Expert Interview with Gail Vaz-Oxlade on Tackling Debt for Mint

Author, TV host and personal finance expert Gail Vaz-Oxlade doesn't sugarcoat the reasons she thinks Americans are reluctant to tackle our debt: We don't do it because we don't feel like changing anything we're doing in our lives.

"Paying down the debt means not spending the money somewhere else like restaurants, stores or vacations," she says. "It also means limiting yourself to only buying what you can actually afford to pay for at the time. Folks aren't so fond of having to live within their means."

And she doesn't have a whole lot of patience for people who complain that money management takes too much time out of their lives.

"It takes me about one hour a month to manage my money," she says. "One hour. How can that be too much time to spend managing the very thing we drag our asses out to work to make. One hour. Really."

The founder of My Money My Choices and host of Til Debt Do Us Part recently caught up with us to offer her practical and pragmatic thoughts on better money management. Here's what she had to say:

Tell us about your background and interest in personal finance...

I started in money before lines of credit were "a thing." Grew up teaching branch personal what their products were and how to sell them. Moved into freelance writing after I had my kids. Ten years later, I quit it all and moved to the country. Two years after that, TV found me.

Tell us about your latest book - Money Rules - Rule Your Money or Your Money Will Rule You...what's it about and who should be reading it?

This book is for everyone. Young people need to know the rules so they understand the part money will play in their lives. More mature people are missing some of the most common-sense rules, and here they are.

What do you think is one of the biggest myths about money alive today? Why is it a myth?

Easy access to credit has made people forget that money is an exhaustible resource, so the myth is, "There will be more money." It's a huge myth because it assumes you'll never get laid off, see your hours at work cut back, watch your company go bankrupt, get sick, have to deal with a mate's or child's illness or an aging parent. People who take on consumer debt are spending money they have yet to make with the hope that they will make that money. We're now watching people even move into retirement with consumer debt. It's a very slippery slope.

What are the smartest things we should be doing with our money in order to rule it and not the other way around?

To be smart with our money, we have to:

  • A. Figure out where it's been going (that's called a spending analysis).
  • B. Make a plan for where we want it to go (that's called a budget).
  • C. Track where it goes (using a spending journal and cash flow budget) and make conscious decision about what we're going with it every day.

When trying to make over the way we manage our money, why is it important to conduct a spending analysis? What sorts of things should we be looking at?

The spending analysis is the only way to know what you've been doing with your money and what behaviors you'll have to change if you want a different outcome. Here's an example of what I mean:

Let's say you're building your budget and you decide to allocate $600 a month for "food." Off you go to the supermarket. You shop as you always do, come home, cook. You buy more food, cook, eat. You do it all month. At the end of the month you add up all the money you spent on food and it comes to $879.63. "See," you say triumphantly, "budgets don't work." It wasn't the budget. By not doing a spending analysis, you had no idea how much you were spending on food. You kept doing what you'd always done and spent what you always spent. What a surprise!

You need to grab six months' worth of bank and credit card statements. You're going to break every transaction out so you can see EXACTLY where your money has been going. (I've done this for all the families on all my shows, and six months works best to get the clearest picture of what you've been doing. If you short-cut, the results won't be accurate.)

Those numbers become the basis for the budget. You pop 'em into your budget and adjust as necessary to make the budget balance, noting what things you're going to have to do differently if you're planning to spend less.

What do you think are the biggest culprits for debt out there today? Which ones do you think would surprise us the most?

Most people know that credit card debt is dumb, especially high-interest credit card debt. And yet, there are still so many people walking around with store cards and credit cards with balances.

People are less aware of the fact that lines of credit are a BAD idea. With lower interest rates, they're lulled into thinking an LOC is OK. And they've been sold on the idea that an LOC can be an emergency fund. It can't. It's debt waiting to happen.

Car loans are another thing that have gone wonky. Once upon a time, the average car loan was 36-48 months. Now people are taking out car loans for 84 months without doing the math to see how much they're adding to the cost of the vehicle in interest charges.

Perhaps the biggest misconception is that many people don't realize credit card, line of credit and overdraft protection are all "callable." The bank can demand its money back and go into your account to take it if you hold your credit and deposits in the same institution.

What are some best practices for people who want to go debt-free? Where should they start? What good habits do they need to develop?

To be debt free, you have to:

  • A. Make a plan to pay off what you owe.
  • B. Live within your means.
  • C. Pay attention to every penny.

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