Editorial Policy

Expert Q&A: Don’t Budget for Credit Card Debt

Erica Sandberg

September 12, 2011

QDear Erica,
Please help me budget. I am living on $1,300 a month via child support. We are living with my parents, and I cannot find a job — even with a Master’s degree! I am going back to school (a home learning school) in September. My expenses are gas, credit cards and food. I still can’t make a budget. I have trouble saving, and I will need to be out on my own by October. Please help me get my finances together so I can feel secure and send that vibe to my kids!

ADear Danielle,
I’ll begin answering your question by clarifying a few key points.

The purpose of a budget is to live within a set amount of money that you have coming in each month. You use that number — in your case, $1,300 — as a baseline. All of your expenses — plus a savings allotment — must fit neatly within that figure.

So, now consider the word “expenses.” These are the things that you need and want to spend your cash on. Right now, yours would be rent to your parents, car insurance, gas and groceries. You slipped in “credit cards,” but they are a method of payment for expenses. This is a very important distinction. You see, you don’t set money aside for consumer debt. You do so for products and services. Confuse those concepts and you’re bound for trouble. Ask Erica

That said, I very much want you to develop a smart budget and tighten up your finances, but more for you than for your kids. Once it’s all sorted out, you’ll naturally be sending that awesome “I’m in control” vibe out to them!

A fixed sum — the child support payments — is coming into your world and you need to know if you can meet all of your bills with it. Therefore, review what you have been spending your money on, then project what you will be spending it on. Make it easy and get a hold of a worksheet with preset categories and current/proposed columns that you can fill in. Most credit counseling agencies offer them on their websites free to download (and a complementary budgeting and debt session with them might be a good idea anyway).

Now, run through the numbers and determine where you stand. As you’ll see, a real budget is inclusive of all the things you buy that you don’t always think about. If it doesn’t, and you’ve got a credit card, you’ll surely wind up over your head fast. So account for everything, then make reasonable changes in the proposed section until the numbers come out at least even.

I hate to be a naysayer, but my guess is that you’ll run behind when you leave your parent’s abode, especially with your plans to return to school and not work. Still, figure out the difference and see if you can make it up. For example, if $3,000 will be necessary to cover your future expenses, you’ll need to bring in a net total of $1,700 more each month.

I understand that you’ve been having a tough time finding employment even with an advanced degree, but perhaps you’ve been pursuing only top tier jobs. There’s no shame in slinging coffees or a similar simple job to get by while you’re training for something else. In fact, it can make a whole lot of sense, since you may need an intellectual break from tough classes.

Finally, Danielle, know that there is nothing so tempting as a line of credit when funds are tight. Resist the urge to charge your way out of a budgetary shortfall. Stick to your budget and only slap down the credit card when you know you can pay the bill in full.