Refund rescues: The Ericksons

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 - 6:17 PM

The last time financial educator Ruth Hayden connected with Malinda Erickson, 36, the single mother of two daughters spoke in hushed tones from the office. Months behind on her cell-phone bill, her service has been suspended, and she has no phone in her Coon Rapids apartment.

She wants to buy a house and pay off her credit cards and personal loans. But first she needs to stop her emotional spending and tendency to ignore bills that she can't pay in full.

Erickson stopped paying one credit card bill for months until the company contacted her. Then she agreed to a payment plan for the $1,350 balance that stressed her cash flow (her child support recently was reduced). She's keeping that promise, but only by putting off her utility bills.

While it's been a tough few months, Erickson can't wait until Friday, the due date of her final payment.

While her balance sheet looks better, Erickson hasn't used any of Hayden's advice aimed at changing her unhealthy relationship with money. She's still using her debit card instead of cash, isn't scheduling a weekly money meeting with herself, and fails to regularly repeat her "money mantra," a phrase designed to help change her money beliefs; she couldn't stick with one.

Erickson admits to ignoring Hayden's suggestions. Cash doesn't work for her family, she says. "It's just too hard to pull cash out. It just is." Even so, Erickson says, "my daily focus is on my financial situation."

Says Hayden: "She wants to do it her way."

But the women aren't giving up. They have a plan to meet as soon as Erickson's $4,000 tax refund arrives so they can determine how best to put the money to use. Until then:

Set realistic goals: In January, Erickson insisted she'd be buying a house in August. Yet she hasn't paid off her debts, checked her credit score, or started saving for a down payment. Now eagerly awaiting her refund, Erickson plans to pay off her remaining credit card, get current on her utilities and pay all of her personal debts with the cash.

Hayden worries there won't be enough money. "She sets up these plans that aren't going to work," Hayden says.

Set money aside: Hayden would like Erickson to set aside a small amount of her tax refund. Emergency savings would prevent her from building up credit-card debt again or regularly paying for an expensive bank advance against her paycheck to make up for shortfalls.

Adjust her tax withholding: Although a refund feels like a windfall, Erickson could put that money to use in her day-to-day budget. "People that want to keep big refunds literally build up debt toward it," Hayden explains.

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