A step forward, then back

Living paycheck to paycheck is all Malinda Erickson has ever known.

She was in her late 20s, struggling to support her young daughter, when she decided she wanted the nice things her friends and co-workers had. So Erickson turned to credit to support a lifestyle she knew was beyond her means.

She bought a Honda Civic off the showroom floor, figuring: "Why shouldn't I have a nice new car?" She made daylong appointments at the spa, had lunch with girlfriends, spent days shopping. She said 1999 was "the year I lived in Rosedale Mall." She piled up $17,000 in credit card debt and stopped making payments.

Everything crashed quickly. She learned she was pregnant. The creditors started calling. "It got so bad I didn't even want to answer the phone."

She discharged her debts through a Chapter 7 bankruptcy in 2000. Her car eventually was repossessed.

"That was a nightmare," she says. "I don't know what went wrong. I still don't know. It was the worst year of my life."

Today, Erickson, 35, has nothing to show for her year of shopping and spending -- except for damaged credit.

She makes about $30,000 a year working for a financial adviser and thinks it's a good salary. But it doesn't always cover expenses for herself and her daughters Kayla, 14, and Madison, 6.

Recently divorced after a brief marriage, some expenses from starting over landed on credit cards. Payments for those purchases now are nearly six months past due. And with interest rates above 20 percent and fees for being late and over the limit, her balances are rising fast. In June she owed $1,300. Now it's $1,900.

Her credit has suffered dearly. Her credit score is 540, making it difficult and costly to borrow. (Lenders and regulators consider a score between 620 and 680 to be the start of subprime, meaning borrowers are offered higher interest rates; as the scores go lower, interest rates climb.) At lunch with her girlfriend one day, she cut up the cards.

Erickson blames her belief that "if you can't pay it at all, don't pay any. Sometimes for me it's all or nothing, and I've got to let [that behavior] go," she says. Erickson has gone to friends and family to help fill her budget gaps. One year she borrowed money for Christmas presents. A friend lent her $13,000 for a car. She owes friends and family $2,500 on top of that.

Erickson says she wants to stop impulsive purchases when she goes to stores like Target. A recent trip for shampoo turned into a $70 shopping trip. At the grocery store, she often stops in for staples, and "the next thing you know I spent $100," she says.

Without a change, Erickson worries her daughters will inherit her unhealthy spending habits. She remembers her mother, a single mom raising two girls, struggling to make ends meet.

She also wants to get her finances under control so she can move out of her Coon Rapids apartment, buy a three-bedroom home with a room for each girl and start saving for the future. With her work, Erickson understands the magic of compound interest, but she thinks she should pay off her debts before starting a nest egg. "There's no point in trying to tackle savings when you have bills charging interest."

But most of all, Erickson wants peace of mind. "Along with my kids and God, [money] is something that I think of on a daily basis. All the time. It consumes my time. But then the wheels are turning and turning and turning, but I'm not doing anything," she says.

On Thursday, Erickson meets financial educator and author Ruth Hayden, who will teach Erickson that she needs to get rid of the shame and blame surrounding her spending before she can build wealth.