keep your debit receipts to make tracking easier and to make your spending more visible.

You’ll be surprised how many “little things” gobble up those $40 withdrawals: cash for Starbucks here, cash for a bagel there. You then pay with cash as you go out for lunch, and there goes another $10 and it’s not even 2pm yet!

Once you make the commitment to track your spending, you can see where you can cut back if you need to. Give yourself an allowance of spending money: one ATM withdrawal of cash per week. Make that $20 or $40 last the whole 7 days. Make the commitment to spend no more cash than absolutely necessary. And continue to track each dollar.

You can’t fix the problem until you know what the problem is. Knowing your spending can help you cut back where there is waste. Most importantly, adjusting your spending can help you meet your ultimate goal of saving money to pay off your credit card bills, a down payment for your own home, or for your retirement.

[originally posted in Feb 2005]