Relationship Q&A: We Overspent in "Good" Times
Q. My husband and I have been wearing rose-colored glasses: During the last two years, when the market was booming, we felt flush. We bought a new house, a new car and charged our credit card to the max. We felt lucky, but now we realize that a lot of that wealth was on paper--and we're worried that we've taken on too much debt. We know we need to cut back, but where do we start?
Jean Sherman Chatzky, author of Talking Money: Everything You Need to Know About Your Finances and Your Future (Warner Business Books, 2000), answers:
A. These days, many people are in the same situation as you -- and the numbers bear that out. For one thing, credit-card debt is at a 20-year high. The good news is that it sounds as though you and your husband are on the same page psychologically. No one likes admitting that they're having money problems, least of all people who, by anyone's yardstick, appear to be doing quite nicely.
Right now, lowering your credit card debt must be your number one priority. You also need to take a hard look at how much money you have coming in, and where you want it to go. Think carefully about what you want, and listen to what your spouse says. Do you really want that luxury car, or would a smaller, less expensive model be just fine? Consider what you spend every day, too. Most of us hit the ATM on Monday, take out $100, and by Wednesday we haven't a clue what happened to it. This may mean you have to sit down and itemize -- right down to the latte -- what you buy each week. It may seem tedious, but it's the only way you'll get a handle on your spending habits.
Next, consolidate your credit cards. You need two credit cards, no more. One should be a general card that you put your everyday purchases on and pay off in full every month. Make sure you get some perk such as frequent flyer miles that you'll really use. For your second card, look for the lowest rate you can find. Use this card for any big purchases that you'll pay out over time. Cut up your department store credit cards -- you can't negotiate interest rates or a payment plan if you get into a bind. In time, as your debt decreases, you can begin to live within the budget you've created.
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