By Erin Hueffner
‘Tis the season to rack up credit card debt. With a mortgage, car payments and student loans stacking up, extra holiday spending can tip personal debt over the edge of sustainability. You’ve probably seen the commercials offering viewers a lifeline: “Call now for a free debt consultation!” “Sick of getting creditor calls? Don’t pay them another DIME!” Rather than call that toll-free number, you can turn to some local experts for advice.
It’s not always easy (or pleasant) but taking a hard look in your financial mirror can be a place to start. “There are two ways to get out of a financial hole: one is to increase your income, and the other is to cut your spending,” says Kevin McKinley, financial planner and owner of McKinley Money LLC with offices in Eau Claire and Madison. “Pick up a sidehustle or part-time job to get ahold of that debt. Look at your expenses, where every single dollar is going every single month, and track it. Sometimes, people find out they’re spending $400 a month on going out to eat. You can cook at home, and then you can use that money to pay off part of your debt.”
“When women get into debt, it tends to be through circumstance,” says McKinley. “I see women who are single custodial parents having to take out home equity loans to make ends meet and then falling behind on payments—so it’s not always about poor financial decisions.”
Student loans are another major reason why people get into debt. The average Class of 2017 graduate has $39,400 in debt to repay, according to USA Today. And with interest rates on federal student loans set to rise for the second year in a row, it’s a real cause for concern. Those student loan payments can add up quickly—especially if a graduate can’t find a job that pays enough to keep pace.
“We see issues when people borrow money, go earn a degree, but then don’t have gainful employment to bring in the income to pay the debt,” says McKinley. “We’re told from birth that education is good, and it leads to a better lifestyle, and that’s true. But if you’re not earning enough to pay the debt off, then it keeps piling up, and it’s hard to manage.”
But there are smart ways to deal with student loans after graduation. Pay attention to your interest rates and your repayment terms to see if they can be changed.
“The 10-year payment plan is considered the standard, but those payments can be quite high,” says Amy Crowe, financial education specialist at Summit Credit Union. “So it’s important for anyone with student loan debt to see if they can change their payments to an income-based payment plan. This would lower their payment based on the income they make.”
And then there’s the gender wage gap. According to the U.S. Bureau of Labor Statistics, the median weekly earnings for women working full time was $780 in the second quarter of 2018. That’s just 81.3 percent of what men earned during the same time period ($959 per week). So it’s tougher for women to get ahead.
It can be tempting to open a store credit card to stretch a tight budget. “Women are looking for the deal,” says Crowe. “We’re managing the household and trying to stretch the dollars. And so sometimes it’s tempting to open store credit cards to get a special deal. But when you get 20 percent off for opening a credit card, and then you don’t pay off your balance, and you have a 21 percent interest rate, you’re not getting a deal at all.”
The good news is, there are tried-and-true techniques for paying down debt, even on a tight budget. Renae Sigall, branch manager at UW Credit Union, recommends a technique she calls “the snowball effect”. “Let’s say you have $500 to pay down your debt each month,” she says. “You have five credit cards, and they all have a $20 minimum payment. Four of your cards get the $20 minimum, and the rest goes to the one with the highest interest. Once that’s paid down, you move to the next.”
Another strategy is to create little pools of money to draw from for recurring expenses.
“You can open separate savings accounts for bills you know are coming— like vacations, kids’ athletic fees and Christmas shopping,” says Crowe. “You put a little in there each month, and then draw from your savings instead of charging it and adding to your debt.”
You don’t have to figure it all out alone. “Get some advice on how to strategically pay off the debt,” says Crowe. “Go to your financial institution, a trusted source that knows you and your situation. They’ll work with you on your debt payments.”