When good intentions lead to bad debt

Coping with your mounting credit card balance

It often starts with something unexpected. The car breaks down or there’s a hospitalization or some other significant financial surprise that can’t be avoided and can only be paid with by a credit card – a credit card because you just don’t have the money and have no other means to pay the bill.

You think, “OK, we’ll get through this and use the card, but we won’t touch it again until it’s paid off.” And you mean it – but then your husband gets laid off and your son needs to stay in an expensive child care or you’ll lose your spot, which you’ll need once he (hopefully) gets back to work. There’s groceries to buy, a fuel bill that keeps mounting throughout the cold winter and all of those regular monthly bills to consider. You find you’re short on cash and some months barely have enough to pay that high-balance credit card’s minimum amount due. In spite of your best intentions, your finances feel like they are spiraling out of control.

You’re not alone.

According to Lisa Jones, a financial advisor for Edward Jones in Windham, “Debt is a common issue.” However, she says it should not prevent individuals from creating a plan for their financial future.

Christine and Gilles Bard found themselves in a bit of a financial hole after a series of circumstances came into play. Like many couples, their situation started out with the best of intentions financially and somehow led into a place they hadn’t anticipated ending up. Fortunately, they were able to move forward and pay off the debt, learning some valuable lessons along the way.

The Bards moved into their home in Litchfield in 1998. Gilles was a stay-at-home dad for their two young children at the time, and Christine had just taken on a large-scale Y2K project, with an anticipated sizable bonus upon its completion in 2000. Several things transpired during the move, leading to some deeper costs than they expected – some just a few short hours before the closing. As a result, the couple had to borrow money from Christine’s parents, which they needed to pay back.

They also planned to use a credit card to purchase furniture for their house, to accrue miles, with the intention of paying it right off. “Soon after, we realized that we really didn’t have the money to do that,” said Christine. “So between that and a couple of other purchases, we had over $3,000-$5,000 on our credit card. Now we had this credit card to pay off, and even if we paid $50-$100 a month, it would take a while to pay off.”

When Christine’s bonus did eventually come, it was less than hoped for once the taxes were taken out. She took a new job at Harvard University to increase the family’s income, but then had to contend with paying Massachusetts state taxes and the cost of commuting as well. In reviewing the family’s credit history, she now sees that it seemed like the couple was putting almost everything on credit cards for the miles.

“Those smaller purchases and bills we were paying off most of the time each month. It was the larger purchases, like windows, the furniture, a Disney vacation, etc., that caused the issue,” said Christine. “It appeared the highest balance was $8,000, but at times we were making payments of anywhere from $1,500 to $3,500.”

Although they were paying large chunks periodically, she seems to remember only paying off the smaller charges and not the major purchases. Holidays or some unexpected things like a hot water heater or car repairs threw the couple of track completely at times. Christine recalls the months when they could only pay a couple of hundred dollars and disliking it very much, particularly the stress it was causing. She said that this went on until 2004, when the couple finally paid the credit cards off.

It may have taken a while for the Bards to realize what an issue their credit card debt had become, but finally the realization hit that this was a bill they couldn’t seem to pay right off.  Eventually that became true for months and then a couple of years. “It seemed to never really go down,” said Christine.

While the couple had no specific payment and pay-off plan in mind, once they created a goal to pay as much as they could every month until they paid the debt off in full, they didn’t falter. “We never missed a payment, but looking back I was surprised with the variations in payments from $200 some months to $3,500,” Christine said. “We used any bonus and tax returns we received toward the credit card.”

These days, it’s rare for the Bards to have a credit card balance from one month to the next. “We plan before we charge and if possible, we time the cycle we charge something in so that we don’t get caught in the bad cycle of not being able to get caught up.” She cited an example of her daughter’s car needing the air conditioner fixed, but they waited until the last cycle ended on their credit card so they could pay off one month and then have the new charge to pay off the next month.

In spite of the debt they did amass at one time, the Bards maintained regular payments and never had issues with their credit. “We have one of the highest credit ratings and always have,” said Christine.

When asked about personal best practices for avoiding credit card debt, here are some of the responses I received through social media from individuals in southern New Hampshire and northern Massachusetts:

  • I’m old school. I keep a checking account register. If I charge something, I deduct it from my account on the register. Then when the bill comes in, I have the money right there. I like the convenience of a credit card, plus I travel so much I like to accumulate miles.
  • We don’t use credit cards. My wife is a bargain hunger, and the term shop around comes into play. We are also not above second-hand or hand-me-downs.
  • Think of using a credit card as a way to build credit, not to buy things you don’t have money for.
  • Pay everything off every month. Don’t charge more than you can pay for.
  • I think kids today have a sense of entitlement. They want name brands, the latest gadgets, to grow up way too fast. As parents, it is up to us to set limited whether they like it or not. If we live within our means, and teach them that it is acceptable and wise, we are setting a great example.
  • Just don’t get a credit card. My dad says if you can’t afford it at the beginning of the month, you surely will not be able to afford it at the end of the month. Cash is king.

Pamme Boutselis is a N.H.-based freelance writer, a content director at Southern New Hampshire University and a serial volunteer. She blogs regularly at Along the Way. Follow her on Twitter @pammeb.

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