Bit by bit, Alexa Curtis ran up her credit card debt as she built out her business as a blogger. Like many young people, she had no formal education on personal finances and didn’t realize the hole she dug until it was $30,000 deep.
So far, the 24-year-old has paid off half on her own — but has stalled out paying just the monthly minimum.
For her and many others with similar debt situations, it’s not just a black-and-white money problem. It’s also one rife with emotions – guilt, frustration, and, yes, FOMO – the fear of missing out – as she tries to make it on her own.
“I have this overwhelming sense of guilt and especially those months where I haven’t made as much money, [that] even [when] going to get a coffee or someone asked me to go to dinner … I always, I almost feel so on edge like I shouldn’t be doing this,” Curtis tells Yahoo Life and Yahoo Money. “Because this is a $100 or this $5 should be going to my credit card, but also … you have to remember to live. So I never know what the right thing is.”
Alexa spoke with Hitha Herzog, a financial expert, about managing her finances as well as her emotions in a so-called money therapy conversation with Yahoo Life and Yahoo Money. Here’s what we all learned.
The straight financial advice: Make a money plan
First, Herzog outlined the concrete, financial steps that Alexa should take to tackle that last $15,000 in credit card debt and to establish a healthy relationship with money. It all starts with the basics: Make a money plan.
“The best way to start managing your debt is to start with a budget. It sounds really old school. I feel like our parents have been telling us this for years, but start with a budget, write everything down that you are making and everything that you are spending,” Herzog said. “Once you visualize this, you have a better picture of how much you can spend on things like going out and how much money you can allocate to paying down your debt.”
Next, commit to paying off your debt. Once you have that money plan, you can see how you allocate your money and reassess that if you need to put more money toward debt payments. It’s also important to calculate how long it will take to pay off your credit card debt given the size of the monthly payments you’re making, Herzog said.
“The goal here is to pay it off because you don’t want to accumulate interest,” she said.
Herezog also recommends checking in on your money plan regularly — even on a weekly basis. This way, you — or in this case, Alexa — can identify where you may have a little extra money left over to put toward debt payments.
The card with the highest interest rate is the biggest target, according to Herzog, because “that interest is going to compound.” To help yourself, ask your credit card company if it could lower the rate on your existing card. If not, consider transferring the balance to a new card with a lower rate. Some cards offer introductory 0% interest rates up to 18 or so months.
While paying off those cards, also squirrel away extra money into savings, Herzog said, in case you run into an emergency.
Once you whittle down that credit card debt, it’s time to rethink your relationship with credit cards. First, only buy what you can afford with plastic or credit.
“You need to be able to just pay it off, whatever you’re purchasing within that month,” Herzog said. “It’s not just about making the minimum payment. You wanna be able to pay it off every single month.”
Why? Because the interest will compound. So that sweater you bought for $50 will eventually end up costing $75 in the end if you let the interest accumulate.
“So credit is good within that month, but you don’t want it to go longer because that’s when you start getting these interest payments that are completely egregious,” Herzog said, “and you’re looking at your bill thinking, ‘okay , I just went from $8,000 of debt to suddenly 15,000 because of interest payments.”
“You don’t want that,” she said.
Understand how to help your feelings about money
That’s the basic financial advice, and on its face, it seems simple. But Herzog knows better than that. The emotional side of money complicates what should be straightforward steps to financial security as Alexa illustrated in her recent experience dining out with friends.
“And then someone ordered an extra bottle of wine. Everyone was kind of already a little intoxicated. And I just remember thinking like, ‘I don’t wanna pay for this wine … I don’t want more wine,’” Alexa said. “And in those settings … are you now the awkward person who stands up and is like, ‘hey, so I didn’t drink … can we divide this?’”
“It’s just super freaking awkward and no one talks about that,” she added.
There are ways to mitigate this situation, Herzog said, but you might need to get creative.
“If you’re going out with a bunch of friends, have a drink before, so you’re not having three drinks at the restaurant,” she said. “But you also want to use your voice … Make sure you tell the people that you’re out with. ‘Listen, I’m tightening my belt. I want this business to get off the ground. I really want to make this work,’ and they will support you in this.”
Another worry Alexa described was FOMO, but in the professional sense. She felt the need to spend money on outings to network for her next gig or deal. But those expenses added up on her credit card, landing her where she is now. So a big question is how to manage both money and opportunity.
“You get caught up in that FOMO, but you have to really train yourself to make an assessment,” Herzog said. “What is that $100 going to get you? What is the return on investment on that $100?”
Instead, Herzog said, try less expensive networking and social options. Can you get coffee instead or meet friends for a hike or at the beach, but still get the same connection?
“So if you are not making more than $300 to cover that dinner … don’t do it,” Herzog said. “You want to have more money coming in versus more money going out.”
Focus on the long game
Getting your finances together — especially when paying down debt — is a long game, Herzog said, liking it to training for a marathon or learning how to cook a five-course meal. It takes practice, time, and the occasional mistake. But you — and Alexa — shouldn’t get down on yourself.
“Understand that you have debt, but you are managing your debt. That is the operative word here,” Herzog said. “And that … will help with the out-of-control feeling … ‘I am managing it. I’m on a payment plan. I understand what I’m doing and I’m moving forward with it.’”
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