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Four People. One Year. A Lot Less Debt.

By Michelle Singletary
Sunday, December 23, 2007

As 2007 comes to a close, many people will resolve to get their lives straight in 2008.

They will promise to lose weight.

They will swear to spend more time with their families.

They will promise that this is the year they will get out of debt, save more and spend less.

Among adults who make New Year's resolutions, more than half (58 percent) make some sort of finance-related pledge, according to a new survey conducted by Harris Interactive for TD Ameritrade.

Saving more money is the most popular financial promise (69 percent), followed by paying off debt (57 percent) and reducing spending (46 percent).

It won't surprise anyone that the study also found that 51 percent of all money resolutions are abandoned within a month.

Why such a high failure rate?

Well, it's not always about the money. People lack discipline. They have a sense that they deserve to get new things. They also don't have someone to hold them accountable.

Last year about this time, I wanted to see if I could help four people -- two single women and one couple -- accomplish their New Year's resolutions to save more money and get out of credit card debt.

I'm happy to report that the Color of Money Challengers -- Carl and Tania Chandler, Carlesa A. Washington, and Annie Schleicher -- are heading into the 2008 with considerably less debt then they had at the beginning of the year.

Washington, 24, started the year off with $6,402 in debt. All her consumer credit accounts were in collection. The single D.C. resident had no budget. Because she lived at home and didn't pay rent, she spent recklessly.

Washington is now debt-free and an ardent saver.

She couldn't stop smiling over making that last debt payment. I'm not sure she actually believed it herself. The transformation from a young woman who didn't even know how much she owed to someone who now watches every penny she spends was amazing.

"I have no debt," she said, giggling. "I don't owe anyone anything. Not a dime."

By outward appearances, the Chandlers were doing just fine. Combined, they earn about $141,000. They own a beautiful single-family home in Maryland -- with a fixed interest rate on their mortgage.

However, an inside look at their finances showed something more troubling. They had $14,400 in credit card debt and no savings -- none. If they had the slightest disruption in income, they could not meet all their household expenses for even one month.

"We talk about doing better, but it's just that, talk," Tania wrote last year in asking to participate in the challenge.

Clearly, they were ready to change. As with all the challengers, I immediately had them complete the following tasks:

¿ First, face the truth. That means listing all debts, from smallest to largest. Turns out the Chandlers didn't owe as much as they thought.

¿ Write down all expenses. They had to pull out their checkbook, bill statements -- everything. You can't get real about your finances and begin to budget unless you are willing to acknowledge the numbers.

¿ Keep a spending journal. For at least the first month of the challenge, the participants all had to record every penny they spent. This is always an eye-opener. People are never fully aware of how much money they spend.

¿ Create a budget.

¿ Give up using credit for the entire year. All four challengers mostly complied.

Recently, the Chandlers had a credit relapse. Tania charged $600 in car repairs. She didn't have to use credit. The couple has been saving diligently to build up an emergency fund.

"I just didn't want to touch the savings," she said, proudly announcing they had gotten their emergency fund up to $4,000.

I told her to immediately pay off that bill. That's what the emergency savings fund is for.

The Chandlers don't just talk about doing better. They are doing better. They drastically cut their expenses. For example, they rarely eat out. They used to eat out several times a week.

In all, the couple reduced their credit card debt by 25 percent. That's a good percentage, considering that they don't have a lot of money left over after paying household expenses.

However, during the year, they used some of the proceeds of a $7,000 tax refund to buy about $3,000 worth of family-room furniture. And in spite of my vigorous objections, Carl purchased a $600 PlayStation 3 console. Had the couple taken that $3,600 and applied it to their credit cards, they would have reduced their debt load by 50 percent.

Still, they have nothing to be ashamed of. If they continue to follow the plan I laid out for them, they will get rid of the remaining credit card debt next year.

"If there is one word to describe what I got out of this challenge, it would be 'conscious,' " Carl Chandler said. "I think more about the future. I think more about what I'm spending. We aren't wandering around without a plan anymore."

Schleicher came close to getting rid of the $4,500 she had on one credit card. She paid off 82 percent of the debt. She's just two payments away from getting rid of that millstone. Schleicher would have paid it in full by year's end, but her 1992 Subaru Loyale had to be replaced.

When Schleicher, 36, also a District resident, wrote to me a year ago, she had no savings and was overspending, mostly on going out with friends. She said she was tired of living paycheck to paycheck.

"I want to make a change," Schleicher said. "I want to live up to my potential, financial and otherwise. I'm hoping that you can help me learn the tools to accomplish this."

She's got the tools now and uses them. She budgets. When her spending gets a little out of hand, she starts keeping a journal again. Schleicher has made saving a key part of her financial life. As with all the challengers, I asked her to have money automatically taken out of her paychecks. They all complied.

"I hope that my experience can show others that it is possible to make changes in their own financial lives," she said. "Part of being independent is living within your means, getting out of debt and having savings. While I'm not there yet, I believe I've made a wonderful set of first steps. And I feel empowered to keep going."

Research and reporting assistant Charity Brown contributed to this column.

¿ On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" and online athttp://www.npr.org.She also has a new personal finance call-in show that airs Sundays on XM Satellite Radio, Channel 169 "The Power," from 8 to 10 p.m.

¿ By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

¿ By e-mail:singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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