Financial Perspectives: Managing credit card debt [republished]

 Certified Financial Planner Jim Heisler is out of town this week. This installment of his column was first published in Summer 2011.

I have been meeting people, and hearing stories from family members, about the hard time many of their friends are having out there due to the bad job market. A common theme that keeps surfacing in many of these situations is the fact that people are carrying large amounts of credit card debt. Having a significant balance on a credit card may not seem like a big deal while you have steady incomes; however, when you lose that income, you can quickly get trapped under a mountain of debt.

If you are facing the same situation, and/or if things are tenuous with your current job, what should you do?

First, you need to take a hard look at where you are spending your money. Obviously, you have your core bills – mortgage, car payment, tuition (if you have kids), food, utilities, etc. Then you have your discretionary spending such as dining out (lunch at work or dinners out), entertainment, and coffee stops on the way to work. I count cable TV and cell phone for everyone as discretionary because you really do not need these things to function in your everyday life (unless, of course, you need it for your job).

It is amazing how over a 20-year period that cable TV and cell phones have become utilities. Now, if you have canceled your landline and use your cell phone as your home phone, then please ignore this comment. Many folks still have landlines and cell phones. In many families, I notice that all the kids over a certain age have phones. Everyone thinks it is only $10 more per month to add an extra line, but when you check your bills, you may find that it is actually more like $15 to $20 for each line (or more) once you add in all the extra government taxes, cost for additional minutes, etc. Some kids — my own included — have iPod Touches that have texting capabilities. So why then do we still need to pay for cell phones for each child? If you need to save money, consider designating one phone for use by the kids and you set the schedule for its use.

It is also routine for folks to have $100 to $175 in monthly bills for cable TV with all the pay channels plus Internet. If you are not making ends meet, this should be one of the first areas that you cut. If you want to watch movies, you can get them for $1 at DVD kiosks at many local stores and supermarkets. I did not think much of them at first, but they, in addition to mail-order DVD companies, have helped put Blockbuster out of business and dramatically lowered the cost of renting movies.

Using coupons may seem like a pain in the neck or uncool, but this is another area where you can save money. I was in line behind a woman today in a Northeast grocery store and she was buying 12 boxes of cereal. The cereal was on sale for $2 per box, which made the total purchase $24. She then had coupons that gave her $1 off the purchase of two boxes, which brought the price down to $18. She then pulled out a store coupon for $5 off her order, which dropped the price down to $13. The original price of the cereal was close to $4 per box. So, she saved $35 in one transaction just by using coupons.

I would encourage you take an inventory of what you purchase and see if you can find coupons in the Sunday paper or online. If you are planning a dinner out, take a look at You can purchase gift certificates for 40 percent to 50 percent off. I recently purchased a $20 gift certificate for $10 for a Center City restaurant. There are a number of Northeast restaurants that put their gift certificates on the site.

Now that I convinced you that you really need to think about how much money you are spending, let’s quickly touch on the cards themselves.

Store cards and cards issued by commercial banks generally have the highest interest rates (most in excess of 20 percent). Think about that for a minute. If you buy something on a card that already has a significant balance, meaning you are making just the minimum monthly payment, you could actually wind up paying $200 more (20 percent interest) for the item over one year.

Many credit unions offer cards with lower interest rates, as they do not have the same profit motivation as a for-profit bank. It could make sense for you to transfer your balance to one of these cards. Some folks like to bounce from card to card for low initial interest rates. If you are very efficient at managing your debt, this could work out for you, but in my observations, many of these companies make up for the lower initial interest rates by assessing significant charges for late payments as well as other unfriendly consumer policies.

Hopefully these suggestions will help you in some way. Have a great week!

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor.  Family Wealth Services, LLC and Cambridge are not affiliated.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC is located at 8275 Frankford Ave. (215-332-4968)

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security. These situations are hypothetical in nature and do not represent a specific client.


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