By MP Dunleavey
Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the continuing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.
Sherry Matulock still remembers the day she paid off the last of her credit cards, about four years ago. "I was so proud of myself," she says.
But that debt-free feeling didn't last.
A year later, Matulock, 33, the director of recreation for an assisted-living facility on Long Island, slipped back into the hole. "My father was sick; there was a lot going on," she recalls. And the emotional spending began.
Before she could say "MasterCard," Matulock owed $5,000, then $10,000 and ultimately $15,000 on her credit cards. That, on top of her student loan, car loan and a small personal loan, spelled grim financial news. By early 2007, Matulock's debt totaled nearly $60,000.
But she fought back and beat the debt demon, with the undying support of the Women in Red and an unexpected assist from financial expert Jean Chatzky.
Everyone who is in debt wonders what it takes to get out of it. Matulock's story reveals one woman's winning formula, composed of just a few simple ingredients.
Here's how she did it.
Hitting bottom is the first step
As her emotional spending spiraled out of control, Matulock knew she had a problem brewing.
"Almost every morning before work, I'd be on the computer ordering things from The Gap and Old Navy. The packages would show up, and my boyfriend was like, 'What's all this stuff?' And I'd say, 'Don't worry about it!'"
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Even when she was paying $400 a month to one of her cards -- and charging another $500 -- "they were just numbers. None of it felt real to me. I knew I was going through a hard time, but I couldn't admit it."
Matulock was forced to face financial reality when she opened one of her credit card statements and the minimum payment was $1,000. Not only had she gone over the limit, incurring fees and penalties, but her interest rate had skyrocketed to 28%.
She panicked. "That was my slap in the face," Matulock says.
Matulock was desperate to get her life and money back under control. The same week, she saw a story about an online community of women digging their way out of debt together. "I said, 'Wow, do I need that!'"
Rescued by some Women in Red
Matulock did hardly any work that day.
"I just sat at my desk, reading through the entire thread about the Women in Red Racers."The Racers are a group within the Women in Red message board. They were founded by Becky Purvis, a teacher in North Carolina, and others. The Racers are the lifeblood of the WIR, with their determined focus on "racing" to pay back debt. (So far, they've paid off $4 million.)
Matulock joined the Racers on the spot. The Racers' method is deceptively simple:
Calculate how much you owe, down to the penny.
Share the debts you plan to pay off with the other members of the WIR on the message board. (People use pseudonymous screen names to protect their privacy.)
Keep an account, on the board, of how much you pay down each month. Acknowledge any setbacks (they happen).
Ask for advice when you need it, give it when it's asked for and enjoy knowing that you're all in it together.
This is a race in which everybody gets to be a winner.
For some financial transactions, you should use a credit card instead of cash or a debit card -- even if you have the money in your pocket.
Within a year of joining the Racers, Matulock had paid off $15,350.20 of her credit card debt.
It wasn't that she found extra money for card payments or got a whopping raise or even a second job. Matulock made astonishing progress mainly by following the first and most basic step: Quit using plastic.
And, she discovered, there truly is strength in numbers.
"I was focused, I was organized, and I knew I wasn't alone," she says. "Being part of the Women in Red meant so much more than I realized."
Continued: Enter the 'Today' show
Enter the 'Today' show
Then the "Today" show contacted me last spring to ask whether any of the Women in Red would consider being part of a show on debt, Matulock was the first to raise her hand and volunteer.
Matulock didn't think Chatzy, the show's anchor and a financial expert, would find much to trim in her budget, but she agreed to the "Today" show plan:
Matulock would take three months to track her spending, religiously, every day.
She would aim to pay down her remaining $400 in credit card debt a month early, in September, when the show would be taped and aired.
In addition to paying off her debts, Chatzky insisted that Matulock join the 401(k) plan at her job, contributing 3% to get the available match from her employer.
Chatzky also helped Matulock save money by renegotiating her cell phone contract (saving $30 per month) and raising her car insurance deductible from $250 to $1,000, for a $320 savings on premiums for the year.
Matulock notes that you can't just raise your deductible that much without planning for it. So she put her economic stimulus check into a savings account earmarked "car deductible" so she'll be covered in the event of an accident.
We all hate it, but it works
Matulock's appearance on "Today" was a success. She paid off her last credit card in September, she joined her company's 401(k) plan, and she now has put away almost $500 for retirement, plus an additional $600 into savings.
But of all the things she has done, Matulock says, doggedly tracking her spending is what has made the biggest, continuing difference in her financial life.
She bought a little spiral-bound notebook that she always keeps in her purse. In it, she jots down every penny she spends. If she can't find the time to write down an expense, she puts the receipt in the notebook and does it later.
Tracking spending is by far the most feared and loathed financial task known to woman (or man). Most people can barely do it for a week. Yet Matulock is still monitoring her spending, more than four months after she began.
It keeps her honest, she says. But more important, it stops her from spending. "It's like being on a diet and having to record what you eat. You're not going to eat that cookie if you have to write it down," she says. "I am less likely to recklessly spend, because I know I have to write it down."
It doesn't sound like a lot, but by tracking her expenses, Matulock was able to save $10 one week, $40 or $50 the next. It added up. She was careful to put those savings nuggets toward her debt.
It's still adding up. Matulock has now paid off all her credit cards and part of the $5,000 personal loan she owes: a total of $18,531.19.
For some financial transactions, you should use a credit card instead of cash or a debit card -- even if you have the money in your pocket.
'Still trying to find the balance'
Matulock has freed up $600 per month in cash, which she is saving until the end of the year ("I want to have a cash-only Christmas," she says). At that point, she will save half the money in an emergency fund and put the rest toward her remaining debt.
But as Matulock now knows, from being down and back twice, you can't put your finances on automatic pilot. Financial sanity has only one cost: constant vigilance."I'm still trying to find the balance," she says. "I still wish I could go buy that skirt. But then I stop to think: I could put that money toward debt or savings or something more important."
Matulock knows that slow and steady is the way she'll win her race. "It can be frustrating when the debt isn't falling away as fast as you want." But she remembers an important motto she learned from a fellow Racer: You didn't get into debt overnight; you can't get out of it overnight. "I remind myself that by sticking to a plan, at least I'm making a dent. And that's still progress."
Published Oct. 8, 2008
<-- Source: http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/put-your-debt-on-a-simple-diet.aspx?page=all
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