How Are They Doing?
It's been three months since I began working with four people -- two single women and one couple -- to help them achieve their financial New Year's resolutions of cutting debt and boosting savings.
So far, the participants in the Color of Money Challenge have progressed nicely. Carl and Tania Chandler, a married couple from Maryland who had $14,400 in credit card debt and no savings, have paid off two of their accounts and reduced their debt to about $12,000. The Chandlers have saved $3,200 by putting aside some of their tax refund and automatically depositing $50 into a savings account every time they get paid.
Carlesa A. Washington, a recent college graduate living in the District, paid off two delinquent accounts totaling $1,565. She's well on her way to paying off a credit card balance of about $4,800.
"At times, I catch myself wanting to buy things, but I've gotten into the habit of really analyzing my purchases," Washington said. "I ask myself, is this purchase absolutely necessary?"
Annie Schleicher, a single, 35-year-old associate editor for a news Web site, stopped using her one credit card and is paying $200 a month toward the $4,500 balance.
"It's nice to see my statement, which says no activity this cycle," the District resident said.
However, the challengers have struggled with one major thing: budgeting. The hardest part of this challenge is getting them all to realize that they have to delay the extras -- their wants -- until they're out of debt. To do that, they have to establish a budget -- and stick to it.
All the challengers are watching what they spend. But it's not enough to track your spending. You have to follow your budget so you know when to stop spending.
"The importance of creating a budget and then keeping track of what you are spending comes down to a whole attitude change," says Susan C. Keating, president and chief executive of the National Foundation for Credit Counseling, which represents nonprofit credit-counseling organizations.
Because they haven't really kept to a budget, they've made a few missteps. Despite my pleas that Carl Chandler not buy a $600 Sony PlayStation 3, he purchased it anyway. The Chandlers also used part of their tax refund to buy family-room furniture they said they needed.
"But we paid cash for everything," Carl Chandler said. "I took on extra work to pay for it, and it's the only thing I wanted."
Without question, the Chandlers have made some sacrifices. They've cut their spending. They're saving. They meant well in making those purchases. But they need to discern between a need and a want. The couple had furniture in the family room -- they just didn't like it. All totaled, they spent about $3,000. It was money that could have been used to pay down their debt.