Down to my last dollar!

The average American has around eight credit cards. I have ‘only’ three, but paying them off regularly certainly does not come naturally, either to me or to millions of others and I am worried. I’m not too bothered about the credit card companies getting their money back. What worries me is that I know they don’t really want the money back; they want to keep charging me for it. And paying for the debt wastes a significant proportion of my income.

In order to reduce the debt, I’ve decided that we only need one credit card. Now I know that might sound like someone with an alcohol problem saying they need to keep one bottle of whiskey a day and they’ll be fine, but hear me out.

The credit card will be for real emergencies and necessary big-ticket items only e.g., a member of my family is in hospital and I need to pay now; a flight cancellation forces me to rent a car, and so on. For everyday expenditure, I will only use my debit card. It comes straight out of my checking account, and my bank doesn’t charge me for using it. If I don’t use it, they actually give me interest!

To end up with one credit card, I’ll need to pay off all three and then ditch two. But paying off those three cards seems such a mountain to climb that I usually end up staying at the bottom and doing nothing except flinch as the minimum payment leaves my paycheck each month.

After conducting a thorough investigation to find the simplest and quickest way out, I found an interesting article by Andrew LaPointe that makes it all seem much more manageable. He suggests seeing the mountain as a pyramid, starting at the top and working downwards. His 4-step plan looks workable to me. By breaking the problem up into pieces, and starting with the smallest one, it becomes approachable.

I can feel the stress easing already! I’m going to stick to this plan and each time I finish paying off a card I’ll cut it up and show you the pieces here.

P.S. If you want to do the same, send me a picture of a piece of your cards (the top left hand corner - not the important bit!) and I’ll post it here too - we can beat the debt together!

I’ve worked out why I’m down to my last dollar each month. It’s not because I don’t earn enough. It’s not because I spend too much (though that has something to do with it). It’s because I’ve allowed my money to be in control. I don’t mean that it’s whispering from my wallet “Spend me, spend me now!” (Though I understand that this might be the case for some people), more that the way I spend it, or have spent it in the past, controls what I do with my life in a far bigger way than it should. Building up debt from loans, overdrafts and credit cards, and then repaying it too slowly and gathering up interest, fees and penalties and then building it up again means that a significant percentage of my monthly income is deducted to pay for borrowing - debt that will roll on, growing like a snowball, until I take control. I resent the monthly deduction. It means that I am never able to enjoy the full benefits of my salary. I now recognise that it is actually a ‘Stupidity Tax’ levied on me through my own actions. The big difference between Stupidity Tax and regular state, federal and other taxes imposed by government, is that you can actually do something about it. In a previous post, I outlined my plan for finally tackling the credit cards. In the case of the loans, it appears to be a simple question of biting my lip and waiting until they are paid (24 more months) and then saying “No more!”. Assuming that I will have paid off my cards around the same time, I need to remind myself that I will effectively be awarding myself a pay rise of around 30% in October 2008. Of course, I will still be paying my other bills - rent, school, utilities, and cable and so on, but I don’t mind that. I choose to spend my money on those to give my family and me the quality of life with which we are comfortable. From now on I’m taking control. I’m my money is going to work for me. I’m just saying ‘NO!’ to the Stupidity Tax.