Step by step, Alexa Curtis increased her credit card debt as she grew her business as a blogger. She didn’t realize the money pit she had dug until it reached $30,000 and, like many young people, had no formal education in personal finance.
So far, the 24-year-old has paid half on her own, but has blocked payment of 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 a source of 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 these months where I haven’t made that much money, [that] same [when] going for coffee or someone asked me to go to dinner… I always, I almost feel so nervous that I shouldn’t be doing that,” Curtis told Yahoo Life and Yahoo Money. “Because it’s a $100 or that $5 should go 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 during a so-called financial therapy conversation with Yahoo Life and Yahoo Money. Here’s what we’ve all learned.
Direct financial advice: make a financial plan
First, Herzog outlined concrete financial steps Alexa should take to tackle the last $15,000 in credit card debt and build a healthy relationship with money. It all starts with the basics: make a financial 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 down everything you do and write down everything you spend,” Herzog said. “Once you visualize that, you have a better idea of how much you can spend on things like getting out and how much money you can allocate to paying down your debt.”
Next, commit to repaying your debt. Once you have this financial plan, you can see how you allocate your money and reassess that if you need to spend more money on debt repayment. 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 back because you don’t want to accrue interest,” she said.
Herezog also recommends checking your financial plan regularly, even on a weekly basis. That way, you — or in this case, Alexa — can identify where you might have a little extra cash left to spend on paying down debt.
The card with the highest interest rate is the biggest target, according to Herzog, because “that interest is going to accumulate.” To help you, ask your credit card company if they could lower the rate on your existing card. Otherwise, consider transferring the balance to a new card with a lower rate. Some cards offer introductory interest rates of 0% for up to approximately 18 months.
While paying off those cards, also save extra money, Herzog said, in case you run into an emergency.
Once you’ve reduced 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 have to be able to pay it back, whatever you buy in that month,” Herzog said. “It’s not just about making the minimum payment. You want to be able to pay it back every month.
Why? Because the interest will be compounded. So that sweater you bought for $50 will end up costing $75 in the end if you let the interest accrue.
“So the credit is good in that month, but you don’t want it to last any longer because that’s when you start getting these interest payments which are completely blatant,” Herzog said, “and you look at your bill thinking, ‘Okay, I just went from $8,000 in debt to $15,000 because of interest payments.’
“You don’t want that,” she said.
Understand how to help your feelings about money
This is basic financial advice, and at first glance it seems simple. But Herzog knows better than that. The emotional side of money complicates what should be simple steps to financial security, as Alexa illustrated in her recent restaurant experience with friends.
“And then someone ordered an extra bottle of wine. Everyone was already a little drunk. And I just remember thinking, ‘I don’t want to pay for this wine…I don’t want any more wine’ “, Alexa said. “And in those contexts… are you now the awkward person who stands up and says, ‘Hey, so I didn’t drink… can we split this?'”
“It’s just super creepy and nobody talks about it,” she added.
There are ways to mitigate this, Herzog said, but you may need to get creative.
“If you’re going out with a group of friends, have a drink before, so you don’t have three drinks at a restaurant,” she said. “But you also want to use your voice… Make sure you tell people who you’re dating.” “Look, I’m tightening my belt. I want this business to start. I really want it to work”, and they will support you in this process.
Another concern described by Alexa was FOMO, but in a professional sense. She felt the need to spend money on outings to network for her next gig or contract. But those expenses added to her credit card, bringing her to where she is now. So the big question is how to manage both money and opportunity.
“You get caught up in this FOMO, but you really have to practice to make an assessment,” Herzog said. “What’s that $100 going to get you?” What is the ROI of that $100? »
Instead, Herzog said, try less expensive networking and social options. Can you grab a coffee instead or meet friends for a hike or at the beach, but still have the same connection?
“So if you don’t make over $300 to cover that dinner…don’t do it,” Herzog said. “You want to have more money coming in rather than more money going out.”
Focus on the long game
Gathering your finances — especially when paying off debt — is a long game, Herzog said, likening it to training for a marathon or learning to cook a five-course meal. It takes practice, time and occasional mistakes. But you – and Alexa – shouldn’t put yourself down.
“Understand that you have debt, but you manage your debt. That’s the key word here,” Herzog said. “And that…will help with the feeling of losing control…” I deal with it. I’m on a payment plan. I understand what I’m doing and I move forward with it.
— Video made by Olivia Schneider