The Debt Dance

You can probably imagine my dismay when the spouse of a new client abruptly said “if this doesn’t change, I will leave this marriage.” We were discussing his wife’s use of credit cards and the fact that she was faced with a significant amount of revolving debt for the fourth time and she was seeking relief from the monthly payments. I quickly learned that this was not the first time she had “paid off” her credit card debt during their 20 year relationship. Quite the contrary, she had “paid them off” with a loan from her husband (he has significantly more financial assets - that’s another story) in the early nineties. She paid them off again with a second mortgage on their family home in early 2000, again in 2004 with a third mortgage on their home, once more in mid-2006 with a loan from her retirement account. Now (for the last time she assures me), she seeks to resolve her issues with proceeds from refinancing rental property she owns with a family member.

After listening to him share his perception of his wife’s debt dance, I asked him what it felt like for him to see her in such pain. His expression was puzzled as he stopped to consider my question. He shared with me the simple truth. He never thought much about why she spent herself (and ultimately him) into debt, he just knew he was tired of bailing her out. This simple question proved to be a turning point for how this couple chose to address overspending and use of debt in their marriage.

In my financial planning practice, I serve low and moderate income clients. Many have sufficient income to live comfortably according to the standards they desire. Nonetheless, they have high levels of debt. Of course each client has different needs and responses to the debt/credit management tools we use.

Among those tools, we often help clients find a financial mentor. This person could be a coach (not necessarily a financial coach) or other individual who will not judge them but also doesn't fear repercussions if they are not accountable. Prior to referring the client to a coach we help them identify objective benchmarks that will help them clearly see their progress toward their stated goal. The new coach can use the benchmarks to provide support when the client is veering off track.

We find that developing creative, non-judgmental ways to help people recognize self-defeating spending behaviors helps our clients develop financial planning policies that keep spending in check. Some ideas include:

Create a “Money Management Team” -- using each other’s strengths to reign in out-of-control spending. We establish a spending plan, then decide that each would (both - even though only one has a problem) consult the other when considering a purchase over a set dollar amount. The other partner must remain silent (no judgment) as they let their spouse talk about the proposed purchase. For this to work there must be a clear picture of existing spending habits and agreement about spending goals and limits.

Separate account for discretionary spending -- transfer a set dollar amount to this account at a specific time/date each month and allow no overdraft link. It is usually necessary for each spouse to have their own “cash” account and they transfer an agreed upon amount to each account being mindful of their respective responsibilities for expenses that have mutual benefit (i.e. groceries, meals out, gasoline).

Separate “Bill Pay Account” with NO ATM and carry no checkbook - this account does not cover food or gasoline as those line items are usually variable.

Credit Card Safety Sleeve (yes we sometimes call it a credit card condom) - get some of those plastic card covers and put a sticker on it declaring "FOR EMERGENCIES ONLY “- Call XXXXXX before using this card."

As for those new clients who began to work together to address the joy and pain of spending, they are working through this debt dance, as a couple. With the holiday season upon us we will have ample opportunities to try new and creative ideas to use our financial resources in a way that is congruent with whom we want to be in the world.

© 2007 Saundra Davis

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