Welcome to Fix My Finances, Yahoo Finance’s new personal finance series. Each episode, we take a look at one viewer’s financial state of the union and offer advice, insight and information on a variety of issues, including how to save more, spend less and pay off lingering debt.
On this episode we meet Katie, a 32-year-old marketing and PR director who lives in New York City. Katie’s biggest financial gripe is that she mindlessly swipes her credit card.
Katie says she spends about 50% of her take-home pay on rent living in New York City’s pricey Upper West Side neighborhood. According to the US Department of Housing and Urban Development (HUD), paying more than 30% of your gross income on rent can make it hard to cover other expenses.
Katie might not want to read this, but it would be in her best interest to get a roommate, move to a cheaper neighborhood—or both.
Credit card debt is by far Katie’s biggest financial concern. Two of her three cards are with retail stores and have sky-high interest rates around 25%-26%. Katie enjoys shopping for clothes, but is frustrated by how much she ends up spending.
On a budget? Scrap the retail cards
Retail cards are notorious for high interest rates and low credit limits. Plus, they present another temptation to spend. Katie’s retail credit cards are encouraging bad behavior and sinking her in the process.
First, she needs to get rid of her clothing store credit card by paying it off and then canceling it. She can make the minimum payments on the other cards while doing this. Next, she should do the same with her online retail card.
Once the retail cards are paid off and canceled, Katie should keep one national credit card with a lower interest, which is probably around 15%. That way, if she ever carries a balance, she will save significantly.
Katie told us she rarely uses cash and puts almost all of her spending on credit cards. She should try going cash-only for a few weeks. By relying so heavily on plastic, she’s stopped making the connection between what she’s buying and whether she can afford it.
Once Katie is credit-card debt-free, she hopes to take more vacations and travel the world. This is good news since research shows people who spend money on experiences rather than things are happier. A vacation would be a well-deserved treat for kicking her mindless shopping habit and paying off her credit card debt.
Watch the video to learn more about how Katie can fix her finances.
Want to be a part of this new series? We are looking for people in their 20s and 30s who need a money makeover. Apply here.