Last week we left off with Becky opening the credit card statements and being shocked at how much the minimum payments had increased following them buying Christmas presents for hers and Adam’s families. Let’s continue to see what happened with the surprise Christmas for Becky and Adam.
Becky picked up some overtime, as she was able, and Adam picked up a second job on the weekends to earn some extra money. They had to continue to do this for most of the year in order to keep up with the minimum payments for each of the credit cards. At one point, they realized that it was going to take them several years to pay the balances off, even with working a second job and overtime. Both of them became very discouraged at this revelation and from the effect of not being able to spend much time with each other because of working so much. They thought this was not the way a young married couple should live. But, there wasn’t much either of them could do to change the circumstances.
As the months moved on and the weather started getting better, thoughts of vacation and spending time with their friends started coming to mind for them. Unfortunately, because Adam worked on the weekends, they didn’t have much time to socialize with their family or friends. It got to the point where Becky’s mother started to complain that Adam was working too much and the two of them weren’t coming to visit them. Their friends began to stop asking them to get together because they had been told so many times the two of them couldn’t make it because either Adam had to work or Becky was working overtime.
When they started talking about vacation, they both realized they didn’t have any extra money to go away and charging it would only make their credit card bills go up again. That was something neither of them liked thinking about since they’ve both been working so much to pay them down. On the other hand, the thought of them not going on vacation was something neither of them wanted to do because they both enjoyed traveling and going to the mountains with his family and the beach with hers. This dilemma left both of them feeling very disappointed and frustrated.
When the time for the family vacations got closer, the only option they thought they had to was to charge the trips on their credit cards and continue working to pay down the balances when they got back. After all, they’ve been working most of the year already, so they thought they’d just continue working extra to pay the monthly payments.
They both enjoyed the the trips with their families and neither of them kept track of what they were charging during the trips. Just like after Christmas, they were not expecting their minimum payments to be so much when they got the bills the month after their trips. But, like they said before they went, they’d just keep working overtime and the second job to pay on them.
After the credit card bills arrived in November, they saw that they had made very little impact in their balances or the monthly payments for them. They also realized that in about 7 weeks it would be Christmas again. Both of them wondered how they were ever going to get caught up because they’d spent the past 11 months working to pay down their balances and reduce their minimum payments. What they hadn’t done was save anything for Christmas gifts this year. The only thing they saw they could do was charge the gifts again on their credit cards.
About a week later, they received an offer from their bank for a Holiday Loan. The interest rate was much lower than the credit cards and it had to be paid off within a year. This looked like the answer to their prayers. They filled out the application and submitted it. Unfortunately, because their credit card balances were as high as they were, their debt to income ratio was insufficient for them to qualify, even with Adam’s second job. Now they were right back where they started a week earlier.
Sadly, this is the cycle that so many people find themselves in today. Birthday’s, Weddings, Graduations, Retirements, Baby Showers, Christmas, and other events happen either every year or are you typically get notified about them in advanced. Birthdays and Christmas definitely happy every year and should not come as a surprise. Yet, a majority of people don’t plan ahead for them and save money to pay for the respective gifts. When this happens, many people resort to credit, like Becky and Adam did in our story. On top of that, too many people fail to realize the problem and don’t take measures to stop it from happening.
Since birthdays and Christmas happen annually, the wise person plans ahead for them by establishing a Sinking Fund so the money is there when the events occur. These Sinking Funds can not only be used for birthdays and Christmas, they can also be used for the other events that may occur during the upcoming year. With a little planning, you can break the cycle of using debt for predicable expenses and begin earning interest on your money instead of paying interest on what you put on credit. One other option, if it’s available, is layaway. Many stores have started providing this option again and it allows someone to pay a little each week on something so they don’t have to resort to using credit to buy it. Out of the two, the Sinking Fund is still the best option because it helps you establish good saving habits which will benefit you in many ways throughout your life.
One final thought, interest paid on debt is a penalty, interest earned on an investment is a reward. Which one would you prefer to experience?
I hope today’s blog was encouraging to you and provided information to help you and others better handle their financial matters. My purpose through these blogs is to inform the reader about money and financial issues so that we all can become better managers of our assets. If you like what you read, make sure to sign up so you can receive my weekly posts. The goal of Take Two Financial Coaching is to provide the necessary information to help families and individuals break the chains of debt, build lasting wealth, and become outrageously generous.
For those who are tired of being in the rat race or just want to better manage what they earn, I am available to have a Free 60 Minute Conversation to discuss your situation and how I can help you change it. Go to my calendar at https://ramseycoach.com/taketwofinancialcoaching to arrange a time that works for you. You can also email me at taketwofinancialcoaching@gmail.