Gift-giving time pressures those paying off debt

The official launch of the shopping season this weekend seemed like a natural time to check in with the three families that are allowing the Star Tribune to chronicle their attempts to get out of debt.

Faced with credit card debt and next to no savings, they must spend conservatively and stick to budgets worked up with financial advisers. There's no wiggle room for money mistakes.

The Bensons

For Graham and Tracy Benson, buying for immediate family members means nine gifts under the tree if their seventh child, due Christmas Day, is included in the count. The family already has made changes.

For years, Tracy, 42, and Graham, 41, have been spending as much as $1,000 more per month than their income. The biggest change: Graham's part-time job as a package handler for FedEx, which he works after his full-time copy-writing job.

That means $160 more per week in income, but he gets a mere five hours during the work week with his children, whom he misses dearly.

Since bringing in the extra income, they've managed to pay down $500 of their $32,000 in credit card debt, as well as some outstanding medical bills and some new ones, too.

The bills pile up quickly with Tracy frequenting doctors and her children getting the typical ailments - most recently strep throat. Plus, Graham's 20-year-old van needs about $800 in repairs.

Then there's Christmas.

During a phone conversation, Tara McCarthy, the Benson's financial counselor, tells them that establishing a gift-giving budget is a must.

After going over their cash flow with McCarthy, president of Financial Rehabilitation Inc., and discussing their expenses, the Bensons budget $500, about $300 less than they normally spend. They'll use money from Graham's second job to buy gifts this year. "I am very conscious that any money we spend keeps Graham working the second job longer," Tracy says.

She's being creative, not opposed to giving gifts from a stockpile of summer garage-sale finds, scouring for free items online, and using other resources in the community.

Tracy is used to shopping early and charging things on a credit card. But this year, "Tracy and I are going to stick with cash," Graham says. Waiting to finish the shopping until close to Christmas day will be different this year, but necessary with the all-cash plan.

"We'll definitely have fewer presents without using credit, but we'll be enjoying other things more this year," Tracy says. "We are all excited about the baby." And excited about time off with the entire family at their home in Bloomington.

Holly Lesmeister

Since meeting with financial adviser Echo Huang in August, 30-year-old Holly Lesmeister's checking account balance has grown from $50 to about $600. She's more conscious of her finances and has reduced her clothes and food spending each by $100 a month. But she still needs to cut out $50 more in both categories to stay on her budget, and Huang suggests she start making lunch at her Minneapolis apartment to bring to her graphic design job and switch to a different grocery store (she shops at Kowalski's).

Huang is pleased with Lesmeister's progress. Compared with her old ways, her new spending is a "great improvement," says Huang, a certified financial planner with the Advocate Group.

One thing she really wants to see soon is Lesmeister transferring $50 monthly to a high-interest online savings account. Otherwise, she may get used to her higher checking account balance and feel the urge to spend the money.

But Lesmeister won't begin to pay down her student loan debt aggressively until after Christmas, even though the longer she waits, the longer it will take for her to buy her own condo. Instead, she'll use half the $600 in her checking account for the holidays. She'll open a savings account with $50, as suggested.

Fortunately, her family decided long ago to limit gift spending to $20 per person.

After spending $160 on gifts for eight people, she figures she'll spend another $140 on food, wine and parties. But no new outfits this year. "I have to force myself to get creative with clothes I already have ... or check out some second-hand stores," she says. She also won't hop on an airplane as she usually does to visit friends on the West Coast for a week. Minnesota in the winter is a tough sell, but she figures they can come visit her for a change.

Malinda Erickson

Malinda Erickson, a 35-year-old office manager for a financial adviser, still is struggling with her emotional money issues and destructive spending habits. One day she spends wisely, as when she wrote a list for Target and was "in and out. It felt really good." On another day she buys herself pet mice, despite being over the limit on both her credit cards.

She also recently lost her car insurance - which she's working to get back- because of late payments and continues to routinely miss the due date for rent on her Coon Rapids apartment. "She keeps having one little crisis after another," says Ruth Hayden, a financial educator and author helping Erickson with her finances.

"I'm worried that closer to the holidays, some of her old beliefs will push in and she'll want to buy nice things for both of her girls," Hayden says. "It's a very seductive time." Erickson, who once filed for bankruptcy, tends to shop when she feels down.

Like McCarthy, Hayden tells clients to set a budget and use only cash. That way, when the money's finished, so is the shopping and spending.

In their meeting, Erickson and Hayden settle on $100 for gifts and $50 to be sent toward one of her credit cards. But days later, Erickson says she's not sure that's going to work. The present her eldest daughter Kayla has in mind costs close to $200 alone, and Erickson is trying to convince other family members to chip in. Then there's her younger daughter, Madison, her dad and her boss to buy for, not to mention the $10 gift exchange at Madison's day care.

But Erickson is used to heading into the holidays with little to spend. "We've had some pretty tight Christmases before." Determined to turn her financial habits upside down she says she's "not backing down or quitting."

Will the three families stick to their budgets? We'll find out in January whether they were naughty or nice.

Kara McGuire - 612-673-7293 - Read Kara's blog: www.startribune.com/kablog