When Paula Bliss divorced her husband six years ago, she hit the Dallas department stores to buy what amounted to a single-parent survival kit: work clothes, bed, sofa, toaster oven, vacuum cleaner. The purchases totaled $2,600, and her credit card payments added up to $100 per month– much more than the single mother of one could afford. Says Bliss, “It took me three years to pay off those debts.”
She’s not alone. The Consumer Federation of America estimates that some $374 billion in credit card balances were “revolved” at the end of 1996, meaning that the charges hadn’t been paid off and were incurring interest.
Although many of these charges stem from overspending, some of them occurred when people found themselves in a money crunch and used credit cards to bail out. If this problem plagues your budget, use some short-term planning to keep the plastic in your wallet.
Money in and money out
Use creativity to boost income and lower expenses. Think part-time jobs, yard sales, home-sharing, carpools, food budgets, and paper routes for the kids.
By averaging utility costs over one year, you can set aside money in low-use months to offset your bills in high-use months. See if your utility company will allow you to pay an average amount for each month of the year. Then you’ll always know the level of your monthly bill, and peak usage months won’t break your budget.
Clothing, medical, and dental
These costs usually occur on an irregular basis. Without the right amount of reserves, you’ll find yourself turning, once again, to credit. To avoid this, set aside an average amount for clothing, medical, and dental costs each month. Base the amount on how much you spent the year before and how much you expect to spend in the coming year.
Establish a vacation budget for the year and divide that amount by 12 to determine what you should save on a monthly basis.
If you’ve ever owned a dishwasher or clothes dryer that suddenly quit working, you probably got a shock when you went to the store and saw how much prices had increased since the last time you purchased one. Short-term planning–savings devoted to unforeseen financial crises–can help you avoid appliance sticker shock.
Because sudden repairs can catch you off guard, set aside something each month for car maintenance and replacement.
Getting out of debt
After your “emergency fund” contains at least a few hundred dollars, concentrate on paying off your smallest credit card debts. Then take the money you used to pay off the small ones and attack the larger ones. This process can take a long time, but it’s worth it.
Just ask Paula Bliss. Last April, her savings helped replace her 10-year-old Pontiac. “My emergency fund kept me away from credit cards,” she says. “God has used my savings to do things I never would have dreamed.”