Money Train: Managing Debt

Financial expert Alvin Hall talks to Kelly, a listener, about managing her personal debt.

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MICHEL MARTIN, host:

I'm Michel Martin and this is TELL ME MORE from NPR News.

Coming up: We'll take a visit to the magical world of "The Opposite House," with author Helen Oyeyemi. But first, it's time to get back on the Money Train. We're still looking for people who want to come aboard our special summer series on financial awareness. Our personal finance guru, Alvin Hall, will help a group of listeners work through their own financial issues. Today, we have so many questions about debt management, we decided to talk about it again. Here to tell us how to get past our debts is the Money Train conductor, Alvin Hall. He joins us from our New York bureau. Alvin, welcome back.

Mr. ALVIN HALL (Financial Expert): Thank you, Michel.

MARTIN: We got so many calls and e-mails about how to manage debt. Why do you think people have such a hard time with that?

Mr. HALL: Because it's too easy to get credit cards, and people tend to spend without thinking when they have credit cards. And also, the third part of that is that people don't see the consequences to their actions in full. All they see is that small monthly payment, and that makes it easier to ignore the big picture. So just because credit is available doesn't mean you should accept it. It's that old saying I like to ask people. If I were to send you a hot, sexy person through the mail, would you go to bed with him?

MARTIN: Oh, yikes, my goodness.

Mr. HALL: It's about that basic desire. When people see credit, they see forms of approval. They see I'm a valid adult. They equate it with all of these things, including I can achieve the status that I want in life before I've actually earned the money.

MARTIN: So with choice comes responsibility.

Mr. HALL: Exactly. One of the things I recommend to everybody who is in debt is to keep a money diary for 30 days. One column shows what you spend. The second column totals it up. And the third, you write what you're feeling at that time. I really need a cappuccino. Do you really need a cappuccino? There are patterns of spending that are related to certain emotions that set you off. Once you can take control of those emotions, you can control the money.

MARTIN: Okay. That's good advice. Thanks. Okay. Let's bring Kelly in. Kelly Shelton is joining us. She responded to our Money Train invitation. Kelly, welcome. Thanks for speaking with us.

Ms. KELLY SHELTON (Listener): Hi. Thank you for having me.

MARTIN: Kelly wrote, how ironic is it that day in and day out, I work for one of the world's largest financial institutions, and yet I'm in such a financial mess I can't even get a credit card. Now, for some people this would be a good thing, but in my case, you can't rebuild credit without any. I'm a young person, 26, who fell onto the credit card trap - that again. And I'm still trying to dig out seven years later. And what's so ridiculous is I know better. And then and you go on with some details. Anyway…

Ms. SHELTON: Right.

MARTIN: …I applaud your honesty, Kelly, and thanks for…

Ms. SHELTON: Thank you.

MARTIN: …for writing to us. So, Alvin, take it away.

Mr. HALL: Well, I think what we need to teach Kelly first is how to put herself on a budget every single week of her life and make herself stick to it. Kelly, how do you spend money normally?

Ms. SHELTON: Usually, it's with debit cards or checks.

Mr. HALL: Okay.

Ms. SHELTON: Primarily debit card. It's very accessible. And it's always on me.

Mr. HALL: And so you're using - and it's magic money, because you don't see the consequences of your actions. So the first thing I want you to do is take your debit card out of your wallet.

Ms. SHELTON: Okay.

Mr. HALL: And one day each week, you go to the cash point or cash machine and you get out a fixed amount of money that you've estimated you're going to need. That amount of money must be the same every single week. It cannot change.

Ms. SHELTON: Okay.

Mr. HALL: And then that's all the money you have to spend that week. You can't go back to the ATM machine. You can't write a check. You put that money into an envelope and then each day, only take out the allocated amount that you're allowed to spend.

Ms. SHELTON: Sounds easy.

MARTIN: What about her - Kelly, that's funny, you're saying - you're like hey, no problem. No sweat.

Ms. SHELTON: Well…

MARTIN: Is - Alvin, is that a typical reaction?

Mr. HALL: Here's what's going to happen. It sounds easy at first. And here's what's going to happen. The first part of the week, she'll spend. Then all of a sudden, the cash starts to disappear, and she'll start to look longingly at that debit card, almost like a person who's been in the desert, and that debit card is a glass of water. You'll just long for it. And you'll watch as that money becomes smaller and smaller. By Thursday, you're going to be absolutely sweating the first couple of weeks. By Friday, you're going to think why did I ever let him talk me into doing this? I hate him. He is the worst person in the world. And Saturday, you're going to be broke.

Ms. SHELTON: Yeah.

Mr. HALL: So you're going to have to sit at home Saturday night with nothing to do. But the next week, you'll be smarter. And every week, you'll get smarter about sticking to a budget.

MARTIN: How is this striking you, Kelly?

Ms. SHELTON: This isn't anything that I didn't expect to hear, and I wanted the harsher reality points of that, which is kind of why I did it all of this. Because I don't want somebody holding my hand, I want someone to say, look, you're going to be in this situation for a really long time if you don't get a firm hold on this now before you attempt to take the next steps in your life. And I don't want to live my life like this forever.

MARTIN: What's your goal, Kelly, ultimately? Obviously, you want to stabilize your situation. You're trying to - do you have an amount of debt that you're trying to pay off?

Ms. SHELTON: Well, that's the thing. I'm not in, you know, I'm not in hundreds of thousands of dollars worth of debt. I figure myself actually kind of below average at that. I am trying to work for just to being able to live comfortably. I don't want to live like this forever. I want to be able to do things without having to save for six months over…

Mr. HALL: Ay-yay-yay! You just kill me, you just kill me with that, Kelly. Everybody has to save in order to get things. Why?

Ms. SHELTON: Well…

Mr. HALL: Because you don't earn that kind of money.

Ms. SHELTON: Right.

Mr. HALL: So already part of your reading is that you're delusional. And until you get to a point where you can prioritize your desire and create a timeline for them, you're going to be caught in the cycle forever.

What you're saying - everything you're saying to me is exactly the language of somebody who, as soon as things get better, will slip back. Because you'll say, you know, I'm free, I can live comfortably. Comfortable to you is buying what you want when you want it.

Comfortable is not saying, well, let me sit here and think. What is the most important to me? Is buying a car most important to me? Or is it going on a holiday with my husband six months from now? Is that more important to me? I should have both of them is what you're probably saying.

Get a little, cheap notebook, and every time you get ready to spend, write down the amount in one column and write down what prompted you to spend at that moment. People who don't prioritize stay in debt.

Ms. SHELTON: Whoa.

MARTIN: Bracing, bracing, bracing. When are you going to start?

Ms. SHELTON: I'm going to go get the notebook tonight and I will start this tomorrow.

MARTIN: Okay. All right, Kelly. You know what, thanks so much for being willing to be honest.

SHELTON: No problem.

MARTIN: And Kelly Shelton joined us from member station KWMU in St. Louis, Missouri. Kelly, thanks for writing in.

And Alvin Hall, our financial expert and the conductor of our Money Train. He joined us from NPR's New York bureau. Alvin and Kelly, thank you both so much.

Mr. HALL: Thank you, Michel.

Ms. SHELTON: Thank you.

MARTIN: You can still post comments to the Money Train at npr.org/tellmemore.

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