After Their Wedding, The Spending Hit Home

Kim and George Colon racked up a lot of debt after their marriage in August. (By Giuliana Nakashima -- The Washington Post)
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The plan: To say the least, there will be no honeymoon in Puerto Rico. And moving into another home, especially in the current housing market, is a very long-term goal. Most important, they need to reassess their budget. The basic housing allowance Kim gets from the Air Force nearly covers her mortgage, so I asked why the couple are in so much debt.

"We have been flying on a high-speed spending roller coaster ever since we wed," she said.

To dig themselves out of this hole, I've asked the Col¿ns to do a new budget and follow it strictly. They've tried to budget in the past but just didn't have the discipline.

I believe they are ready now.

"I'm just tired of owing money," George said, looking rather weary as we reviewed their finances.

They will start paying off the debt with the lowest balances. But with the interest ticking up on the tax debt, they also need to aggressively pay that down.

I also recommended that George sell his 2002 BMW Z3, which costs him $702 a month. The purchase price was a little more than $42,000. He already has a 2007 Ford Explorer Sport Trac, and Kim has her own car (which is paid for). The monthly payment for the sport-utility vehicle is $893. That payment is so high because George rolled into the $49,256 purchase price the $10,000 loan balance from a 2005 Mustang he traded in for the Explorer. That has put him upside down on that vehicle -- meaning he owes more than it's worth. It would be difficult to sell because he would have to come up with thousands of dollars in cash, which they don't have.

He could sell the BMW for enough to pay off the loan. At the very least, selling it would free them from that large payment, which could then be applied to their massive debt load.

He agreed to list the car for sale but is now wavering. He said he just felt in his heart that he couldn't do it.

As I tell all challengers, it's your life, but which do you want more, freedom or financial bondage?

Tough love: The Col¿ns can no longer use any credit at all.

This news was particularly tough for Kim, who likes to pay with plastic for the reward points.

"At what price are you earning those points?" I asked.

Sure, she may get some free airline tickets, but she has taken on more debt than she can handle. Again and again I tell people that studies show you spend more when you use credit, even if you pay off your balance every month. So those so-called reward points aren't really free at all.

I had Kim cut up the cards, including the American Express charge card. She hesitated at first.

"It's just hard," she said. "What am I going to do if an emergency happens? What if I need it for a car repair?"

I reached into my purse and pulled out a $20 bill. I handed it to Kim. I asked her to look at it, feel it. Far too many people have forgotten what's it's like to pay for what they want or need with cash. As I have told many people in the same predicament as the Col¿ns, a credit card shouldn't be your financial lifeline.