Looking for advice on a credit card abuse situation

[JoeP]

Little bit of a vent post...

My family seems to have a problem with credit card usage. We can easily afford monthly expenses, and sometimes we use the credit card for convenience and situations like ordering stuff off the internet. It sometimes gets up to the $800 range, but we are pretty quick to pay it off.

Last night I blew up. A local jewelry store is going out of business, and for some reason, my wife ran up over $2k there. I got a watch I liked, but did not need or necessarily want. My son got a watch for his birthday. My daughter got a pre-sweet-16 gift and my wife got something she wanted. The rationale: "We can't turn down deals like this, I always want jewelry and this was a great opportunity to save a lot."

And since my wife does all the clothes shopping for the kids, she puts about 90% of those purchases on the card. The excuse is normally along the lines of, "They needed clothes." A quick review of the statement also showed around $400 worth of groceries were put on the card, as well as beauty supplies and various mall stores.

When we get saddled with paying $1000/mo to service the CC balance, of course things are going to be tighter. It gets worse when new purchases fight against our efforts. Last time we ran up debt like this, we literally froze our cards in ice in the freezer to avoid usage.

The good news: we save a lot toward our 401Ks, IRAs, Roth IRAs, and EF. I tried to share the vision of no big CC payments with my wife, but she always answers with the good news about how much we save, and doesn't see the negative. Unfortunately, any money left over after expenses and saving appears as free money, and is quickly employed to spend on non-critical things.

What kind of strategies can we use to avoid situations like this again?

Thanks for listening.

[MonkeyMama]

Maybe it's good to cut up the credit cards and employ a cash system. (Does she treat cash differently than credit?). On some level that may be the simplest solution.

From your post I am kind of vague on the "big picture" and why she should not be spending the money. Don't get me wrong, no one in our family would drop money like that, but it's because we have clear long-term goals. Ambitious goals that would trump spending money willy nilly. I think you need to sit down and lay out what your goals are, what you are working towards, etc. Employ a "pay yourself first" system for those goals. If there are no goals, then sure, why not spend the leftover money??

I don't know what your "big picture" is. Do you have a mortgage that could be paid off? Any other debt? I'd start with that. "We could pay off the mortgage 10 years sooner if we put that money to the mortgage instead." If not, then maybe it's thinking about retirement, financial independence, or even just saving up for something larger than means something to you both. When she bores of the jewelry (she likely will) remind her of what else you could have done with the money.

[Nika]

I agree with goals being important.

Your wife may think "we are doing OK, saving for retirement, why can't we buy something we enjoy?" and really, there is no reason to deny yourself unless there is something more important, something you want more, that will give bigger enjoyment than that jewelry.

Are there are long term goals that you both want but not saving enough towards?

I don't know... College fund, kitchen remodel, a long awesome vacation or retiring at 55...
You only forego something in the now if you want something else in the future more. Otherwise, it would not be rational.

[ua_guy]

It sounds like you guys already have good financial stragegy, and goals to push towards in terms of saving and retirement. I don't think that's the issue.

It sounds like what's missing is discipline. Everyone in control of the money has to be on board with how money is handled.

If your wife can't control her spending, then I think the two of you should have a serious chat. Maybe the answer is she operates on a cash-only budget for a while if having access to a credit card is too tempting. Maybe the answer is setting aside a small personal spending budget for her if she "needs" to be able to spontaneously purchase things, so she doesn't sacrifice the family credit card. I don't know how much she contributes to the family income, if at all, but if she does, there should be an agreed use for her to spend money as she wishes, too (after meeting your mutual goals).

To trash the family credit card with $2k in jewelry would be unacceptable in my house. Maybe start with asking her what the answer is? How does she plan to repay it?

[phantom]

It sounds like you guys don't have a budget and like you could really use one. Kids are going to need some clothes. Groceries will need to be purchased. Spending some money on gifts, jewelry, and beauty supplies can make sense. But, when all of your spending on those things happens on a whim, it's hard to get a sense of where the line between reasonable and out of control lies. Having a budget shouldn't mean your wife won't be able take advantage of deals when she finds them. But, it might mean that she has to pass on some purchases to have money set aside for others.

I'd definitely literally freeze the credit cards again and try a budget. Once you get used to the budget, perhaps you can unfreeze them. But, I'd only do that if both you and your wife can agree that spending what you can't pay off immediately is a bad idea.

How long is it going to take to pay off the $2000 that was spent at the jewelry store? I can't tell from your post. For the sake of example, let's say it's going to take a year to pay off and your interest rate is 20%. That would mean the jewelry was actually $2400. Maybe that makes the deal sound less good? (Maybe not, if the liquidation signs said 75% off and your wife believes that means the jewelry is worth four times what she paid.)

Another idea might be to see what you can get for the watch you don't really want on eBay. If you can get your money back, you've corrected your spending mistake. If you can only get a fraction of your money back, perhaps that helps show that the giant neon signs don't really mean "great deal."

[Fishindude77]

These are just basic spending discipline issues, good responses above.

Our kind of unspoken rule is that credit cards only get used for gas, incidental mail orders and items that we are both aware of and agree on beforehand. They get paid off in full each month.

This is another good case for using actual cash in lieu of cards more frequently. When you have that money on your pocket and physically have to hand it over and see it go away, you tend to think a little longer, harder and smarter about making purchases.

The no cash, no checks, all plastic / electronic spending lifestyle tends to dumb people down financially in my opinion.

[MonkeyMama]

P.S. My response was assuming you can easily pay off $2k. It was just the perception I got from the OP. The thought of running a balance on a credit card absolutely horrifies me and would be a much worse situation, in my opinion. Which maybe this is.

[snafu]

I guess you're miffed at wife for impulse purchases. I presume the items from the jewellery shop are not returnable. You could try to re-coup some of the cost by re-selling the watch. If the items she bought for herself can be classified as 'precious' stones and 18K - 24K gold, it has potential to appreciate in the future.

You do a terrific job working out spending for Savings and 'Needs,' what is the criteria for spending on "Wants?" Would life accept a sum worked out as a percentage of income for various categories as 'clothing?' The research suggests 4% of income as 'typical.' What was spending in that category 2014? Do you find you wear 20% of your wardrobe 80% of the time? [Teenagers have a different/unknown system]

We adopted the 'new item in - old [similar] item out' protocol and really try to double items leaving. An unexpected benefit was the savings that resulted from stopping impulse purchases. You know, walking in the door, that something needs to go immediately. Unless it's a planned purchase, impulse items all too often disappoint in the long run.

A third solution might be to workout budget figures for various spending categories and challenge yourselves to figure out how to cut back spending in those categories to fulfill funding a 'want.' I know I can slash Food category [both home and eating out] with meal planning making nutritious but far more boring meals causing teens to grumble and none of the extras that DH expects. He must cut back on driving and how much he spends on transportation, planning routes so errands mesh, parking in cheaper lots and walking a lot further to events etc. DH is our 'clothes horse' and he needs to find cut backs to buy higher quality items for example.

...just an unedited response to your vent

[creditcardfree]

I agree with many of the above responses, so I won't repeat, but add to the discussion. OP, I'm sure you know that spending money isn't 'saving' money as your wife has said. One way to start fresh is to agree that saving is only when you put money into an account for later use. You can't spend $2K and say you are saving money. What she did do was spend money and she likely got the items at a discount that to her seemed large enough to justify the purchase.

In our house it has never come up to purchase items over $200 without talking first to the other person. My husband went to get new running shoes the other night and I expected at least $100, but instead it was $130. And I knew about this plan before he went. If I'm clothes shopping for the my teens they are usually with me and my husband knows we are shopping and what for. There really isn't a surprise.

I would say there has been a disconnect or break down in the communication financially. Try to move forward in bridging this with goals and expectations of one another.

[creditcardfree]

You can't spend $2K and say you are saving money. What she did do was spend money and she likely got the items at a discount that to her seemed large enough to justify the purchase.

And the only way your wife could honestly say she saved money in this situation is to take the difference in the original price of the jewelry and what she paid and put it in savings. Which if originally you had been planning to spend $2500 on jewelry and then only spent $2K, then putting that 'saved' $500 aside for future goals could be considered savings.

OP, I know you get this, but your wife isn't using the right words.

[creditcardfree]

You can't spend $2K and say you are saving money. What she did do was spend money and she likely got the items at a discount that to her seemed large enough to justify the purchase.

And the only way your wife could honestly say she saved money in this situation is to take the difference in the original price of the jewelry and what she paid and put it in savings. Which if originally you had been planning to spend $2500 on jewelry and then only spent $2K, then putting that 'saved' $500 aside for future goals could be considered savings.

OP, I know you get this, but your wife isn't using the right words. As gently as possible call her out on this.

[rennigade]

Not enough info was given by OP.

So your wife was spontaneous and spent $2k. How much do you have in savings/retirement? What other debts do you have? $1k/month on credit card doesnt sound like a lot to me. If you have a huge EF its probably not that big of a deal. If it starts to happen each month then yeah...there is a problem.

From what you said you guys are contributing a lot to retirement and EF. Just remember, you cant take the money with you when you're dead. Its fun to spend money on "junk" you want but dont need as long as your finances are in order.

[disneysteve]

What kind of strategies can we use to avoid situations like this again?

Very simply, you and your wife should agree on a dollar amount limit for using the credit card without discussing it with the other partner first. I can't say what a reasonable limit is for the two of you but you guys need to decide that amongst yourselves.

There's no way my wife would go out and spend 2K on jewelry without speaking to me first. We don't have a specific number that we stick to but pretty much anything over $100 or so doesn't happen in our house without the other person knowing about it (unless it's for something non-discretionary like a car repair, tuition bill, etc.).

[LivingAlmostLarge]

I don't think it's the amount right? It's the idea of spending money you don't have? Because you are allowed to spend $1k. I think our credit card bills this month is probably around $4k if I had to guess. It's not the spending amount but the cause?

[JoeP]

Very simply, you and your wife should agree on a dollar amount limit for using the credit card without discussing it with the other partner first. I can't say what a reasonable limit is for the two of you but you guys need to decide that amongst yourselves.

This is precisely what I suggested. Let's agree that we can collectively put $X a month on the card, on top of the automatic withdrawals (cell phones $160 and Netflix $8). Maybe that figure is $300. Anything above that, let's have a quick discussion about it.

If either of us really want something, we budget for it. This is sometimes in the form of going to the ATM, taking out a little every week, and putting it in an envelope. Other times, we time bills in such a way that we have extra for that purchase.

I guess I am being critical of how easily my wife let go of so much money, being triggered by the word "sale" at a jewelry store. She is the one who scours the paper for grocery sales and does her homework when it comes to getting in-store discounts.