Stop charging stuff on credit cards
This might seem like a no brainer to some, but to others it is real issue. People trying to get themselves out of debt can have a hard time doing so if they continue to use credit cards instead of cash. When you're in the debt hole, a credit card isn't a ladder to help you get out. It's like a shovel that digs your hole only deeper. The enticements to use the credit cards, like low introductory interest rates, rebates, and, travel points, don't help at all. If you're in the debt hole, you need to ignore these incentives and take steps to make steps to climb out of the hole!
If you use credit cards out of necessity, you need to take a hard look at what you are purchasing with the credit cards. The suggestions that follow should help.
Identifying the Stuff
The first step to take is find out what 'stuff' you are charging. Get your last few months of credit card statements, a pad of paper, a pen, and take a look at what you purchased with the credit cards. Make three columns on a piece of paper. Title them as follows; Bills and Utilities Stuff, Store and Online Purchases Stuff, and, Other Stuff. You can take it a step further and add columns to track the amount of the charge for the stuff, but keeping this simple is more important than detail right now.
Next, take another hard look at the things that you charged. Put an 'X' next to each item that you know that you could have lived without, a 'feel good' charge. Circle those items that are necessities in your life. Place a check next to anything that wasn't a necessity, but something that you like anyway and aren't really willing to do without. If there is anything left that doesn't have an 'X' or a check mark or is circled, draw thin line through it. These are things that you don't need and can live without. Take an honest look at why you decided to trade your money for this 'stuff' and keep reading...
Click here for an example of what your paper might look like -
Click here for a spreadsheet
Breaking the Cycle (BTC)- Start paying cash
Let's look at ways to make purchases in the future without using the credit card. Each charge that you made was a payable to someone, that instead of giving them cash or writing them a check, you opted to use a credit card. From a convenience and speed perspective, nothing is better than swiping the plastic to take care of the bill, but at the same time it conveniently and speedily puts you in debt! It is too easy for most people to make charges to their credit card and lose track of how much they've spent until they get their credit card statements in the mail.
BTC Strategies for necessary stuff- The Circles
- Set up an online checking and savings account, like at ING DIRECT, where you can get free on-line bill pay, a debit card, and, electronic checking. Instead of having your monthly cable or satellite services charged to a credit card, pay them electronically with free on-line bill pay. You can schedule regular payments to come out of the account so that you don't really even have to think about it. If the payments are variable, then go to the utilities web site, and change the credit card billing information to the debit card that will come with your new online checking and savings account.
- Other necessary purchases like food, clothes, and gasoline should no longer be charged to your credit cards. Instead, plan for these purchases in your budget and begin using cash or your debit card. If you have a traditional bank (bricks and mortar, local branch) where you have a checking account, write checks instead of using the debit card. This helps to break the habit of using plastic. Have a personal goal of eliminating plastic from your life. Its good for your finances, and good for our environment!
- Carry cash instead of credit cards. Use cash for the small minor and daily necessary purchases.
BTC Strategies for stuff you're not willing to do without- The Checks
- Eating out is something that many of us enjoy and might not be willing to do without. But, do we need to charge these dining expenses to a credit card? Remember, these are items that are more discretionary than the necessities and are things that are more lifestyle, quality of life type things. Don't let that which brings quality to your life contribute to your debt hole! Bring plenty of cash to pay for your dining entertainment. If you don't have the cash, then reconsider whether or not you can afford this lifestyle (right now anyway, after you get out of debt, you'll surely be able to better afford it!).
- As already mentioned, these are truly quality of life and lifestyle things which need to be considered in a budget. If you are regularly charging these 'Checks' to your credit card, ask yourself if you could continue enjoying them if you had to pay cash each time. Could you even do it on cash? If not, then this is a HUGE wake up call that you're living beyond your means. This is probably one of the big reasons why you're in a debt hole with nothing to help you but a maxed out credit card and some airline miles!
BTC Strategies for the 'Feel Good' stuff
- Sometimes people shop and buy stuff just because it makes them feel better. For many this is an addiction for which professional intervention should be sought. For others, it is a matter of prioritizing what they want to use their money for, and how they're going to pay for it. When going to the mall out of boredom, bring some cash, leave the credit cards at home. This limits what you can buy on impulse and won't dig your debt hole any deeper.
- Put a freeze on your credit card. This doesn't mean you call the credit card company, no it's much easier than that. Here is what you do. (1) Get an empty coffee jar, or some other plastic container. (2) Fill it 3/4 full with water. You can ad some food coloring if you'd like, it makes for a nice effect! (3) Carefully place all of your credit cards in the water. You must be very careful so as to not splash yourself and get everything around you all wet! (4) Place the container with the credit cards in it into your freezer and let chill for 24-48 hours. Now, when you're getting ready to go to the mall and get some feel good stuff, you'll have plenty of time to think about what you're doing with your money while you wait for your credit card to thaw out...
Now, some will tell you to keep one of the credit cards out for emergencies. I've thought about this long and hard. Don't do it- freeze them all! If you are in a debt hole, no matter what, you don't need more debt. There isn't anything so important that you need to spend money on right NOW!
BTC Strategies for all the Other Stuff
- Plan your purchases. This other stuff is stuff that you've determined that you didn't even need! You just bought it! Now, if it still has tags on it or if its still in its package, maybe you can return it or sell it on ebay.
- Get on a budget to help plan where you're spending your money. Don't lose site of the fact that just because your not forking over cash or righting a check that you're not going to pay for this. Borrowing and spending is a plan for disaster. You want out of the debt hole don't you? Cut out this other stuff then!
In summary, the goal is to avoid using the credit card to finance your purchases. Although credit cards are convenient and efficient, if you're using them instead of cash, then you're in danger of digging a hole that will be very hard to get out of. There used to be a saying that if you don't have the cash in your wallet, then you can't afford it. In today's world, if you don't have the cash in the bank or the cash flow to afford this stuff that you are charging on your credit card, then you can't afford it. Credit cards are the number one reason people have driven themselves into bankruptcy and other financial ruins. Be wary of credit cards, use cash and checks instead.
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