Reducing Debt the Old-Fashioned Way: Cutting Expenses

As job cuts mount and the nation continues to experience economic uncertainty, now is the time for Americans to take control of their personal finances—for many that starts with managing their credit card debt.

Restoring good credit and avoiding financial hardship or even ruin, however, does not come easy. According to Ginger M. Broderick, clearing up a credit report takes about five years on average. Though a formidable challenge, it’s one that consumers are capable of overcoming if they are willing to take certain steps and modify their spending habits, an October New York State Society of CPAs credit card debt seminar illustrated.

During the three-month period ending June 30 of this year, 390,000 Americans filed for bankruptcy—the most ever in one quarter. And the nation is currently on pace to set a new annual record for the number of bankruptcy filings, surpassing 1998’s mark of 1,442,549, according to Kiplinger’s.

Individuals who get in too deep and face possible bankruptcy typically fall into one of several categories, said seminar speaker Marc Pergament, Esq., of Weinberg, Kaley, Gross & Pergament in Garden City, N.Y.

These include: people who live beyond their means; people who use credit cards to pay for all their basic necessities; college students who believe credit cards are a license to spend; and individuals who are not covered by health insurance or have poor coverage and are burdened by large medical bills.

Pergament said company owners who are trying to keep their struggling businesses afloat are also susceptible to steep credit card debt.

“Bankruptcy is a last resort,” said Pergament, a specialist in bankruptcy and workouts. “It’s not where you want to be because the cost of bankruptcy is enormous. The legal fees are enormous.”

Before meeting with clients who are in deep debt, Pergament said he asks them to bring a budget of their expenses so that he can see where they should cut costs. These meetings are often stressful and counseling is sometimes recommended. In the past, fathers have been told that their kids need to get part-time jobs and company owners have been advised to let employees go, Pergament said.

“With a change in the economy, people have to change their habits and lifestyles,” said Broderick, president of Broderick & Co., CPAs, PC in Manhattan and a speaker at the seminar. “There’s always ways for people to cut their budget.”

Cutting expenses, Broderick says, can be a simple matter of focusing more attention on careers and personal relationships instead of doing things like eating out and shopping. Broderick, a frequent tax consultant for NBC and CNBC and chair of the NYSSCPA Diversity of the Profession Committee, also recommends consulting personal business advisors if financially possible.

Once the bleeding stops, both Pergament and Broderick said individuals and families need to establish a budget for themselves and learn to abide by it. Pergament further suggests that when bills are received they be paid promptly. He also recommends opening a separate account for extra expenses like Christmas and vacations, contributing a set amount to it each month.

While Broderick believes corrective behavior is possible through taking care of one’s own finances, she said there are situations in which people should get rid of their credit cards completely if they have demonstrated that they cannot control their spending.

Lawrence E. Shoenthal, J.D., CPA, a principal with M.R. Weiser & Co., LLP, in Manhattan and a former chair of the NYSSCPA International Taxation Committee, also provided the CPAs in attendance with technical information pertaining to the tax consequences arising from the compromising of credit card debt.

Representatives from the Associated Press and The Wall Street Journal attended.

The NYSSCPA Public Relations Committee, which sponsored the Oct. 11 seminar, will hold a similar event on Jan. 16. Please contact Lois Whitehead, public relations manager, at (212) 719-8405 or lwhitehead@nysscpa.org for information.