The temptation to overspend during the holidays comes in many shapes and sizes. From lack of planning, to guilt and stress, to plain old Joie de vivre. Unfortunately reality sets in come the New Year. That’s why as bankruptcy trustees we get busy usually beginning around mid-January and running through the first few months of the year. People open their credit cards statements and realize that they need to talk to someone about their credit card debt.
Take for instance, John and Mary (not their real names, but the facts presented are an accurate description of their situation). Both have good paying jobs. Mary is an account executive earning $60,000 a year and John is a lead hand with a local municipality works department and easily earns over $80,000. They have 2 kids, a nice house, 2 cars (with two car payments), and live, not exorbitantly, but certainly well.
In 2012 Mary & John welcomed their second child into the world. As a result Mary was off on maternity leave for most of 2012. In 2011, with the exception of their mortgage and car payments, the family was pretty much debt free. Now, 2 years later they have more than $85,000 in credit card debt. Their minimum payments are more than Mary brings home in a month.
Unlike some, they know where the money went – they continued to live their same lifestyle while their income was temporarily reduced. EI paid Mary $1600 a month when her usual take home pay had been over $3600. In addition, John passed up most of the overtime that was offered to help with the kids. By the end of 2012 they had amassed $50,000 of debt. Then between daycare and trying to make their minimum payments on the debt it just kept on climbing. By the end of 2013 is was up to $85,000.
The final straw was the 2013 holiday season. Mary and John were so stressed about their finances that to compensate they over-spent on family and friends. It is easier to do than you might think. They didn’t set out a holiday budget. They both bought gifts and impulse items to feel “better”. The end result was they spent 50 % more than they normally would at a time when they should have been cutting back. When the Christmas bills arrived in January, adding more debt on top of debts they already couldn’t pay, they realized they had to do something because they just couldn’t keep doing what they’d been doing.
While their healthy income wasn’t enough to support $85,000 in credit card debt it was enough to file a consumer proposal. The proposal John and Mary offered their creditors was to repay $36,000 of the $85,000 that they owed. $600 per month for the next 60 months. It reduced their monthly payments by $3,000 and allowed them to keep their home and their cars. It was exactly what they need to get themselves back on track financially.
Something else Mary mentioned the last time we spoke? They learned a valuable lesson. With a young family they realized that even a good income did not give them permission to ignore thinking about how to manage their money. They now live below their means, instead of above their means, and are looking forward to the day their consumer proposal is finished. They’ve already decided that the funds they are using to pay off their debt today will be funneled into savings for their children & their future once they are finished.