I admit there have been times when I opened a credit card bill and started daydreaming about winning big in the lottery, or having a rich uncle suddenly appear on my doorstep with a huge check in hand, or hoping that ancient artifacts or an oil well would be found in my backyard that would net me a tidy sum.  Yeah, not very realistic right?

But I have never entertained the idea of becoming a fugitive or going to jail to get rid of bills, but apparently things like that aren’t all that improbable for some people.

Here’s my case in point.  Last week I overheard 2 girls talking about tax refunds and tickets (speeding tickets not concert tickets) while they were in an adjoining dressing room at a clothing store and they were talking loud.  I think everyone in the entire store could hear them so I don’t feel guilty about listening to them.  I would have had to start singing to not hear them and believe me, nobody wants to hear me sing.

Anyway, one of the girls (I’ll call her girl #1) said she was hoping to receive her tax refund of $400 the next day.

The other girl (girl #2) suggested she use some of it to buy the clothes she was trying on and liked.

Girl #1 said she needed all of it to pay for her tickets.

Girl #2 suggested asking for a payment plan so the clothes could still be purchased

Girl #1 said, “No, I’m going to pay them while I have the money.”  (smart girl).

Girl #2 then said “Why not just sit in jail.  They’ll take $30 a day off your tickets.”

Girl #1 had the good sense to not answer – well maybe there was an eye roll or gesture I couldn’t see.

Okay, is it just me or is it insane to even entertain the idea of sitting in jail for 24 hours just to earn $30 off a ticket from the police?  I’m on a tight budget, just like a lot of other people, but there’s a whole lot of other stuff I would give up before I’d give up my freedom!

What about you?  What would you be willing to do (or have done) to get rid of a bill without paying it?

Today is a continuance of my experience from over the weekend but is about what I overheard instead of what happened to me.  It’s kind of in the vein of going to a great sale and thinking  “the more I spend the more I’ll save!”

Companies that offer credit, especially credit card companies, are no dummies when it comes to knowing how people will act when they are offered a special discount or reward for using their credit card (or line of credit or whatever form that credit offering is in).  They know people like to get a great deal and save money, theoretically anyway because the truth is they are not trying to save you money but are instead trying to get as much of your money as possible.

And we as consumers fall for their tricks.  I have many many times.  I have bought way more than I planned at stores because I was clutching a coupon that gave me an  extra 30% off everything I purchased; or I got double reward points for every dollar I spent at the grocery store so I stocked up on groceries (and later threw a lot of the food away because it spoiled before we got it eaten); or I got a great free “gift” of trial size cosmetics that are still sitting in my bathroom drawer for a mere $40 purchase of some overpriced cream or lotion.  And those are just a few examples of the stupid stuff I’ve done.

And I now know it’s not just me whose mind turns to mush when the thought of saving extra money is mentioned.  Here’s my case in point:

Last weekend while shopping I was waiting at the checkout with a sales manager while she was trying to find the workout pants I wanted in my size.  It was slow in the store so while we were waiting she started telling the clerks at the register about this lady who had “backwards” thinking.

The sales manager had someone come into the store with a scratch off discount coupon that she wanted scratched off  so she could see what her discount was (it was void if store personnel didn’t scratch it off – just another way to get people to come into the store).  She said she was hoping it was only for 15% (some were 15%; some were 20%; and some were 30%) because she didn’t really need anything; but if it was 30% then she was going to have to shop and use it because she couldn’t pass up such a good deal (exactly what the store wants people to do!).

Of course her coupon was 30% off so she was sad because she was going to have to come back and shop.  The sales manager said that was “backwards” thinking because the lady who got the 30% off coupon should have been happy.

Sure, she should have been happy – BUT ONLY IF SHE NEEDED SOMETHING, COULD AFFORD IT, AND COULD PAY IT OFF BEFORE INTEREST CHARGES ACCUMULATED!  And, only if she is responsible with credit (which I doubt since she just “had” to use a 30% off coupon but wouldn’t have bought anything if she was only going to get an additional 15% off).

How stupid is it to spend money on stuff you don’t need just to save some money?

For a long time I would have said it’s not stupid at all because I would have been just like that lady if I had gotten a 30% off coupon but didn’t really need anything because I would have felt obligated to find something to buy because there was no way I was going to let a great deal like that slip through my fingers.  Yep, smart thinking like that got me tens of thousands of dollars worth of credit card debt.

Avoid the traps that try to part you with money you don’t need to spend or want to spend.  A good deal isn’t a good deal if you don’t need or can’t afford it.

Write that down and carry it in your wallet if you need to so that you have to look at it every time you open it up to pull out a credit card:  “A good deal isn’t a good deal if you don’t need it or can’t afford it.”

I’m not picking on certain stores even though I’m going to “name names.”  These are just my personal examples.  I want to explain why I think they are so horrible because I discovered that even my husband, who absolutely hates the use of credit cards, was confused about my refusal to take advantage of a discount I could have gotten if I would have been willing to put my purchase on a store issued credit card instead of paying cash when I went shopping last weekend.

I was at JC Penney and was purchasing a shirt for myself (I’ve been losing weight and all my spring/summer clothes are too big – yippee! – but that’s a story for a different blog).  The store had scratch off cards with a discount of 15%, 20% or 30% but the catch was the purchase had to be put on their store-issued credit card in order to be able to get that extra discount.

The cashier was doing her job (I know they are trained to ask people if they want to use their store credit card because that’s an important source of revenue for many stores) and asked me if I wanted to put my $17.99 purchase on my JC Penney card.  I politely said “no.”

She then asked if I had a JC Penney card.

I said “yes” because I technically do since I’ve never received a notice saying my account had been closed, but I did physically cut my card into several pieces a couple of years ago.  She then pointed out (nicely) how I could get 15%, 20% or 30% off my purchase if I used my store credit card.

I then said I didn’t have my card with me which was the wrong answer because she then very helpfully offered to look my credit card number up for me (yet another example of how my mother was right when she said “it doesn’t pay to lie” which was not the thought I wanted running through my head at that particular moment).  That’s when I had to come clean and say I don’t use my credit cards anymore and that I had cut mine up.  I thought that would shut her up.

It didn’t.

Then she told me how I could put the purchase on my store credit card and then immediately use the cash in my hand to pay it off.  I declined one more time and she finally let it go (probably because there were now several people in line behind me and this small transaction was starting to take up a lot of time); although I saw the look of “I can’t believe you are refusing to save money” look on her face.  I managed to not slink out of the store with my head down to avoid the looks of disbelief on the faces of the other shoppers.

I then went to Kohls where I found a really cute pair of workout pants on sale (I gotta say that I’ve been really motivated to lose weight because I know that growing out of my clothes in a “they’re way too big” way is the only way I can justify buying new ones right now).  I went through practically the same identical conversation with the sales clerk there because, surprise, they were having the same identical promotion with the scratch off cards that revealed a 15%, 20% or 30% discount (and not that you probably care but I’m pretty sure Kohls came up with that idea first since I’ve taken advantage of it many more times than I want to admit).

When I got home I was proud of myself for sticking to our cash only plan and resisting the temptation of the discount I could have gotten by using store credit cards.  I completely expected my husband to feel the same way when I proudly told my story; but instead I nearly fell over in shock when he said, “Why didn’t you use the store credit cards and then pay it off right away? You could have saved at least $7.”

After I recovered from the shock and after asking him if that’s really what he said (at that point I was sure I had been hallucinating), I realized that he might not be the only one that doesn’t understand why giving into that temptation is bad.

There’s 2 reasons:

1) Sometimes those transactions aren’t instantly posted on to your account (computers get tired and slow too).  There may be a 10, 20, or 30 minute (or more) delay, meaning you either have to hang around the store and wait to pay it off; come back another day (a waste of time and gasoline); or wait for the bill to come in the mail which means you then have purchased something on credit which is not a good thing if you’ve banned the use of plastic from your life.

2) A person’s mindset changes – at least mine does.  Let’s say I was lucky and got a 30% scratch off discount card when I was at Kohls.  In my case it would have meant an additional savings of $9.12.  My mind would have instantly gone into the “now I can spend more because I just saved $9? mode of thinking.  Chances are very high that I would have decided to wait to check out and went and spent that $9 savings on socks or underwear or a cute candle (who knows what I would have locked my eyes on to).

I wouldn’t have purchased anything else I needed (that I could afford) because I was already buying what I needed (and could afford).  Plus I probably would have bought more stuff because I had a 30% off coupon and that was a discount in addition to any discounts I would have already gotten due to sale or clearance prices!  (writing that practically made me hyperventilate because who doesn’t love a great deal and I missed out on it! – see how bad I am?)

I can’t trust myself with credit cards and if you’re like me ( I know there are others out there who are – you may or may not have admitted it yet), the savings is not worth the risk of buying way too much stuff all in the name of that “great deal.”

I first gave my husband the “there is sometimes a delay in the posting to your account” scenario about why I declined the discount which he seemed to understand, but then he then said, “Oh, then it was a matter of deciding if waiting around is worth your time and you decided it wasn’t.”

No! No! No!  Well, yes, but that’s not the only reason and not the most important one.

That’s when I had to explain the mindset change and the “temptation” factor which I know he doesn’t truly understand since he’s never ever had that problem, but he was smart enough to know that I was telling the truth because he’s witnessed my overspending for no apparent reason many times and has innocently asked why I bought something I didn’t need when I came home and showed off all the great deals I got.  He probably can’t remember how many times I said in a “Duh” way, “I bought it because it was really cute and really cheap!”

That’s why I think store issued credit cards with their great deals are evil and should be avoided.  Stores do it for one reason and one reason only and that’s because it MAKES THEM MONEY!  A lot of people don’t pay their purchases off before interest charges accumulate which is a win-win situation for the store.  They got you to buy their products and now they get to charge you interest for the privilege of buying from them.

With economic times being hard for retail stores, the revenue they earn from interest on their credit cards is more important than ever to them.  That’s why stores push the use of their credit cards and why cashiers often get bonuses or rewards for every person they sign up for a store issued credit card.

I’m not trying to single out JC Penney and Kohls.  There are plenty of other retail stores that offer deals to get people to use their credit cards.  Kohls and JC Penney are 2 of my favorite stores and I’ll continue to shop at them; but I’ll be the one paying cash when almost everyone else is handing over their credit card during one of those great “use your store credit card and get an extra discount promotions.”

Keeping a spending diary was a big eye-opener for my husband and myself.  Yes, it’s a huge pain in the arse to write down every penny you’re spending but it’s a vital step in seeing where money is going and also is an invaluable tool when setting up a budget.

I wasn’t too keen on the idea of keeping a spending diary when we were deciding it was time to get serious about getting out of debt.  I actually refused to do it at first because, as I told my husband, “You’re just going to use it as a way to criticize and judge every penny I spend” and there was no way I was signing up for that kind of misery.

So we made a deal.  There could be absolutely no judging or being critical about what was being spent.  The spending diary was a “fact finding” mission only.  But, just to be sure my husband wasn’t tempted to peek and say something negative to me, I kept my spending diary (just a cheap little notebook) with me at all times and never left it laying where he could easily pick it up and look at it (I love him but he’s just as prone to temptation as the next person!).

We decided to track our spending for a month because my husband and I are both paid monthly.  You don’t have to do it for a month if you don’t want to – even a week will help – but I think doing it for a month is much better because it gives a better overall picture of spending.

What did we find out in that month?  The biggest shock was our food and restaurant expenditures.  It was, by far, our largest spending category – almost $800 on restaurants alone!  And it wasn’t from going out every weekend to nice restaurants with white tablecloths and cloth napkins.  It was from being lazy and not wanting to cook 3 or 4 nights a week and going out to grab a bite instead or picking something up on the way home; or not feeling like packing a lunch and running out for lunch instead.

We also had a lot of what we labeled as “miscellaneous” spending – things that didn’t fit into our categories of: groceries, restaurants, Montana (not the state – our dog’s name; yes she got her own category.  She has to eat too); clothing; toiletries (toothpaste, shampoo, haircuts, etc.), entertainment (didn’t include restaurants but did include going to see movies, bowling, and class fees for crafts classes I take), cleaning supplies, and gifts (Christmas, birthday, wedding, anniversary and any other presents along with cards and wrapping paper).

We created a miscellaneous category because it’s hard to categorize some things like batteries, light bulbs, photo developing, ink and paper for our printer, parts to fix the leaky sink, potting soil, charcoal for the grill, a donation to a charity, a magazine, gym fee etc.  We thought about having a household category but decided against it because not everything I just mentioned fit into a household category so we still needed the miscellaneous category and because we wanted to have as few categories as possible so keeping track of a budget later on wouldn’t be so cumbersome.

We didn’t track our gasoline expense, mortgage, insurance, utilities, or credit card payments in the “spending diary” notebooks we used.  Those bills we were either paying online, paying with a debit card, or writing out a check so we already had a history of exactly how much we were spending on each of those things.

We also didn’t create a budget before our “spending diary” tracking.  We wanted to see where our money was going because it felt like it was flying out of our pockets.  I remember looking in my wallet a lot of times and wondering where all my money had gone.  That meant we spent like normal during our tracking period kinda.  After the month was up and my husband and I sat down to see how much we had spent and what we had spent it on we both admitted there were things we didn’t buy because we didn’t want to have to write it down (and no it wasn’t because we wanted to buy porn! – at least I didn’t).  For example, I love to buy books and magazines because I really enjoy reading.  But I never realized how much I was spending on them.  Once I started writing it down I started to become alarmed at how much money I was forking over for that reading material and by the end of the month I was already willingly cutting myself back.

My husband’s only shock from his spending journal was the amount of money he fed the vending machines at work for bottled water, soda, chips and candy bars. Hitting the vending machine for a beverage and snack a couple times a day doesn’t seem harmless (it’s just some quarters and dollar bills, right?) but added up over the course of a month it came to close to $100 for my husband and all he had to show for it was a few extra pounds on the scale.

Once we had our month’s worth of spending in front of us in black and white it was easy to see why we always had more month than money and why our credit cards got a major workout.

We were to the point of knowing how much debt we had and how much money we were spending.  The next step we did in starting to get out of debt was set up a budget.  That will be the next post in my “How To Get Out Of Debt Series.”

So do yourself a favor and keep a spending diary.  We wrote our spending in small notebooks we got 2 for a $1, but you can use whatever you want whether it’s a notebook, plain paper, your PDA, or the back of napkins.  How you keep track of the spending information isn’t important; doing it is.

Remember, you will only need to do this one time, whether it’s for a week, 2 weeks, or a month.  Then you’ll be ready to set up your budget.

Don’t wait any longer.  Start today!

Just so you’re prepared it may be agonizing slow…like watching paint dry on a humid day.

But before you can start getting rid of it you have to know how much you owe.

That’s step 2 in getting out of debt.  Most people who have a lot of debt don’t know how much they owe and don’t want to know because writing it down and seeing it in print will literally make them feel ill (as in “I’m going to puke all over that piece of paper right now” – gross but that was exactly how I felt).

I used to live in a constant state of denial and avoidance about my bills.  I wouldn’t open my credit card statements and did my best to be as far away from the house as possible when my husband was paying bills because I didn’t want to face him because I knew he would be justifiably angry when he saw them.  I would even sometimes pretend I was really sick so my husband would feel too guilty to yell at me.

My favorite response though was to cry and promise to not do it anymore (a promise I knew deep down inside that I had no intention of keeping).  I did some pretty awful things to avoid talking about the debt I was piling up.  It was irresponsible, juvenile, and a completely rotten way to treat my husband.

When I finally sat down with my husband and wrote down every penny of debt we had, and then added it up, I truly did literally start to feel ill.

But in order to pay off that ugly debt a person has to know how much there is.

So grab a pencil and piece of paper, and then go get all your bills from wherever you have shoved them so you didn’t have to look at them.  Open each bill and on that piece of paper write:

- The name of each creditor that you owe money to

- Total amount owed

- Minimum Payment

- Due Date

If you want you can also write down the interest rate of each bill.

Then add up all your minimum payments.  That’s the bare minimum you need each month to start getting rid of the debt.  But you’ll need to pay more than the minimum if you want to get the debt paid off in a reasonable amount of time.

To get enough money to pay those minimum payments plus as much extra as possible, do whatever you can to cut expenses and increaase your earnings.  It’s also a great time to sell anything you don’t need and to immediately use the proceeds to help pay a bill (not to go shopping for more stuff).  Sell whatever you can and be like Dave Ramsey says, “Sell everything but the kids.”

In step 3 I’ll talk about that 4 letter word – budget.  (Yes I can count.  Yes I know it’s more than 4 letters long.  But mentioning the word “budget” to some people causes a look of pain so severe to cross their face I wonder if I’ve just cussed them out without realizing it.)

Are you saying “Duh?”

A few years ago I would have.  I was in debt and wanted to get out of debt – or so I said.  I didn’t want the debt I had, but I wasn’t willing to do anything about it.

All I did was pay it lip service.

I hated the credit card bills and tearfully promised my husband nearly every month that I would stop using credit cards and would stop overspending.

But then I would be at a store and see a “great deal” on a pair of sneakers that I justified buying because they would motivate me to get out and walk more often because my feet would be comfortable.

Or…I saw “buy one get one free” on down pillows and I always wanted down pillows and they would help me sleep better and prevent me from getting a sore neck.

Or….I saw the cutest shirt on clearance ( marked down 90% to only $5!) and I couldn’t pass up such a great deal.

Or…..I would see a present that I was sure one of my kids would love for Christmas (it would only be March) and it was on sale so I would buy it and then be unable to wait to give it them so I gave it to them early (really early, like the next week – because they deserved a treat, right?).  Then at Christmas I still spent the same amount on them that I always did because that present I gave them early really hadn’t been a Christmas present.

Do you get where I’m going with this?  I was great at coming up with reasons why I just had to buy one more thing with my credit card…….in a never ending cycle of promising to stop spending and then going out and doing it anyway.

I said I wanted to get out of debt but my actions spoke a whole lot louder than my words.

Stopping the cycle of overspending and paying off debt is hard.  A person has to be willing to work very hard, make sacrifices, and go without things they want, and often postpone purchasing needed items.

My husband and I have cut our debt in half in the last 2 1/2 years which feels great and makes me proud of myself for finally taking responsibility for myself.

But it sure hasn’t been easy.  I still find myself in a section of the department store I have no need to be in and picking up things that I really want; only to have walk back to the shelf and replace the items after I  regain control of myself and shake off that “gotta have it mindset” I get in, and remember that I want to get out of debt more than I want that pretty, shiny, bright new item.

To be successful at stopping the cycle of overspending and getting out of debt requires intense concentration, a lot of personal fortitude and tons of determination.

I’m not trying to talk anyone out of making the effort to get out of debt.  I hope everyone who is reading this and who has debt will work on paying it off.  It’s just that I think a lot of experts downplay how hard it is and say to “just do it.”  That’s all fine and great but “just doing it” isn’t always so easy.  A person has to truly be ready to do it and be aware that it may be the hardest thing they ever do.

The reward is truly worth it though.  Ask anyone who is debt free and they will tell you.  My brother and sister-in-law paid off the last of their debt in 2008.  They don’t owe anybody any money – not even on their house.  My sister-in-law said it’s a feeling that is really hard to describe and that she never realized how great of a feeling it is.  She said it’s a huge weight off her shoulders and makes her happier than she ever thought possible.

I’m so anxious to experience that feeling for myself….and I will.  You can too.

I’m a walking poster child for how to not manage money and handle credit.  I’ve been irresponsible most of my adult life with money but was lucky enough to always have someone bail me out of every financial mess I got into until 2 1/2 years ago when bankruptcy was not only “knocking on my door” but had come inside to stare me in the face.

I finally grew up, took responsibility for my actions, and started making changes.  Today, even though I still have debt, I no longer use credit cards, live on a budget, and bankruptcy is no longer a looming threat (it’s not even living in my zip code).

I’ve wondered what made such a complete mess-up when it came to money.   I could be a whiny baby and blame my parents but they tried to teach me how to be frugal and fiscally responsible and they weren’t people who just talked the talk.  They took out a loan for 1 vehicle in their entire lives.  Every other one they paid for in cash.  They have never paid a single penny in interest on a credit card and never once as a kid did I have to wonder where my next meal was coming from.  If there were times when money was tight in our house I never knew it.  I always had what I needed and more.

Yet once I turned 18, got a job, and was on my own I started using credit cards like they were “free money” and always had an excuse of why I was always overspending.  And I mean it when I say had excuses and “good reasons.”  I was the queen of explaining away why I had spent money I didn’t have.

My husband worked hard and did his best to provide for us (and still does).   And to be an outsider looking at our family today you wouldn’t probably think we ever had money problems.  My husband and I managed to raise our kids with all of them having everything they needed and more (yes, they were spoiled with material things which was completely my fault and not my husband’s).  We built a new house along the way (over 3,000 square feet which was much more than we needed but I was always about bigger and better so my husband did his best to give it to me.)  I went back to school, got my bachelor’s degree once my kids got into high school and then found a job that I enjoyed.

Then, 4 years ago, even though  I still didn’t have my spending under control we were still financially stable enough that I could quit my job to be at home and take care of my Mom who had gotten seriously ill (I’m the only living child and was traveling extensively for my job so I felt the need to be closer to home – and it’s something I have not regretted for one second).

Then, within the span of 2 years,  one of our children defaulted on student loans we had co-signed on to the tune of $20,000 thousand dollar, my husband’s work vehicle had to be replaced, a home business we had started and invested quite a bit of money into didn’t work out, our college daughter’s vehicle quit running and since she didn’t have any money we bought her another one, another one of our children experienced financial difficulties so we loaned/gave him several thousand dollars, and I still hadn’t stopped spending money like it was growing on a tree in our backyard.

On top of that we had a big mortgage payment for that big house I had to have.

Suddenly, instead of being able to pay all our bills each month (well, at least the minimum payments) we now had a whole lot of month left at the end of our money.

So we consolidated and took out a home equity loan.  It took a $75,000 loan to pay off our son’s student loans, pay for the 2 vehicles we had to buy, pay off the debts of our failed home business and pay off our credit cards.

You would think that at this point I would have gotten scared and would have stopped spending but I didn’t.  It took another $3,000 before my husband came to me and said we either had to make changes or declare bankruptcy and if we didn’t make changes right away we would no longer have a choice because bankruptcy would be our only option.

He gave me a book to read – one a co-worker had given him when he confided to her how worried he was about finances.  The book got me to open my eyes and realize what I had been doing.   (I’m not going to recommend you read it.  I’m going to tell you to read it.  It’s The Total Money Makeover by Dave Ramsey).

I finally agreed to sit down with my husband and face the amount of debt we had -close to $300,000 (including our mortgage) and to start making changes.

Today we still owe $160,000 on our mortgage and $26,300 on our home equity loan.  We have $0 credit card debt and $0 car loan debt.  In 2 1/2 years we’ve paid off $100,000 in debt.  By the end of 2009 we plan to have our home equity loan completely paid off and our mortgage under $150,000 despite my husband just receiving word yesterday at work that his compensation will be changing which will mean less income.

I’ve done some really stupid things – lots of them – and I have nobody to blame but myself.  But, I’ve also changed and have started doing a lot of things right.  And while I used to be a walking poster child for how to not manage money today it’s just the opposite.  Family and friends now ask for financial advice and tips because they know how much things have changed at our house.

Why have I told you all this?  Well, whether or not you wanted to hear my story, I wanted you to know that I’m not just some faceless person banging away on my computer telling you how to get out of debt without any real knowledge of how to do it.  No, I don’t have a degree in “finance” unless going to the “school of having to learn about managing money the hard way” counts.

I’m not a “financial expert” who has never experienced financial difficulties but yet pretends to know exactly how to do it (there are plenty of people out there like that).    I’ve been to the brink of financial disaster and am recovering from it.  There’s the saying of “what doesn’t kill you makes you stronger” and that definitely is how I feel about my debt.  I’ve faced it (one of the hardest things I’ve ever done) and have changed it.