I can remember when Carrie and I had money in the bank and no debt, except for the $27,000 mortgage on our first house. We had two very used cars and no credit cards. Eventually, we did have to buy a newer, more reliable and economical car for me to drive to work in the next town over. No problem. We had two loans to pay each month. Still, we had no credit card, we paid cash for everything. It was the early 90s, Carrie and I were in our 20s and we lived on less than $1,000 per month. Life was simple then.
One day, Carrie got into a car accident. She was OK, but we needed to rent a car while the mechanic assessed the damage. The rental company wouldn’t rent us a car because we didn’t have a credit card. My dad had to rent it for us, using his card (talk about embarrassing). That is why we got our first credit card.
We said to ourselves that we would never use the card unless it was to secure a rental or hotel room or if there was an extreme emergency.
Then one day, I was at the bar with friends. I had thirty something dollars in my pocket and a forty something dollar bar tab. You guessed it. I plopped down my virgin credit card, and paid the tab. My life was forever changed.
Need Debt vs Want Debt
There are two types of debt in my mind. One type of debt is used to procure things that we more or less NEED, like houses. Everyone needs a place to live, and buying a house is usually a better idea than renting, since you can build equity which is a very good thing. For most people, cars are often the only way to get around, especially if you don’t live in an urban area with a reliable transportation system. Cars are expensive, even used ones, and sometimes you don’t have the luxury of saving up for one. In both cases, you can usually take out a low interest loan or mortgage for under 6% interest.
WANT debt is a completely different story. Want debt occurs when your desire for immediate gratification overpowers your patience, and you purchase something now, that you don’t have the money for. This type of purchase is almost always completed using a high interest credit card. The interest rates on these cards can be over 20%. If you don’t use discretion with your credit cards, It won’t take long for you to get in over your head and it’s not very easy or pleasant to reverse. Trust me.
Credit Cards and Other Bad Ideas
My experience is (like any bad decision that you knowingly make) the first time you abuse your credit card is the hardest. Your common sense and your conscience are telling you not to do it, that it’s a bad idea. It’s the wrong thing to do. Your common sense tells you that if you play now, you will pay later. If you learn to ignore your common sense, it will become easier and easier to make those ill advised credit card purchases.
That night at the bar, I knew it was a bad idea to whip out the credit card. It would have been better to borrow the money from a friend, but when you have a bar tab of over $40, you are probably not going to make the right decision, and of course, I didn’t. Using the credit card that evening was like taking the cork out of a lamp containing an Evil Genie. The next time I used the credit card it was a little easier. The voices of reason went to a whisper, then a murmur and then unnoticed.
Kicking The Can
There is a saying called “kicking the can down the road” have you ever heard of it? Let me explain how it worked in my case.
Using the credit card opened up a world of possibilities for us. We bought a washer and dryer, took a couple of short trips and finally and worst of all, we gave ourselves payday loans. Do you know what payday loans are? They are high interest loans that help you bridge the gap between now and payday. They are predatory and evil…and I could go off on a serious tangent here so I better stop.
Pretty soon we were using the credit card to make everyday purchases at the end of each month because we were running out of cash. We were kicking the payment of our purchases off toward to some nebulous time in the future
When WANT debt Becomes NEED Debt
If you kick the can far enough down the road, eventually your want debt becomes your need debt. As in you NEED to eat and you NEED to pay your bills. In our case we would pay our credit card bill at the beginning of the month only to use the same card at the end of the month to buy things we needed, like food. If we paid $100 toward the card’s debt at the beginning of the month, we would use the same card for $150 to get through to the end of the month. Remember, this was the early 90s and we were living on $800 or $900 per month.
Eventually, I finished school, and then so did Carrie, We both got respectable jobs and got completely out of debt. To be honest, we weren’t horribly in debt, but it was in the thousands of dollars. It made me cringe to think how much money we wasted paying off interest money, just for the privilege of immediate gratification. As our income grew we were able to pay cash for pretty much everything we wanted, within reason. Eventually we built up a modest savings and life looked pretty uncomplicated. Until….
Fourteen years ago, before kids (BK) Carrie and I were doing quite well. Until a fateful trip to California. When we decided to adopt our daughter from China, we had enough money in savings to cover the cost of her adoption. By the time we adopted kids five and six, we had wiped out all of our resources. Even with fundraising, we ended up with a large debt. We used credit cards to pay for travel and lodging and so much more. Don’t get me wrong, I’m not complaining. I’d do it all over again. Nevertheless, we got into debt and we still are.
One good thing that has come from being in debt is the birth of this blog. I have learned a lot from my experiences, especially my mistakes. This blog has given me an opportunity to use my mistakes as a teaching tool for others like you. Slowly but surely we are getting ourselves out of debt and this blog has provided us with a measure of accountability. The things that I suggest throughout my blog are things that we really do. Below are some suggestions if you find yourself in debt.
What To Do If You Have Credit Card Debt
The only time you can use this strategy is before or at the time you make a purchase, but it is the most important and reliable step that you can take to keep from going deep into credit card debt.
- Don’t make the purchase. Ask yourself, “Do I really want/need this? You can’t go into debt if you don’t buy it.
- Save up for it. You can’t go into debt if you pay cash for it. I know, I know, it requires discipline and patience, but the feeling of paying cash for something is exhilarating.
- Look for a source of money that comes with a lower interest rate. You might even consider borrowing from a friend or family member at no or low interest. If that is too embarrassing, consider how embarrassing it will be when you ask them to loan you money to pay debt on a 15% credit card.
Stop The Bleeding
You can’t pay off and accrue debt at the same time. In other words you have to spend less than you make. Take your credit card and hide it, burn it. cut it up, do whatever you have to do in order to stop using it. What good does it to do pay $500 towards your credit card debt at the beginning of the month, if you have to use it to buy $150 worth of groceries at the end of the month.
I hate to tell you this, but I think you already know it. You have to make cuts in your spending. I could write tons of articles on how to do this, and I will, in the future. For now, start looking at your spending habits and cut out those things that you don’t really need, like gourmet coffee. Here are a couple of quick tips:
- Stop eating out. You wouldn’t believe what we saved when we tried it. If you need help, read this.
- If you have a car with a large monthly payment, sell it and use the cash, if there is any, to buy a much cheaper car. A famous money guru named Dave did it and look at him now!
- Have a fire sale. Get rid of everything that isn’t nailed to the floor. Use the money to pay down your debt. Yes, it will hurt and you will most likely be selling your beloved stuff for pennies on the dollar, but any headway you can make towards paying off your debt is really important.
Look For A Lower Interest Rate
About the only good thing about your credit card debt is that other banks are willing to offer you lower interest rate balance transfers in order to get your business. This strategy comes with a lot of risk. They aren’t offering you a lower interest rate out of the kindness of their heart. They want your money and they are banking (get it) on you not being able to resist their low rates and increased debt limit. If you can trust yourself to cut up the card the minute that you get it, you should make the transfer to the lowest cost card that you can find. This could save you tons.
I truly hope that you can learn from my mistakes. After all, it’s much less painful to learn from someone else’s. If you’ve conquered your credit card debt and have some creative tips, I’d love to hear about them. Or if you’re still swimming in an ocean of debt and need some support, bring on the questions! Just post them in the comments. Best of luck on reaching your financial freedom!