Celebrities are willing to dish on their diets, workout regimes, health issues, partying lifestyles, relationship woes and child-rearing preferences. But the one thing celebrities don’t seem too willing to talk about is their money … or lack thereof.
Behind the glitz and glamour, some celebs are racking up enormous debt as they struggle to maintain their extravagant lifestyles. Noteworthy examples include:
- Lindsay Lohan – Pre-slammer, the former child star was charged with $600,000 in credit card debt in April.
- Teresa Giudice – This Real Housewife of New Jersey seemed pretty desperate in $9M of debt when she filed for bankruptcy in June.
- Mariah Carey – The diva owes her veterinarian $30k. Not such a sweet fantasy.
- Mike Tyson – Iron Mike was a formidable opponent in the ring, but debt KO’d him in 2003, when he filed bankruptcy at $27M in the hole.
- Nicolas Cage – The star can’t work sorcery on his bank account. His Bel Air Mansion went to auction in April after the IRS demanded more than $13M in back taxes.
Unfortunately, as celebrities go into debt with over-the-top spending, Americans are following suit as they try to keep up with them. It turns out that we Americans begin to identify with the characters we see on TV, and we use those lifestyles as unrealistic reference points. Soon “Keeping up with the Joneses” becomes “Keeping up with New Jersey Housewives.” In a study of Americans’ spending habits, Juliet Schor, author of The Overspent American, concluded that each hour of weekly television viewing correlated to an increase in spending of $200 annually.
Scott Crawford, founder and CEO of DebtGoal, says the boring, unglamorous fact we all must face is that financial health means spending less than we earn, whether our salaries are blue collar or red carpet. Here are some of Scott’s tips for managing your debt before it reaches celebrity proportions.
1. Quit spending on your credit cards
It might seem obvious, but it’s hard to make any progress on your debts if you continue to spend on your credit card. Putting away the plastic wouldn’t have freed Lindsay of her debt to society, but at least she wouldn’t owe her credit card company too. If you’re using a credit card for the rewards, stop now! It’s not worth what you pay in interest, and there are debit cards out there from companies that let you can earn up to $600 in cash back annually without going into debt.
2. Negotiate Your Rate
While you’re paying those credit cards down, make sure you are doing it at the best interest rate possible. Most credit card companies are willing to negotiate to lower rates, but you need to make the call and ask. NegotiateMyRate.com provides a free script to help first-timers negotiate better rates.
3. Organize your debts and create a plan for paying them off
Most people in debt know they have a problem, but don’t have a good idea how much debt they really have, what it costs them per month and whether they’re making progress each month or not. The first step in getting out of debt is creating a pay down plan that works for you. Pay the minimums on every account but your highest-interest account and apply the remainder to this account. Doing the math and setting up a pay down system can be daunting, but online tools can help automate this process.
4. Tell others about your goal
Duchess of York Sarah Ferguson is managing her reported £2M in debt with some help from a friend—Queen Elizabeth II. Not all of us have these kinds of connections, but telling a friend gives them a chance to support you and creates positive peer pressure that can keep you on track. Studies show people who tell others about their goals are 10-20% more likely to hit their goals, so don’t be shy.
5. Find additional cash by lowering major expenses
You may not spend lavishly on your dog like Mariah (or maybe you do), but re-evaluate the recurring expenses in your life like your cable bill, cell phone, health club, etc. Netflix has a ten dollar per month on-demand subscription, which costs less than what many cable companies charge. And Hulu.com can bring you most of your favorite shows for free. By moving to a cell phone family plan, arranging to have longer chats with friends during free evening and weekend time slots and just sending fewer texts per month you can significantly reduce your cell bill. Your health club may be willing to reduce your monthly fee if you ask, and if not, a little fresh air never hurt anyone. Consider moving to housing with a lower rent or trading down a car to a different one with lower payments. Such moves can free up hundreds of dollars per month that you can use to get out of debt.
6. Start saving to avoid future debt
Once you’ve got your debt paid down it’s time to start saving. Without an emergency fund and a clear plan to save for the things you really want, you’ll just wind up in debt again. Many online savings accounts helps people save for specific financial goals too.
[AWESOME photo by exfordy]
Killer resources and apps:
- Best Budget Templates & Spreadsheets (FREE)— The best free budget templates from around the community! Including the ones I use :)
- Personal Capital* (FREE) — A great app to track your investments and net worth. You can see an in-depth review we did here from a millionaire who checks it daily 😂
- You Need a Budget (YNAB)* (FREE TRIAL, then $14.99/mo or $98.99/year) — One of the BEST budgeting methods in the space, with new users saving $600 on avg their first two months, and more than $6,000 over their first year! Check out my friend Vic’s review of YNAB here that went on to completely change his finances 💪
- Digit (FREE 6 mo. Trial, then $5/mo) — This is one of my favorite apps for automatically saving money, and I even came on board as an advisor I believed in them so much! You can see my full review on Digit here.
- Acorns* ($3-$5/mo) – Similar to Digit, this app helps you automatically INVEST money by rounding up all your transactions to the nearest dollar and then investing it right away for you. My full review of Acorns can be found here.
- Honey (FREE) — By far my favorite coupon service out there! Click the Honey button any time you're about to buy something online, and BOOM - any discounts it finds will be automatically applied at checkout. You can see my write up on them here.
- Credit Karma* (FREE) — An easy way to check and monitor your credit score AND report! See my full review of these guys here.
- My Favorite Blogs + Books < -- Click here to see all my other recommendations!