Refund rescues: The Bensons

Tax season can bring dread for many Americans. But for the three families participating in the Star Tribune's "Financial Fix-Ups" series, tax time brings opportunity.

By Kara McGuire

Last update: March 10, 2007 - 6:12 PM

"Everything's current," announces Tracy Benson triumphantly, showing financial counselor Tara McCarthy the family's latest financial statements.

Six months ago, the Bloomington family was spending at least $1,000 a month more than it brought in. With roughly $32,000 in credit card debt, a $54,000 home equity loan, and impending medical expenses for the birth of their seventh child, the family was struggling.

In November, Graham, 41, took a second job with FedEx, bringing in an additional $600 a month. Then last month, an $8,500 tax refund arrived, which was used primarily to pay tuition, start an emergency fund, and tackle credit card and medical debt. The couple paid off four of eight credit cards with the lowest balances. Their debt now totals $30,650.

They had hoped to have paid off more, but the Bensons still are using credit and charged close to $1,000 over two months on items such as groceries, family photos, and car repairs.

Tracy, 42, thinks she'll always carry a card, just in case.

That worries McCarthy, although she's seen it before. "People need time to change their behavior." Still, she's proud of the couple's determination and progress.

The family is satisfied, too. "We're slowly getting our debt paid and keeping the kids in [private] school," Tracy says. I think we're meeting our goals."

To continue making progress, McCarthy suggests:

Cut the cards: At their current rate, the Bensons are at least four years from paying off their credit cards. The more they charge, the longer it'll take.

Use the pyramid: The pyramid is a common debt payoff technique used by financial counselors. First, pay double the minimum payment on the card with the smallest balance. Once that card is paid off, the cash now free is applied to the card with the next-largest balance until the debts are gone.

Although some experts suggest attacking the card with the highest interest rate first, McCarthy tells the Bensons to tackle the small debts first for momentum's sake. Getting out of debt "is not as easy as applying for credit," McCarthy says.

See the paycheck: McCarthy has clients write down how much money they bring home and list their expenses. In a world of virtual money, "it's so easy to be able to use a credit card without thinking of the impact it has on your paycheck," she explains.

McCarthy's clients set aside half their mortgage payment from one check and the remainder from the next. Previously, Tracy paid the mortgage from one paycheck and scrambled to pay anything else. She says this method has been great: "It's evened out the whole budget."

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