Let’s Be More Mindful of How We Are Spending

Set of color credit cards

Key Considerations:

  • Guard against impulsive spending, by practicing delayed gratification.
  • Credit Card debt rate is high, averaging 28% — use on a short-term basis only.
  • Cards with reward points are great, but is the trade-off fair? Consider the cost-effectiveness; you get what — 1-5%, and you pay 28%.
  • Reward Cards tend to benefit those who can afford to pay their balance in full when the bill is due.
  • Check your monthly statements and cut back on unnecessary expenses — you will likely find a few.
  • Deep in credit card debt? It may be time to seek help.

With the holidays clearly in view, we are bombarded with early sales promotions to buy now and save more — pay later; we are enticed with credits and miles for opening new credit cards; we feel pressured to donate, to buy gifts — all on credit. A quick spending tip: before you buy, first pause and ask, do I need this now? Can I sincerely afford this expense at this moment?

​I would be remiss if I didn’t acknowledge that some among us don’t have a fixed income flow — and this may cause us to tap into our credits for day-to-day necessary/essential expenses. The best practice for financial stability is to use credit cards as a last resort on a short-term basis (i.e., six months or less).

Where Are We As a Nation Regarding Credit Card Debt?

According to the Federal Reserve Bank of New York, for the second quarter of 2024, household debt reached $17.80 trillion. Of this amount, credit card balances increased by $27 billion (in one quarter) to reach $1.14 trillion — you can read the entire article here. Furthermore, credit card debt has one of the highest interest rates. According to one of Forbes’ advisors, the average credit card interest rate is 27.92%, yet in reality, most credit card statements I have reviewed reflect an APR rate of 29.99% — 35.99%.

Credit Card offers us one of the most straightforward accessible loans. According to Bankrate.com, a credit card is revolving credit, essentially a loan you can continue using and repaying without applying for another one.

As silly as this may sound, the first time I heard the term debt, my mind heard death. The deeper we are in debt, the more we may experience a suffocating effect. Debt can significantly and negatively impact our well-being. Let’s consider taking a more mindful approach to our spending; such an approach is empowering. 

Is It Possible to Have Manageability Over Credit Card Debt? Yes.

A wide range of great resources online offer ways to mitigate credit card debts. In this article, I will provide three principles that, if implemented, will help to lighten such a debt burden.

1. The first is a psychological shift, which is delayed gratification. Money habits are psychological to some extent. Britannica encyclopedia defines delayed gratification as the act of resisting an impulse to take an immediately available reward in the hope of obtaining a more valued reward in the future. With a mindful spending approach, before buying an item, we’d first consider its usefulness and cost-benefit. Is this a “nice to have” or a “need to have”?

2. The second is to create a working budget. It is common practice to calculate our income and then calculate our expenses. Let’s take a reverse approach, first calculate our expenses, then have a realistic approach to figure out where the funds will come from to take care of those expenses. I think this latter approach is a reality check; if we know we have a set income, we begin to start to remove or delay unnecessary expenses by not incurring them. When we spend more than we earn, we inadvertently create or increase our debt/loan.   

3. The third is a courageous move. Are you already deep in card debt and need a little hand-holding to get out? Help is available. It does take courage to ask for help. There are a few reputable companies who will partner with you to ensure you have greater manageability of your finances. There are a few ways they carry out this partnership, from simple to more complex. You can consider a soft landing (i.e., debt settlement) or a hard landing (i.e., debt consolidation); the latter is like starting over — and will likely lead to the closure of a few of your current cards.

In short, a:

•Debt settlement allows you to negotiate a reduced balance on your current debt. If you are an expert negotiator, do your research and consider contacting the card company directly. You may have some bargaining power if you have a good history, a great credit score, and can show that other companies are offering better rates (this is likened to a price bidding war) — otherwise, hire an expert — an independent 3rd party. 

•Debt consolidation combines all of your debt into one loan with a single monthly payment at a lower rate of interest; this is like a fresh start. This is done directly with a third-party company.  The money from the new loan is used to pay the old debt, and generally, you are not allowed to open any new debt until it is fully paid.

There are advantages and disadvantages in restructuring debts. There could be a tax impact – the forgiven portion of your debt is generally reported to the IRS, and it is taxed at your regular tax rate. On rare occurrences, some credit card debts are not taxable. Some debt restructuring will likely impact your credit score. 

In summary, budgeting is essential and is an integral part of our financial well-being; first, calculate your expenses — then do the necessary trimmings, and lastly, calculate your earned income to see if it is enough to cover your essential expenses. Be sincere as to what are essential expenses. The reverse approach is a principle from the Good Book  — and is common practice in various industries. Here are a few wise words penned by the gospel writer, Luke, “first sit down and count the cost, [then ascertain] whether he has enough to complete it.” Remember, don’t be shy about asking for help, and be willing to release the badge of honor we hold on to so dearly — i.e., an excellent credit score. A good score may be enough.

In closing, we offer budget consultation for individuals and businesses; partner with us on your financial freedom journey. As for debt restructuring, please reach out for the names of a few companies to contact.

When we are not doing well financially, it weighs heavily on our physical and mental well-being. For the betterment of our overall well-being, let’s take the necessary steps to travel a little lighter and resolve to be well.

Thank you for allowing me to share this with you. I hope you find the content informative.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.