I have a challenge for you. You may have heard me talk about this but we are on a debt-diet. Over the last 13 years of marriage (despite my frugal ways) we have racked up debt. Our family has had trials that made us think we had to depend on credit cards to get through them. Looking back we’ve realized that we didn’t need to use the credit cards but it just made life easier. What a relief to realize this! I feel like we broke the chains that our credit obsessed selves had put ourselves in. {Please note: we are not blaming anyone but ourselves for this mess we’ve gotten into}
My husband and I sat down with each and every credit card and monthly bill. After adding up all the required monthly bills (car insurance, electricity, water, etc {p.s. we have basic cable at $7 a month and internet IS required for us because we are both online students & I run MSM}) we took out a bit for groceries, gas and a few other “necessities” the remainder is what we are putting towards our debt each month.
Then we created a simple spreadsheet. Each month the total placed towards that debt equals to the amount we agreed on. It took us 13 years to build this up but we hope to be 99% debt free (except our mortgage) by Sept. 2013. This is taking a lot of sacrifice- no summer vacation really, and working to reduce the “other” bills such as water and electricity. Those little bits of saving will add up and help us not feel so pinched!
So here is my challenge to you: Pay in Cash.
If you are like we were, we’d say “Oh we will pay it off next month, we really NEED it right now” With a credit card, there is no PAIN in getting that item. Swipe, bag & go. With cash- you literally FEEL the money leave your hand. Would you hand over $5 in cash every morning for a Starbucks drink? Many of us wouldn’t – we see that $5 and realize what you can actually get for $5. But with credit cards it is like “fake”money…it’s not that real $5 that you could get so much more than a cup of fancy coffee.
With credit cards the money pool seems endless….. it doesn’t seem real it doesn’t seem that we are reducing our nest egg down to nothing with all these swipes. Then we get a bill “Your balance is now $7,509.89 and your minimum payment is $235.00. Your interest rate is 18%.” (made up numbers!) OUCH. Then we flip out & try to figure out how to fix this mess. Or we hide our heads in the sand and pay the minimum payment month after month and avert our eyes from the balance, the interest rate or the interest charges. We fail to see that of that $235.00- $200 of that is interest! We’re barely able to make the minimum payment each month and very little of it even touches the amount we OWE.
So, my family has gone on a debt-diet. We are NOT taking on a single penny of debt. No credit cards are being used. No loans will be taken out. No “pay later” offers will be accepted. We will only pay with cold hard cash (or for online purchases and select purchases- our debit cards). When I had my car worked on yesterday, I swung by our bank’s ATM and took the cash out. Then I paid for the service in cash. No swiping a credit card to delay the pinch of the expensive car repairs. When I went to Harris Teeter to get my Coke Zero 6 pks, I paid in cash. If I don’t have the cash- we don’t buy it PERIOD.
Now there is an exception to my “no swipe” rule: If swiping saves me money- I swipe and IMMEDIATELY pay in cash. Example: Using my Target card at Target saves me 5%- So I swipe, get home and before I do ANYTHING else I make a payment in the exact amount I swiped for via my online banking. No interest charges but I saved 5%. This will ONLY work for you if you are disciplined and can make yourself pay it off within an hour of swiping and ONLY if you have the cash to pay it that day. Some stores allow payments to be made in store- in those cases I swipe and then head right over to customer service to make the payment in cash. No interest, no bill but I still get the savings.
Do you have a swipe-less life? I’d love to hear how it has helped you meet your financial goals!
It’s very important that cash and debit cards are not used interchangeably. Debit can give the illusion that it’s “not real.” Cash is king. We’ve been debt free (except our mortgage) for 2 years. The peace we feel is true freedom.
Good luck to you and your family. You are doing your children a great service and when they grow up, they will likely enjoy a debt free life, also.
We have been in BIG trouble with credit cards about 7 years ago. It was tough to make the monthly payments, and pay our regular bills on top of it. But we managed to get out of it in a few years, and are currently debt free (besides our house and our cars) and really enjoy it. It’s hard to question yourself if you really need something, but since we don’t have that nest egg saved up just yet (because of having another baby), we must continue to do it.
I just want to say that it is soooooooo very important to use cash and not credit. It’s ok to have one for EMERGENCIES only, but make sure you are disciplined enough tot use it just for that. If not, freeze it in a baggy of water, or give it to a trusted family member!!!
It’s also very important to determine what a TRUE emergency is! A broken microwave? Not really an emergency- you can survive without it. A broken dishwasher? Again- not an emergency- put all that free Dawn dish soap to good use. That was our biggest issue-determining what truly was an emergency and what wasn’t. Convenience isn’t an emergency.
Love this! Also, did you know that Target also offers DEBIT red cards? It links straight to your checking account and you still get your 5% off. One of the many reasons I LOVE Target!
I don’t think Target even issues the actual credit card anymore, only the debit card.
We’ve cut down to using only two cards, both rewards cards. We’re using two because one is mine and one is my husband’s to manage just like we’d manage cash. The reason we’re doing this is that we can use our rewards to pay down the debt on the card, so no new purchases don’t equal new debt, but they do equal balance reductions. Sometimes we even make the payment BEFORE we make the purchase. For instance, we paid $500 for a TV for my son and daughter-in-law for Christmas. We made a payment of $500 on our rewards card, then used the card to buy the TV. We had a bonus 2% reward thing happening, so we made $10 in rewards, which we applied ASAP to the balance on the card.
It doesn’t sound like much, but run an amortization table paying just the minimum on a credit card, then another with the minimum + $10. It helps more than you think!
We are now getting serious about our debt as well. We were doing well with paying down our debt. Had paid over $20,000 but then we sold our house, my parents sold their house, and we built a bigger one together. A lot of money flowing out of our hands to set up the new house. But it’s been a year. So I got organized and we are on a debt diet too. We wanted to go to Europe this coming year but I said we need to pay off the rest of the debt first. Hope to have it paid off in less than 3 yrs (about $38,000). My parents are giving us an extra $500 a month toward the mortgage so we can get that paid off in about 10 yrs rather than 30.
I would also like to recommend that you do a net worth sheet on yourselves. I had never done one before. I am going to do one every year on Jan 1. I also made a bar graph of our debts so each month I can chart our total debts and see the bar going down. I have a form that I keep the totals of all the credit cards and update it whenever I get a bill so I always know what our total is.
I tracked our spending for the past several months so I could make out a realistic budget. My husband gets paid every other Friday so I set up our budget to be for 2 weeks at a time. I labelled 26 pieces of notebook paper with the date of each pay check. Then I wrote the known bills we have each pay period (ING, church, household budget, gas), then I went through the whole year and wrote when the utility bills are due and how much they should be (I averaged them and budgeted that much. If they are more than that, I pull from the savings slush fund, if they are less than budgeted, I move to savings. Our cash categories are “groceries” “eating out” “Scott lunch” “drycleaner”.
Tonight is my husband’s Christmas work party. I am so tempted to go buy something to wear but I am going to resist and wear something I have. The dressy clothes I have are very tired and have been worn many, many times. But getting out of debt is more important than having something new to wear to a party.
I am willing to be your email buddy if you want. I have a friend here locally that I email with almost daily with my progress. I have inspired her to get serious about her finances as well.
Wow! You are awesome! You will enjoy your Europe trip much more without debt! I, too, have done the net worth sheet (online). Great suggestion. It keeps you grounded and focused on why you get up every morning and fight traffic for 40 years. Good for you for wearing something you already had in the closet! Now, if I can get my best friends to read your post and follow it!!!
We do use our cards, but they are paid off every month, often twice a month. The only reason I use them is to get the bonus points or cash back. It took a few months to get used to doing this after we paid off the balances, but now it is easy. I always try to take the time to consider what I’m buying…. is this an impulse buy or is it something I’d be purchasing later (but at a discount now).
Have u tried mint.com? It keeps track of all your spending for u. I like because it also keeps track of all your debt…houses cars credit cards etc. to keep track of their balances and interest rates. That will help u determine what to pay off first. It also allows u to set a budget and alerts u when u go over.
I like it because the app on our phone allows my husband and myself stay on the same page.
I’m glad to see you are finally getting down to the basics of frugal living! I do, however, think it is sad that “paying in cash” needs to be presented as a “challenge”, but, that’s the world we live in today. The fact that so many even GO to Starbucks “every morning”, and hand them “ANYTHING”, is a huge problem that just gets “glossed over”. Most don’t realize and never give it a first thought, that the daily trip to Starbucks is what is keeping them from retiring a millionaire. How many of those people also own the latest and greatest “convenient coffeemaker” sitting on their kitchen countertop? LOL.
If you REALLY are serious about your family’s finances and their FUTURE (and I’m talking to ANYONE reading this), and aren’t’ just on a “temporary debt-diet”, you will cut up & CLOSE ALLLLLLL credit cards 2-DAY!!!!!!!and just use ONE debit card. Period.
And this is coming from a 46-year-old, 100%-debt-free, “almost” millionaire. And remember rule #1 about money: Never take financial advice from a broke person.
Some great tips but I would not suggest closing any credit card accounts- it actually hurts your credit score. You may not need that score today since you are a millionaire (want to share some??) but we never know what the future holds for us so keeping a good credit rating is very important. it doesn’t just affect our ability to get credit in today’s world- but affects our insurance rates and even the ability to get a job!
Well, I must say, the “keep a high credit score” argument is WWWWAY overblown. Concentrating on a high score is saying to yourself, “I want to borrow money (or swipe the ‘ol plastic), so I can prove I can pay it back, SO THAT LATER, I can borrow MORE money, so, I can keep proving I can pay it back, SO AFTER THAT, I can borrow MORE money…….” And before you know it, you’re a senior citizen who can’t get all those valuable “wealth-building years” BACK.
Its a ridiculous bill of goods we’ve been sold over the decades, and I am SOOO glad I broke out of it!
Now, as for me, my credit score WAS 829 in ’06. Today, its 640 (and dropping-YAY-hopefully ZERO soon). None of my insurance rates went up a penny in that time! You can believe me, OR NOT, but I implore you to CUT UP the cards! And I mean 2-DAY. DO NOT keep putting this unfounded emphasis on keeping, maintaining, and concentrating on a high score by clowning around with debt. Wipe it out, and build wealth….The credit score: IT IS ALL A HUGE SCAM. (…and so is the “mortgage interest deduction)…