Managing Debt

The Debt Diet Challenge Week #3: Expect the Unexpected

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The Debt Diet is an online behavioral change program to help users get out of debt by putting aside $10 a day.  It was developed by Pro-Change Behavior Systems and Jean Chatzky, author of the best-selling Pay It Down and a coach on The Debt Diet series on the Oprah show.

Jean Chatzky read the applications solicited by Credit.com and chose 5 participants.  She got them started on The Debt Diet and is now speaking to them once a week, answering their questions and helping them to get off to a good start.  For their part, our participants are doing The Debt Diet exercises which include tracking their spending, negotiating monthly bills (using The Debt Diet scripts) and trying to modify their heavy-spending ways.  You can find The Debt Diet ($49.95) at jeanchatzky.com. The participants also blog regularly on Credit.com about their experiences with The Debt Diet.

Ahhh, life. You’re going great guns on your Debt Diet: Spending less, cutting costs, reducing interest rates, and then … something happens. The dog gets an ear infection (and needs $160 in vet care and antibiotics). The roof spouts a leak and you have to call in professional help (to the tune of several hundred dollars that you thank your lucky stars isn’t several thousand).

That’s what happened to three of our Debt Dieters this week—in slightly different scenarios. For Chris it was a sidewalk—the one right outside her home that happens to be her responsibility. It needed an overhaul and that overhaul cost $800. Chris paid for the repair in cash—a huge victory. “I needed to transfer money from my savings to checking to pay for it because I didn’t want to get hit with fees. But I didn’t have to use my charge card for the sidewalk.” Prior to going on the Debt Diet, she would have charged the work, then paid interest on it, and felt like she was digging deeper into the hole. This wasn’t easy. Chris still doesn’t have enough wiggle room not to feel a little squeezed by forking out so much cash, but, she says, “I didn’t starve. The dog didn’t starve. It feels like things are going extremely well.”

[Related article: Jean Chatzky's Debt Diet: A Behind the Scenes Look]

Penny wasn’t celebrating quite that much. “Something happened to my husband’s truck,” she said, lamenting what looked to be a $1,000 to $1,200 repair. She and her husband hadn’t seen it coming. “We’ve had the truck forever,” she said of the vehicle with 140,000 miles. “It took a lot of repairs last year. We put new tires on it. We thought we were doing really well.” Penny was disappointed. She’d been amassing additional cash with the goal of paying off the balance on her highest interest rate credit card. This repair, though, had to do with the brakes. It was non-negotiable. Still, she said, she was determined to keep going—and planned to ask the repair shop if she could pay for the charges over a few months rather than charge the balance. “I don’t want to use the credit card,” she said. “I’m going to try my best to avoid it.”

Finally, for Melissa, life this week was just hectic. She didn’t have any major expenses bog her down. She didn’t have any surprises. But the pace was overwhelming and she lost focus. “I didn’t have time to write down what I spent my money on,” she said. “I feel a little overwhelmed.” And, in the moment, she spent more than she wanted to. “The weekend would have been an opportunity to catch up, but instead we got in the car and went for a drive. We went out to lunch. We got ice cream. I couldn’t think about saving money.”

All of these scenarios—plus my own (water in the basement courtesy of the biggest rainstorm in my neighborhood since Hurricane Floyd)—are great examples of why it’s not enough to be debt-free. You need to be debt-free and savings flush. Having savings, an emergency cushion, a secret stash, whatever you want to call it, is like an insurance policy against incurring debt in the future. Because when something happens—whether it’s a big something like Penny’s or a small one like Melissa’s—if you have the cash to pay for it, you don’t have to go into hock to do it. Instead, you can think rationally and strategize to use your current resources to your best advantage.

Onward.

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