What to Do When Living Beyond Your Means Catches Up to You

Featured client profile: Michael - Travel & Living Large

Michael took lavish spending to the next level, but finally realized he couldn’t keep up.

Keeping up with the Joneses is nothing new, but social media has increased the pressure to one-up and show off exponentially. You see friends and family living lavish online – sporting the latest brand names, take extravagant vacations – and you feel driven to do the same and even out-do them. For many people, this desire quickly leads to credit card debt because you end up living beyond your means. But when your lifestyle outstrips your income, it’s time for a change.

For Michael, his obsession was being well accessorized…

When Michael got his first credit card after college, he didn’t just go out and buy a bunch of jewelry to one-up his friends. Instead, he went out and bought gems that he could take to a jeweler to design custom one-of-a-kind pieces.

“I really like cool jewelry, but I went overboard buying gems. I bought rubies and emeralds and diamonds. I wanted to get specific gems so my local jeweler could set them in pieces of gold jewelry, like rings, bracelets, and chains.”

Between the cost of the gems and the custom settings from his jeweler, Michael quickly ran up the balances on three credit cards. In less than a year, he’d amassed thousands of dollars in credit card debt.

Michael made minimum payments, but they barely covered interest charges…

Michael realized that buying gems and customizing jewelry had gotten him the attention he wanted, but it had also gotten him buried under a mountain of debt. He made a commitment to stop charging, but like many people, he was already stuck in a trap between low minimum payments and high interest rates.

An example of why minimum payments get you nowhere when you’re living beyond your means…

Michael had one credit card where he’d run up a $5,000 balance at 27% APR. On a standard 2.5% minimum payment schedule, his minimum required payment each month was $125. Michael paid that amount diligently, but his balance never seemed to go down. Here’s why…

  • Michael paid $125 each month
  • However, $112.50 of that payment went to cover accrued monthly interest charges
  • As a result, he only paid down $12.50 of the actual balance owed
  • So, even though he paid $125, his balance only dropped to $4,987.50

Michael admits that although he tried to stop charging, he was still using his cards to cover unexpected expenses. Unfortunately, those seemed to come up every month. And since he was only paying off a small portion of the principal (the actual debt owed), even a few small charges were offsetting any progress he made.



Michael knew he needed help, so he signed up with the first company he could find…

It was clear he wasn’t getting anywhere on his own, so Michael knew it was time to call in the professionals. And he had no shortage of people that wanted to help him get out of debt. His mailbox was flooded with offers. He didn’t want to take out a loan to consolidate, so he went with a debt consolidation company instead.

This is a common challenge that consumers face when it comes to getting help to find debt relief. Not every company is above board and there are plenty of companies that want to scam you. There are also companies that claim to offer debt consolidation when what they actually do is debt settlement.

These companies convince you they can get out of debt for less than you owe, you pay money upfront, but what they don’t tell you is that they won’t use the money to make monthly payments to your creditors. Instead, they let your accounts fall behind and use the funds that you paid to settle for less than you owe. The only problem is that this ruins your credit and some companies don’t warn you about this upfront.

For Michael it was even worse. The company was a complete scam that ripped him off.

“I kept calling them to find out what was going on, but they never called me back. I’d paid them $800 and that money was just gone. They’d completely disappeared, and I had no way of finding them to get my money back.”

Michael still needed help, but didn’t want to get scammed again…

“I saw a commercial on TV for Consolidated Credit, so I looked it up online. I noticed your counselors are certified and that you had a A+ rating with the Better Business Bureau. You also had good reviews on independent review sites. I was hopeful that I could trust that this time I wouldn’t get scammed.”

Michael spoke with a certified credit counselor who conducted a free debt and budget evaluation. They looked at his expenses and his bills. The counselor helped him find a monthly payment that he could afford. Then they helped him balance his budget, so he could stop living beyond his means.

After that, the counseling team got to work and called his three creditors. They agreed to reduce the APR applied to his balances and accept payments through the credit counseling agency. He still owed his original creditors, but Consolidated Credit was there to act as a go-between and help keep him on track.

Michael decided being debt-free was worth more than impressing his friends…

“I decided to sell most of my remaining gems, so I could at least get some money back to pay my bills.”

Each time Michael sold something to get extra cash, he called his credit counseling team to handle distributing the extra payment. This is important for people enrolled in a debt management program, since making payments outside the program can affect your enrollment.