Credit card debt is hellish. The interest payments are financially debilitating and emotionally crippling. Allotting money each month to paying credit card debt is like setting piles of cash on fire in your living room and then watching your hard earned income go up in flames.
I am currently in the midst of my second waged war against credit card debt. My first war was successfully fought right around the age of 29. I had accumulated a significant sum of debt, combined with three different cards, which were all used to finance the faux baller lifestyle of my twenties.
My approach towards finances in my twenties was reckless. My paycheck hit and the money was spent without rhyme, reason, or even the hint of a spending plan. Anything I needed, or even worse wanted, was purchased with credit cards once the cash from my check was exhausted.
I was a creditor’s dream. I never paid a single bill late and I amassed a scary amount of debt. I knew somewhere deep in my guts this was a financially dangerous way of living. There was a slowly simmering stress arising within me as a result of my uncontrolled lifestyle.
Right around the age of 29 the lease ran out on the apartment I was sharing with buddies and I temporarily moved back home with my parents. This was a critical period for many levels of my life and I took full advantage of living at a home rent free.
I got serious about my finances and attacked my credit card debt with ferocity. In about one year I was able to pay all my credit card balances down to zero. There was a massive emotional relief in being freed from the trap of paying creditors. It, unfortunately, was short-lived for just a few years, though.
In 2007 and 2008 I was earning the most money I had ever had at any point in my young career through corporate America. I had bought a condo, established some modest retirement savings, and did not have a single dollar of credit card debt. On the surface, all looked well, but my lack of a true financial plan would soon be exposed as a grave mistake on my part.
While I had no credit card debt and built some modest retirement savings, I was still living without a spending plan and had no short-term cash savings. This was in addition to the new mortgage on my condo, which was a massive commitment and liability. I was living paycheck to paycheck, albeit under the guise of appearing successful.
At this time, I was working in banking. We were flying high at work, knocking out our monthly goals, and pulling down great commissions. In late 2007 things started to turn quickly and everyone in my company could sense things were not going well. Grumblings and gossip started to flow amongst the workforce at my job. In early 2008 we got the official word our entire office was being closed and we were all being laid off.
Our corporate layoff occurred slightly ahead of the global financial meltdown. Initially, I did not take the layoff as seriously as I should have. I had never lived through anything like this before and had no context for just how challenging it would be to find work again. I also did not pare down my lifestyle accordingly either. I mistakenly thought I would jump right into my next job and keep on rolling. I was dead wrong.
I struggled for months to find even a hint of a potential job. I finally took a commission-only sales job, just to do something, and toiled in misery trying to make a go of it. All the while, bills were coming due and the income was not there to make ends meet. My wife, who at the time was my live-in girlfriend, and I did everything we could do to stay afloat. My small retirement fund was liquidated and credit cards were once again used to supplement income as needed.
This time around, each time I used a credit card, it was like a knife being plunged into my guts. I knew how incredibly hard it was to pay down the debt the first time and that was done with the benefit of living rent free. I now had a mortgage. It was demoralizing to be using credit cards again just to make ends meet.
Eventually, my girlfriend and I got married and we unexpectedly got pregnant early in our marriage. While the pregnancy was clearly a blessing to us, we were still living in a one bedroom condo. We went into desperation mode trying to sell the condo.
We finally were able to sell our condo but took a significant loss in doing so. At settlement, we had to cut a massive check just to get out from under it. Once again I returned back to temporarily stay with my parents saddled with a mountain of debt. This time I had a wife and one-year-old baby with me. I am incredibly lucky moving back home with parents was even an option for us.
Today, my family is back out on our own renting a home and fighting like hell to reclaim our financial sanity. I still have an intimidating balance lingering on one final card, but make no mistake that balance is getting fully eliminated. We have paid down 70% of the debt we racked up during my layoff and loss on the condo. We are fully committed to eradicating the remaining balance for good.
Stopping the use of credit cards is the hardest, yet most critical action to take in turning around your financial life. Stopping cold is financially and emotionally empowering.
If you are using credit cards to meet everyday needs like food and gas, then something drastic needs to occur with your lifestyle. A car may need to be sold, housing liability downsized, or even moving in with relatives needs to be considered, if that is an option for you. There is no shame in making a decision that allows you to take the reigns of your life back. Make a decision to consciously forge a better financial future.
In order to stop the use of credit cards cold, I urge you to create and use a spending plan. We use an excel spreadsheet and plot our paycheck deposits versus every single expense we will incur over the pay period. Every single dollar is attributed to going somewhere, whether a bill, entertainment, clothing, or cash savings.
We plot our earnings as far out as 3 pay periods and make adjustments constantly as the weeks move on and the actual spending occurs. Nothing should be a surprise when approaching your spending like this. Eliminating surprises then eliminates the need for ever using a credit card again.
When it comes to prioritizing bills, paying down debt, establishing cash savings, or funding your retirement, I have found the philosophy of Dave Ramsey to be helpful. Dave’s tenets of financial soundness brought some clarity and much-needed focus on the financial efforts in our household. Dave is a staunch advocate of establishing a small $1,000 cash emergency fund and then putting the full weight of your entire being behind eliminating debt.
Dave does not encourage short-term savings beyond the $1,000 and especially does not encourage funding your retirement when there is lingering credit card debt. He feels by attempting to both fund retirement and pay down debt you are just diluting your efforts on both fronts. This ultimately makes your battles with debt more protracted than they have to be.
Dave believes there is a major emotional component to battling debt. He feels you need to experience the success and joy of paying off small balances first, which propels you onward to tackling the larger balances.
Dave’s financial advice is simplistic and sound. He is an overtly Christian man and at times speaks in religious tones. He also speaks rather gruff and direct to people’s troubles. Both of these things, religious speak and frank talk, may be alienating to some. I think his financial advice is highly actionable and worth a listen.
There are many who believe money has a spiritual component to it. If the word “spiritual” is too loaded a word for you, then just think in the terms of energy. When you do not incur debt, but instead save and invest, you open up the possibility for even more money to come into your life. I have felt this firsthand. I am nowhere near out of the woods, but I have felt a shift in the momentum and energy surrounding the flow of money in our home.
Money begets more money. It can come in the form of a raise at work, a higher paying job opportunity, or simply through compounding interest in your savings account. When you spend within your means and save a set portion of your earnings you create the energy that will help attract and build wealth. None of this is possible when you are spending beyond your earnings and incurring debt with credit cards. It is impossible to outrun those debilitating habits.
If you are using credit cards to supplement your day-to-day life, make the empowering decision to stop cold today and to create a spending plan spreadsheet. Some lifestyle changes may need to be made, but your long-term happiness is worth the short-term sacrifice.