Credit card debt… Who needs it!

I operate debt free, other than my mortgage.  If I can’t afford to pay something off by the end of the month, then I don’t buy it.  I do use my credit card for airline points, but I know I can afford the monthly payoff.

UnknownI don’t sign up for credit cards from retailers that have “teaser rates,” as it is just asking for trouble if you miss one payment.  One missed payment, and that 0% for 12 months and it’s going to revert to the 22% that the card regularly charges.  Not to mention the ding on your credit report.  A $7 default on an Old Navy card stayed with me for 7 years!  It’s just not worth the risk, and since I don’t buy anything that I can’t pay off right away then what’s the point.

Even my most recent vehicle purchase was paid for in cash.  2006 Honda Accord w/ 87,000 miles.  The dealer tried like crazy to get me to finance, but no dice.  I was getting a strong deal and knew it.  They wanted to make it up by me paying interest on a loan.  I wasn’t having that.  This was a lesson that had been learned the hard way.

This is how I currently operate, but it hasn’t always been this way.  I’ve had my share of bad financial decisions.

I once purchased a brand new Toyota 4Runner with a balloon payment at the end of $16,000.  Thus after I traded them my previous 4Runner (which was paid off) and paid $283 for 48 months, I still had to come up with another 16k or lose the vehicle.  Well, I lost the vehicle.  Turned it in.  So basically I lost two cars and a boat load of cash.

I remember the day I purchased the vehicle.  The salesman played me like a violin.  They kept telling me that I “owned” the vehicle, and it wasn’t a lease even though there were mileage limits.  At the end of the day, all I needed to do was refinance the $16k and that baby was all mine.  What a deal!!!!

I remember my first night with the car. I couldn’t sleep b/c I had a pit in my stomach about how much I had just gone into debt.  The next day I tried to return the vehicle to the dealer.  No dice.   I learned this lesson the hard way.  Never again will I finance a vehicle.

When I was in college, the cc companies were still allowed to set up on campus and get new enrollees.  This was like leading the pigs to slaughter.  A whole bunch of college kids who are on their own for the first time with no financial education.  That Natty Light wasn’t going to buy itself…  Got me a nice fresh Chase card with a $3,000 spending limit.  And of course I spent.  Lord knows how much I actually wasted in interest.

I carried credit card debt for probably 15 years years or so.  I never got into ridiculous trouble like some stories you hear, but I would always have $3-5k floating on the card.   Eventually I decided enough was enough.  Here’s what I did in straight bullet point form.

  1. Set weekly auto payments from my checking account to my credit card.  This way I would never miss a payment which will help to raise your credit score as well as cut down the balance.
  2. Throw in extra money that I had at the end of the month.
  3. Checked my balances on my cards non stop.  I mean I was checking the card on line pretty much every day.  I still check my card every day.  I always know what’s coming in.

If I was a person with multiple cards, I’d follow the Debt Snowball method made popular by Dave Ramsey.  Line up your cards from least amount to most amount owed.  Pay the minimum on each, except for the card with the smallest balance.  This card you are going to throw all the money you can to get it paid off.  Once that card is paid off, take all that money and add it to the next card and so on.  Basically you are creating a snowball effect and gaining lots of little victories.  Makes you feel like you are doing something.   Mathematically it makes more sense to pay off cards by paying the highest interest rate cards first, however this is about BEATING DEBT! And I feel that the psychological victories are greater and help more in the long run in achieving freedom from debt than paying a few extra dollars in interest.

Also, I don’t believe in and am not organized enough to be opening multiple cards and transferring around my balances for 0% rates.  The debt is still there regardless, and I’d rather just be done with it altogether.  Just pay them and be done with it was my feeling.

Now most “experts” will say to cut up your cards or do something like place them in a freezer ice block.  These ideas are set to create a barrier to using your cards and reduce impulse purchases.  If you have to thaw out your card every time you want to use it, then maybe that purchase won’t be as “necessary” by the time the card is ready to use is the reasoning.

I just used good old fashioned discipline.  I have 3 cards.  I posses an AMEX card from my bank which is rarely if ever used, my MasterCard airlines card which is used very often, and my Visa card that’s used for overseas travel.  I only use this card overseas because many places won’t accept the MasterCard.  For the most part the AMEX & Visa aren’t even carried in my wallet.

Through following these simple methodologies of my own, I’ve gone from having credit card debt with a credit score in the 650 range to being well over 800.

The simple thing to remember is to be disciplined and consistent.  You’ll get that debt down and you’ll sleep better at night.

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