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QA with finance guru Jean Chatzky

Personal finance author shares how to become a master of plastic

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What newfangled techniques exist that can help you eradicate debt, remain in the black and propel your credit score skyward? Jean Chatzky knows.

A money and media powerhouse, Chatzky is the best-selling author of seven books (including "The Difference: How Anyone Can Prosper In Even The Toughest Times" and "Pay it Down: Debt-free On $10 A Day"), as well as the personal finance guru for such programs as the Today Show and The Oprah Show.

Q&A WITH JEAN CHATZKY
Jean Chatzsky

When you decide you're going to make an effort to pay down debt and stop living on borrowed money, you are making a decision to delay gratification. This is a very difficult thing to do! Essentially, you are choosing pain over pleasure.

-- Jean Chatzky 

Most recently, she teamed with Smartcredit.com to develop the "Jean Chatzky Score Builder" system, which pinpoints the way users can raise those magic numbers, and partnered with DebtGoal to offer her Debt Diet program, which helps people find extra cash in their budget to apply to account balances.

Here, Chatzky chats with CreditCards.com's Erica Sandberg and explains why so many of us have trouble managing credit -- and how we can all become masters of plastic.

CreditCards.com: Clearly, there are many reasons people get into debt, but as far as overcharging, why do you think so many people do it? What are the psychological factors?

Jean Chatzky: It's not necessarily psychological! Look, we've come through a very rough period, and people are now dealing with the hangovers of when debt was too easy to come by. People were suffering from the downturn of the economy, and they used credit cards to meet their monthly bills.

CreditCards.com: Then, no matter how they got into debt, what are the primary emotions people have when they are deep in it? It's really scary, isn't it?

Chatzky: It's awful. Most feel shame, embarrassment. People often feel unskilled about how they are supposed to handle debt. They feel they should know but don't, and that's really depressing. 

CreditCards.com: Not everyone has the same reactions, though. Do you see any difference in the way people approach money and debt by age or gender?

Chatzky: It's really interesting. As far as spending and age is concerned, a lot of people grow out of the problem. Older people tend to be less materialistic. They are better savers. Depression-era people have a different sense of when to save and when to spend.

There is an idea that women are over-spenders and men are not, but it's not really true. We let men off too easy. They shop just as excessively and as much as women do!

The perception comes from the fact that women spend 80 percent of the money. In that sense, it would seem to be logical that the finger is pointed in our direction. But the items that women are buying are lower priced items in greater quantities. Men do the opposite. They tend to buy fewer, but more expensive items.

CreditCards.com: OK, so when all this charging leads to big balances, there are barriers to paying it down. Why? What's stopping so many of us from doing the right thing?

Chatzky: When you decide you're going to make an effort to pay down debt and stop living on borrowed money, you are making a decision to delay gratification. This is a very difficult thing to do! Essentially, you are choosing pain over pleasure. Whenever we make a decision to change what we enjoy -- stop eating chocolate or red meat, start exercising --even when it's good for us, it has a price tag.

It's so important that you go through the process of acknowledging that pain. There is a reason it takes people 19 attempts to stop smoking before they actually do it! That's why I teamed up with Dr. James Prochaska [psychologist and author of "Changing For Good"] to create the Debt Diet. We used his rules and philosophy. To help people deal with the trade-off, they need to do the exercises first. 

CreditCards.com: Still, making such changes are probably easier for single people rather than those who are married or have a family, right? You can't force someone else to change their habits.

Chatzky: Yes, which is why when you are trying to do something with a spouse or partner, it helps to talk about the goals and work on them together. Even if it takes you a different amount of time to get there.

Watching the debt go down is motivating! It carries a sense of pride. As long as you're heading in the right direction, you're doing great.

-- Jean Chatzky
Personal finance guru

CreditCards.com: What if the other person isn't so committed? Don't you need buy-in from a partner?

Chatzky: The tipping point comes for most people when there are twice as many reasons for making the change as the reasons for not doing it. You have to ask the other person if paying off the debt will make you sleep better, and ask how it would feel if you did save money. There's an exercise on my website to help couples talk about it.

CreditCards.com: And then, when you finally get to the point where you are ready to repay, how do you recommend someone do so? What are your best tips?

Chatzsky: Well, there's actually a step to take before paying your debt. You've got to free up cash. Make small and medium changes in your budget to find the extra money. Then use the DebtGoal calculator: You pay the debt with the highest interest rate the most and pay the minimum on all others. When that's paid off, you pay more to the next highest interest account. This is assuming you've already gone through the process of trying to negotiate the APRs on your credit accounts and being in the strongest position.

CreditCards.com: It's one thing to get started on paying debt down, but keeping to the plan is what's usually hardest for people. How can people stay motivated and not give up?

Chatzky: Watching the debt go down is motivating! It carries a sense of pride. As long as you're heading in the right direction, you're doing great. Put notes about your debt up on the refrigerator, and when you achieve your goals, circle your progresses. Put a gold star on your note! 

Like a diet, it helps to build in some little rewards throughout the process. When you pay off a credit card, give yourself something. Just make sure the rewards won't put you back in the hole. It should be a pick-me-up, not drag you down to where you were.

CreditCards.com: Now shoot to the future -- how do people feel when they pay it all off?

Chatzky: People like Lisa Bradley are good examples of how paying off debt affects your entire life. I worked with her on the Oprah Show. When she was debt-free and not carrying this god-awful weight, she felt as if she was a better spouse and person.

Hers is a very typical reaction. Remember, people in debt often feel shame and embarrassment -- and removing that debt makes you feel less shameful and embarrassed. Once you're able to get a grip on one area in your life, you learn the skills necessary to make the changes in other areas. It gives you control not just over your money, but your whole life.

See related: Help for bad credit, How to make your first budget, 8 steps to reducing credit card debt

Published: June 9, 2010



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