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" Andrea Union, 46 Seymour, TN Two kids, ages 22 and 17 Andrea Union has a naturally sunny disposition, but when it comes to her finances, it&amp;#039;s hard for her not to feel gloomy. The single mother of two currently owes a total of $9,750 on a handful of credit cards and personal loans. While she earns a decent salary as a medical transcriptionist, Andrea manages to make only her minimum payments each month, and money has been tighter than usual since the child support payments from her ex-husband were reduced significantly. Despite having $453 left over after paying her monthly fixed expenses -- rent, car lease and insurance, utilities, and the like -- Andrea hasn&amp;#039;t figured out how to stick to a budget, let alone stash something away to secure a better future for herself and her children.  FINANCIAL GOAL:  After a decade of struggle and racking up debt, this single mom yearns to &amp;quot;break the cycle of always falling behind and working hard just to catch up,&amp;quot; she says. Andrea wants to learn how to budget her money in a way that will allow her to pay off her credit cards and loans while also creating a financial cushion for emergencies and long-term stability. MONEY MISTAKE #1: &amp;quot;I&amp;#039;m making only minimum payments.&amp;quot; MONEY-SMART SOLUTION: Make paying off debt your top priority. Two years ago, Andrea&amp;#039;s ex-husband abruptly cut his monthly child support payments by $300 (a court later upheld this reduction), and Andrea found herself struggling to stay afloat, barely managing to pay her utilities. To keep her head above water, she used her credit cards as well as loans and cash advances to get by. Today she owes a total of $9,750, and each month she has to make nine minimum payments ranging from $15 to $91; together they add up to $386 of her monthly expenses. The worst of the bunch: two $200 cash advances, for which she is now charged a staggering $30 monthly fee in addition to interest. &amp;quot;Every time I make a minimum payment, most of it goes toward the interest,&amp;quot; says Andrea.  Andrea avoids focusing too much attention on her downward spiral of debt. &amp;quot;Suddenly a bill is due and payday is still two days away, so I write a check and just pray that the company doesn&amp;#039;t cash it right away,&amp;quot; she says. &amp;quot;Unfortunately, sometimes I get an insufficient-funds fee on top of a late fee.&amp;quot; And because Andrea&amp;#039;s bank account is always depleted before payday rolls around, she inevitably ends up using the one credit card she has that isn&amp;#039;t maxed out to pay for gas or milk, which only exacerbates her never-getting-ahead predicament. &amp;quot;Pretty much everybody who carries credit card debt will step into this cycle at one point,&amp;quot; says Melissa Hammel, a certified financial planner at Hammel Financial Advisory Group in Brentwood, TN. &amp;quot;You spend all of your money trying to make your payments, and then all of a sudden you need your credit card to buy something and your debt just keeps going up. You have to start taking baby steps to change your situation.&amp;quot;  Hammel recommends a &amp;quot;snowball model&amp;quot; for paying off debt: &amp;quot;Focus on knocking off the smallest debt first, then shifting the payments you were making on that card to the next card up,&amp;quot; she explains. &amp;quot;By paying off the smaller accounts, you combat the feeling that you&amp;#039;re stuck treading water. Psychologically, paying off even one debt is a great relief. You think, One down -- it&amp;#039;s gone and I don&amp;#039;t have to deal with it anymore. It keeps your motivation up.&amp;quot;  Since Andrea&amp;#039;s been putting in extra hours to earn overtime, which adds up to anywhere from $230 to $400 in additional wages a month, she should set aside $100 of the extra pay she has been making recently toward boosting her debt payments. Hammel recommends that Andrea tackle one of the cash advances first, adding $100 to the $60 minimum payment. In a few months she&amp;#039;ll scratch this debt off her list and be able to move on to erasing the second cash advance -- and then tackle each credit card one by one. Hammel also urges Andrea to cut up her credit cards so that she can&amp;#039;t add to her debt. MONEY MISTAKE #2: &amp;quot;I live paycheck to paycheck.&amp;quot; MONEY-SMART SOLUTION: Establish a budget -- and start to save. The two doctors Andrea works for as a transcriptionist recently gave her a 9 percent raise, but Andrea still finds herself scraping by at the end of each month and has yet to contribute a single cent to her 401(k) -- which contains about $750, thanks to her employers&amp;#039; contributions. &amp;quot;After I pay my bills, any money I have left over gets eaten up willy-nilly by whatever pressing needs come up, such as an extra tank of gas or a last-minute birthday gift,&amp;quot; she says.  Andrea needs to establish a clear budget that helps her keep expenses consistent and under control -- and leaves some wiggle room for real-life flexibility, such as the occasional lunch out or renting a movie, as well as emergencies. &amp;quot;The only way to live within your means is to spell out all of your expenses and commit to limits,&amp;quot; Hammel says. So in addition to applying part of her extra wages to debt payments, Andrea can also use the extra income to work about $100 into her monthly budget for entertainment. Next, Andrea should allocate about 1 percent of her gross salary toward her 401(k), which would be about $25 a month. &amp;quot;Andrea may really feel the pinch if she tries to contribute more,&amp;quot; says Hammel. Finally, she should stash any remaining cash in a savings account that can be tapped for emergencies. &amp;quot;Given her slim budget, Andrea needs to have something in reserve for those unexpected emergencies, such as an illness or car repair,&amp;quot; says Hammel. When she receives bonuses or increases in pay, Andrea can divide the extra between her emergency and retirement funds. Once her debt is paid off, Andrea should aim to invest between 10 and 15 percent of her pre-tax earnings into her 401(k), &amp;quot;to make up for lost time,&amp;quot; says Hammel. MONEY MISTAKE #3: &amp;quot;I want to give more to my kids.&amp;quot; MONEY-SMART SOLUTION: Find low-cost ways to help. Ever since her messy divorce 12 years ago, Andrea has been raising her daughter, Jessica, 22, and son, Jacob, 17, on her own, with limited support from her ex-husband. So it&amp;#039;s no surprise that Andrea&amp;#039;s kids have had to pull their weight in order to get the things they want. Jacob works at a burger joint to cover his car costs, and Jessica, a college student, waitresses in order to supplement her student loans. Andrea admits that this weighs heavily on her. &amp;quot;I feel guilty that I can&amp;#039;t help my kids more,&amp;quot; she says. Hammel empathizes but says, &amp;quot;Andrea is not in a position to help her daughter financially right now. Every time she sends $100 for books or groceries, Andrea&amp;#039;s debt goes up and that cycle of discouragement kicks back in.&amp;quot; The best thing Andrea can do for her children is to get her finances in order so that she is not dependent on them later in life.  In the meantime, Hammel urges Andrea to figure out low- or no-cost ways she can give to her kids, such as sending her daughter a package of home-baked cookies or a weekly letter of encouragement, or enjoying at-home movie nights with her son. &amp;quot;Let them know you support them, but right now your main goal is getting yourself out of debt and creating a nest egg,&amp;quot; Hammel says. MONEY MISTAKE #4: &amp;quot;I can&amp;#039;t afford to have fun.&amp;quot; MONEY-SMART SOLUTION: Use rewards to stay motivated. Other than the occasional stint at the gym, Andrea spends most of her time working. Even with overtime, she refrains from ever treating herself. Andrea&amp;#039;s discipline is admirable, says Hammel, but if you don&amp;#039;t build self-care into the equation, you&amp;#039;ll burn out. Rather than thinking of &amp;quot;me time&amp;quot; as an indulgence, Andrea needs to view it as an essential building block of sustainable financial security. &amp;quot;When you invest in yourself,&amp;quot; says Hammel, &amp;quot;there&amp;#039;s less of a lack to fill with unnecessary purchases down the line.&amp;quot; Just $10 would cover the cost of a manicure or coffee and a magazine. As Andrea pays off more debt, she can occasionally spring for bigger rewards, such as dinner out with her son. It&amp;#039;s also important to dream big, even when you are mired in the daily grind. Once Andrea has made substantial progress paying off her debt and establishing her emergency and retirement funds, Hammel suggests that she create a vacation account that&amp;#039;s linked to her checking account. &amp;quot;The ultimate reward for getting her debt paid off could be a vacation,&amp;quot; she says. Andrea could set up an automatic transfer of just $10 a month, and as her finances loosen, she can gradually bump that amount up. &amp;quot;She&amp;#039;ll be surprised as the balance grows and she earns interest,&amp;quot; says Hammel. &amp;quot;It becomes sacred money, don&amp;#039;t-touch money, a tangible thing to keep your spirits up when the going gets tough.&amp;quot; EXPERT ADVICE:  &amp;quot;Allocate 1 percent of your pre-tax earnings -- or about $25 a month -- toward your 401(k),&amp;quot; says money expert Melissa Hammel. &amp;quot;Focus on knocking down your smallest debt first. Paying off just one debt is a great relief.&amp;quot; &amp;quot;When you invest in yourself, there&amp;#039;s less of a lack to fill with spending.&amp;quot;  WHAT SHE LEARNED:  &amp;quot;Melissa&amp;#039;s advice to start paying off my small debts really struck a chord. I expect to have the first cash advance paid off in three months, tops, and even this little chunk makes me feel like there is light at the end of the tunnel. I have even started thinking of ways I can put more toward knocking down what I owe, like using my end-of-year bonus and tax return.  &amp;quot;I hope to start contributing to my 401(k), even if it&amp;#039;s just 1 percent of my earnings. My employer matches my contribution, so even a little amount will build up. I finally feel like my situation is manageable, and I really think I can do this and get back on track.&amp;quot; I have almost paid off one of my cash advances entirely. I just filed my taxes and as soon as I get my refund, I&amp;#039;m going to pay off a credit card and both cash advances. My mother recently passed away, and now that my dad is alone, I have decided to move in with him to keep him from being alone. That will be a huge help in terms of really starting to save some money and get all of my credit card debt knocked off, as well as my car lease. Plus, my son is looking forward to spending some good quality time with his Grandfather. "^^<http://www.w3.org/2001/XMLSchema#string>
<http://www.redbookmag.com/life/money-career/a4658/credit-card-debt-help/>