Tips for Paying Off Debt, Finding Cash for Savings

Juy 11, 2006 — -- Thank you for your interest in the "World News Tonight" spending series. Here is a selection of your questions on savings and debt that Olivia Mellan, author of "Overcoming Overspending: A Winning Plan for Spenders and their Partner," has answered.

Question: The art of budgeting, which we used to call balancing a checkbook, is undervalued when calculating one's financial security. Do you have any tips or hints that might make handling daily finances easier on the brain or more efficient time-wise? -- Jeremy Winter in Austin, Texas

Answer:I recommend you keep a spending diary (a small notebook) on hand with you and record all your expenses in there. Even better, leave space to write small notes about how you feel about what you're spending -- it will help you make good, conscious choices. Then, perhaps once a week or nightly (whatever works for you), put the expenditures in categories. If you have Quicken on your computer, that can help you put things in categories and track what you're spending.

After two or three months of this, you're ready to make a realistic budget (or spending and savings plan). Judy Lawrence's budget books are useful tools if you want a written source of how to make a good budget. Good luck!

Question: I'm a newlywed, and my husband and I did not discuss, in full detail, the debt we were bringing into the marriage. Now, a mere seven months into the marriage, I feel we're spiraling out of control. We're spending but not saving outside of our respective 401ks. The "small balance" on the credit card became a not-so-small balance after the wedding, and I've since leased a new $36K car. How can we dig ourselves out of this hole, pay the bills and save all at the same time? -- Danielle, Basking Ridge, N.J.

Answer: Choosing to save on weddings and car leasings is a good idea, but it's too late for that. The only way to dig yourself out of this hole is to pare way back and choose a less- lavish lifestyle for a while. Bringing lunch to work, taking very simple vacations, you name it. If either or both of you tend to overspend (I'm a recovering overspender myself), Mary Hunt's books, and her publication, the Cheapskate Monthly, is a good source for becoming more frugal. She used to be $100,000 in debt, and in getting out of the hole, she changed her life. Good luck!

Question: I am currently a senior in college and will have $33,000 in student loan debt and am worried about having to pay it off in the future. How can I get my debt paid off without putting a strain on my current and future expenses and living in debt forever? -- Cassandra in Bowling Green, Ohio

Answer: You're definitely not alone in facing this problem. One good way out of the student-loan hole is to look for a job after college where the employer will pay off part or all of your student loans. I hear that such jobs exist. You could ask around and research this. Barring that possibility, you need to be frugal and careful for a while, and make loan repayment part of your budget or spending plan. Good luck!

Question: I just graduated from New York University with an master's in fine arts, and while it's already paying off, owe about $45,000 in federal student loans. What's the best way to handle this kind of debt? I don't think anyone's ever told me how to start saving. What should people my age do with the little money they have? -- Stella, New York, N.Y.

Answer: As I told the previous young woman, finding a job where the employer will help pay off your student loans is a godsend. But barring that possibility, you need to be as careful and conscientious as you can to spend money on things that really matter; to put some money aside for savings as soon as you can; to use credit cards only if you can pay them off every month in full, and to be as creative as you can in enjoying pleasures that are free or relatively inexpensive. Amy Dacycyzyn's books like "The Tightwad Gazette " (she's extreme, but fun) might give you some ideas.

I know you can meet the challenge if you try!

Question: If you have a small credit card debt, say $1,400, that you are trying to pay off, is it better to just pay it in full out of your savings account and repay yourself, or pay it off at $200 a month? -- June, Corona, Calif.

Answer: It's better to pay it off quickly, but if it will totally deplete your savings account, you might want to leave some money there for emergencies, and for the symbolic good feeling of knowing you're capable of saving money. The high interest rates for most credit cards puts them in the "bad debt" category (not like mortgages, which are "good debts"). Good luck in becoming debt-free as soon as possible!

Question: How can I save? It seems as if I get loans to pay off other high-interest loans. Then I get loans to pay off credit cards. Then, once I pay off the credit card I am charging on the credit card again. How can I end this cycle, especially when there are so many things that I want? -- Melissa, El Paso, Texas

Answer: I feel for you. We live in an addictive culture where we are bombarded by ads that make us want things we never even thought about before we saw those ads. That much said, you sound like an overspender, like I was. You need to keep track of every penny you spend and how you feel about what you've spent. Consider finding a good Debtors Anonymous meeting in your area (debtorsanonymous.org), and attend some of them to meet kindred souls who are meeting the challenge.

You will never enjoy curbing your spending impulses. It will always feel painful in the moment. But afterward, when you have some money put together for more important, meaningful purchases, trips, courses, whatever, you will reap the benefits in self-respect and in a more solid quality of life that is no longer on the addictive treadmill.

Question: I need help out of this debt. How do I manage without feeling I am about to suffocate? -- Joan in South Carolina

Answer: I recommend a visit to Debtors Anonymous, a free 12-step program that is all over the country, to help you begin tackling this problem. Consumer Credit Counseling can help those who have large credit card debts reduce the debt and make a repayment plan through them. Good luck and don't lose hope. Olivia

Question: What are people who are over 50 with very little retirement suppose to do to catch up? How do people who can barely pay the bills invest for their retirement? -- Betty in Austin, Texas

Answer: This is a terrible predicament. You need a little extra money to begin investing -- not much, but some. You might want to buy one session with a fee-only financial planner in your area (they don't recommend products -- they are paid for their time) to help you think this out. NAPFA.org is the Web site for fee-only planners in every area. Getting personal recommendations for a good financial professional is always a good idea as well.

The other important element for financial security in old age is surrounding yourself with people of all ages -- family, friends, community and spiritual connections. That way, even if you don't have as much money saved as you'd like, you'll find folks to help you get places, and even pool resources for things the group wants. I wish you the best of luck in finding a way toward greater financial security.