Debt Solutions Case Study

Overspending

Problem:

I have spent more money than I can afford on my credit cards and now find myself in debt ("overspending").

Causes of Problem:

While many factors are involved in overspending, the following are the most common:

  • Low income
  • Low level of assets
  • A level of expenditure to that of non-overspenders, while having a lower income
  • Higher medical and miscellaneous expenses
  • Easy credit available on credit cards
  • Not paying attention to how much one is taking in (income) vs. spending (expenditures)
  • Addictive behavior due to psychological dependence
    • Part of the "consumer culture" of the United States
    • Lack of self-discipline from compulsive shopping and shopaholic
  • Influenced by the need to impress others
    • Associates, friends, family members, and so forth
    • Peer pressure
    • "Race to the top" mentality by keeping up with friends and neighbors
  • Method of relieving stress or anxiety
  • Buying property that exceeds financial capabilities, resulting in not being able to pay off mortgages

Potential Solutions:

The following are potential solutions that can help deal with problems created by overspending:

  • Write down and live by a budget.
    • Allocate a monthly budget, and do not spend a penny more than what you allow yourself.
  • Keep track of all purchases made.
    • Organize receipts and copy down all expenditures.
  • Utilize savings accounts, which help to prevent overspending because they provide a reserve for unexpected contingencies, like medical expenses and loss of income due to illness or injury, and so forth.
  • Seek financial help and advice from a financial counselor.
  • Avoid buying goods on credit.
    • Use the money you have (debit cards, cash) instead of the money you borrow and eventually must pay back (credit).
  • Cancel credit cards so that you only have one.
    • Use this credit card for financial emergencies only. In all other cases, use a debit card and/or cash.

Potential Resources:

The following are potential resources that can be used to help solve the problem:

  • Financial counselors that provide advice and aid
  • Individual coaching
  • Group treatment
  • Books to help educate on the causes of and solutions to overspending

Case Studies:

Joseph Sangl

"I remember the days that I used credit cards to pay for Christmas. There were two key reasons that I used these fabulous credit cards:

  1. I did not save money for Christmas during the year
  2. I overspent on Christmas presents

I solved #1 by creating a Christmas escrow account. Let's say that I wanted to spend $1,000 for Christmas. By saving $83.33 each month, I magically have $1,000 when Christmas arrives! This takes away a lot of stress, and I highly recommend it!

I solved #2 by putting together a written plan for my Christmas shopping. I entered the names of those I am shopping for this Christmas.

At the top of the form, I entered $1,000 for the ‘Cash Budgeted'. I then wrote in the amount of money that I plan to spend for each person on the list. Applying my secret formula for financial success, INCOME – OUTGO = EXACTLY ZERO, I spend the $1,000 to EXACTLY ZERO.

By pulling out cash for the Christmas Shopping, I can ensure that I will not overspend!"

Scott H Young

"How do you stay frugal without being miserly? I don't want to feel guilty every time I need to make a purchase. At the same time, without a budget and limits, my bank account would soon be empty. My solution to prevent overspending is sitting right next to my wallet.

In my wallet I keep several index cards. Whenever I buy anything, I write down the date, what I purchased and how much it cost on the card. It's not an original idea by any means, but I've found it is incredibly useful both for avoiding post-purchase guilt and overspending."