Battling Debt: From Big Challenges Come Big Changes

Penny in Arkansas has read more books than she can remember about how to manage her money and get out of debt. None of them did much good. But as she talked about Jean Chatzky’s Debt Diet, tears started rolling down her face.

“Aw, now I’m crying about it,” said Penny, 52. “I read and read, but I don’t comprehend a lot of it, until now.”

For Melissa in Massachusetts, doing the Debt Diet has been emotional too, but in a different way. She had a burst of euphoria in the beginning, when she and her husband used vacation time to cut down on daycare bills. But now that they have little vacation time left and her two children are back in daycare, the reality that she’s still four years away from being debt-free has been hard to take.

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“It’s been painful,” Melissa says. “We’ve made a lot of progress, but it’s been an emotional roller coaster.”

A family’s debt is a lot more than just checkbooks and monthly statements. We go into debt to buy big-ticket items—homes, cars, education, clothes, vacations. These things are more than just things; taken together, they come to define much of our lives. It’s no wonder that changing our attitude toward debt often triggers larger emotional changes, too.

“In our society, debt is shameful. It shouldn’t be, but it is,” says Chatzky, who’s best known as the Today Show’s consumer finance editor. “It’s hard to acknowledge that you have it.”

This summer, Chatzky and Credit.com joined together to offer five consumers a very rare opportunity: Free participation in the Debt Diet (which normally costs $49.95 for one year of access), plus regular communication with Chatzky about how to incorporate the program’s lessons into their daily lives. One person chosen to be part of the challenge never showed up. Another tried participating for a few weeks, but then dropped out.

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For the three who stuck with it, however, the Debt Diet has been a revolutionary experience.

“It makes me so angry that I didn’t get know all this years ago,” Penny says. “But I thank God it happened now.”

The process of working together didn’t just change the three consumers involved. It also helped Chatzky see the strengths and weaknesses of her own program, and now she’s considering some big changes.

“I’ve been talking to one of our distributors about building a coaching program” into the Debt Diet, Chatzky says. “I think you need to find somebody in your life to talk about this process as you’re going through it.”

Mindfulness: The Key to Success

The Debt Diet has all kinds of tools to help people reduce their debts. And during the Debt Diet Challenge, participants got to talk regularly with Chatzky, one of the nation’s foremost authorities on debt and consumer finance.

But all three women who stuck with the program since July said the most useful tool was also the simplest: A document where they record every single thing they buy. Writing down every purchase forced them to actually pay attention to where their money was going, including all the silly little things they buy without paying attention.

“It’s a pattern of mindlessness,” says Chris, 57, who lives in Iowa. “It’s so easy to spend money without thinking about it.”

Melissa agrees.

“In your mind it’s like, ‘I’m not spending that much money,'” she says. “And then you add it up, and you see that actually you are.”

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Keeping a daily record of everything you buy isn’t hard, Chatzky says. Yet it’s one of the major stumbling blocks for many people trying to rein in debt. Why?

“It’s tedious,” Chatzky says. “There’s no rocket science, there’s no magic. But you have to do it consistently in order for it to work.”

After four months, Chris is the only participant who says she records every purchase every day. For her, the payoff is obvious.

“I have a lot of no-spend days now,” she says. “I don’t think I ever had those before, unless I was sick or hospitalized.”

Penny and Melissa both admit that they haven’t been as consistent. For Melissa the issue is time, as she tries to juggle a job, a marriage and two children. For Penny, it’s a simple matter of staying focused.

“I got away from it a little lately,” she says.

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For all three women, tracking their actual expenses helped them ferret out places where they’re spending money on things that don’t actually matter to them. Chris stopped buying DVDs and started renting them instead. Melissa ditched her subscriptions to Netflix and Weight Watchers, and stopped drinking so much coffee.

The small change that made the biggest difference? All three women cut way back on how often they eat in restaurants. By looking at their daily expenses, they were able to see how even seemingly inexpensive fast food was costing them lots of money because they were going more often than they realized.

“Tracking my daily expenses showed me we were eating out a lot, probably five times a week,” Penny says.  “It was nothing fancy, but it was costing about $20 a meal. So we cut back.”

It’s More Than Money »

Image © Mmulligan | Dreamstime.com

It’s More Than Money

For all three participants, taking steps to reduce debt had important, unexpected impacts on their families. After Penny learned she’d won a chance to participate in the Debt Diet Challenge, it took her a week to work up the courage to tell her husband. An avid hunter, he had a habit of coming home with new guns and hunting bows, some of which he bought on credit.

“I thought he’d be mad because it would mean we’d have to account for our money,” Penny says. “He feels he worked for 36 years, and if he wants to buy something he should be able to.”

But that mindset had thoroughly trashed the couple’s credit ratings, even though they were earning over $80,000 a year before Penny’s husband retired a few years ago. Now they find themselves in a tight spot. They bought a house and 16 acres of land on a five-year mortgage that has a big balloon payment coming in 2013. They hope to refinance, but with credit scores hovering around 600, their chances seemed of finding a better loan seemed to be dwindling.

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“My main concern is that I don’t want to be homeless,” Penny says. “I want to be able to live here the rest of my life.”

Instead of being mad, her husband agreed that the Debt Diet was a great opportunity. Now instead of buying guns on layaway, he consults with Penny, and helps her avoid spending money unnecessarily.

“It’s brought us closer because we talk about stuff beforehand,” Penny says.

The same ultimately became true for Melissa and her husband, though her process was much more tumultuous, she says. Both of them would criticize what they saw as the other’s needless spending, even as they continued to buy some of the things they wanted.

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“We fought more about money, especially in the beginning” of the challenge, Melissa says. “We would fight about him spending any money at all. I had to back off, because that’s not realistic.”

The transition was smoother for Chris, maybe because she isn’t married. But her new commitment to reducing debt did change some of her family dynamics, too. Her daughter, who attends Iowa State University, had grown accustomed to getting a little help with her finances now and then.

“She had to learn that she couldn’t keep coming home and grabbing cash,” Chris says.

Why Charge it When You Can Pay Cash?

One other thing that all three Debt Diet Challenge participants shared was the habit of reaching for their credit cards or asking for bank loans instead of paying with cash. During the first week of the challenge, Chris was hit with a double-whammy: Her home air conditioner died, and the city informed her she needed to fix her crumbling sidewalk. One contractor estimated the sidewalk repair would cost $2,500.

So she improvised. She used a combination of gift cards and cash to buy a small window A/C unit. She shopped around until she got a bid for $830 to repair her sidewalk, and now she’s saving money from a few months’ worth of paychecks so she can pay the contractor in cash.

“Before, I would have just charged it on a card, and try not to look at all the interest I’d be paying,” Chris says.

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Penny had a number of credit cards, most with low balances but high interest rates, including one with an APR of 28 percent. She had been making more than the minimum payment every month, but never enough to pay any of them off, and she kept using each one to rack up new expenses.

With Chatzky’s advice, she dropped her payments down to the minimum on most of her cards so that she could concentrate on paying off the one with 28-percent interest entirely. The card had a $1,900 balance at the beginning of the Debt Diet Challenge, and by October she paid it off. She followed that by paying off the entire balance on a card with a 24-percent APR, and next week she’ll pay off a third card, which has an interest rate of 22 percent.

She also removed the cards from her purse.

“It was scared to do that at first, but now it works,” Penny says.

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Melissa hasn’t been able to dump any of her cards yet. Her balances are too high to risk consolidating them into a new, zero-interest card, since she might not be able to pay them off before the interest-free teaser period ends. So she’s focusing on paying them down, starting with the one with a 15.9-perent interest rate.

“You really have to look at everything and study it,” Melissa says.

Time for Some Big Changes? »

Time for Some Big Changes?

Going through the Debt Diet has prompted some of the women involved to consider making big changes to their lives that they never would have thought of before. A major reason why Melissa hasn’t been able to pay down her debt as quickly as she would like is because she and her husband pay an expensive mortgage and high property taxes to live in a town with some of the best public schools in the Boston area.

“I’ve been saying this whole time: Good schools, period, end of discussion. I don’t care how much we pay,” Melissa says.

But looking at her expenses and debts every day is making her reconsider.

“I dunno, maybe we don’t need to live here,” she says. “We could have a better house and lower mortgage somewhere else with decent schools.”

[Article: To Save or Pay Down Debt? Budget for Both]

Penny and her husband own an RV that they pull behind her husband’s pickup truck. But the truck has required many expensive repairs this year, and pulling the RV only increases the wear and tear, so they’re thinking about replacing the RV with one they can drive instead of pull.

If they were still spending money willy-nilly, they might have already traded up to the better RV. But now that she sees where her money is going, and knows how much she must improve her credit score to avoid losing their house, Penny is putting off any major purchases.

“For now, the camper is just a thought,” she says. The Debt Diet “has changed my whole way of thinking.”

The experience of working closely with three people for over 15 weeks had an effect on Chatzky, too. She co-created the Debt Diet along with Pro-Change Systems, a company in Rhode Island that uses a blend of behavior modification theories and practices to help people do everything from quit smoking to maintain an exercise regimen.

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The model works, especially for people who are ready to meet the challenge of debt head-on, Chatzky says. But even people who are committed to the program, people like Chris, Melissa and Penny, benefited greatly from the simple act of calling Chatzky on the phone and talking about their challenges.

Which has Chatzky wondering about ways to add one-on-one coaching to the Debt Diet.

“My big revelation was the importance of the calls,” Chatzky says. I built the diet to be a stand-alone. But I think you need to find somebody in your life to talk about this process as you’re going through it.”

As Chatzky figures out how to build some kind of coaching program into the Debt Diet, the three challenge participants are able to find some interaction with others by writing blog posts on Credit.com about their progress and struggles.

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Like interacting with someone face-to-face or over the phone, writing the blog posts has occasionally been difficult. But each participant said it also helped to hold herself accountable.

“I found the blogging challenging because I think I’m a positive person, and sometimes blogging I’d say, ‘I’m depressing myself, who wants to read this stuff?'” Melissa says. “But actually the blogging helped me stay focused.”

So be sure to stay tuned as Chris, Penny and Melissa continue to write about their experiences of paying down their debts. And feel free to write into the comment section with your own thoughts about the difficulties, fun and satisfaction you’re having paying off your own debt.