Debt Problems
Yes, You Can Live Without Credit Cards
Yes, you can live without credit cards. Getting rid of your high interest financial crutches will set you free! Sounds simple, doesn’t it? It’s not simple but it’s very worthwhile. Can you envision your life without debt? Many people can’t imagine what that’s like so don’t even try. Try it for a minute. Think about how different life would be. It could be like that for you; but it’s up to you to take the narrow road and make some changes.
You might think you’re unable to deprive yourself of the security blanket a credit card can provide. If you see a credit card for its true colours, you’ll see that it does the exact opposite of provide you with security and peace of mind.
Credit Card Dangers
Credit cards bind you to a life of debt. They are not good debt unless you pay the balance every month, never pay interest or fees and get loyalty rewards. The thing is, most people who start out with these don’t go long before they’re carrying a balance and paying hefty fees.
Another problem with credit cards is that people use them to live on which means that everything they buy costs more. Buying gas and groceries on the credit card doesn’t make sense if you’re not going to pay the balance before the due date.
Many justify credit card purchases because, “It was on sale!” Well… how much will the TRUE cost be when you factor in all the costs associated with that credit card? Chances are you’re paying a heckuva lot more than the regular price! Credit cards are dangerous.
Are You Living Below Your Means?
A lot of people live above their means which means they spend more than they have. This vicious cycle will NOT end well! Many people live right at their means which means that they spend every spare cent they’ve got and never have anything put away for a rainy day. People in these two groups are probably two pay days away from bankruptcy and could not survive a financial crisis.
You need to budget and live within your means. Cash is king and can give you more buying power than you might imagine. By saving up and spending with cash you’ll never have another creditor call you, you’ll never dread opening the mailbox. You’ll start to have spare cash laying around because you won’t be spending more than you earn and you won’t be paying for last year’s vacation for the next five years.
Stop using stuff to fill a void in your life. Start living below your means. If you feel like you need a credit card for booking things and shopping online, buy a pre-paid credit card. They don’t cost much money to operate beyond membership / convenience fees (which are dwarfed in contrast to a typical credit card’s cost of doing business)
How Pre-Paid Credit Cards Work
A pre-paid credit card has a process by which you’ll load the card so you have an available balance. It’ll have a Visa or MasterCard logo and be accepted everywhere those cards are accepted. You’ll likely be able to check your balance by phone or on the internet just like a regular card but the big difference here is that you cannot spend what you cannot afford! Convenience without convenience fees!
Your Financial Future
If you think it doesn’t sound fun to live below your means, you’ve got a jaded perception of true financial freedom. Financial freedom means more disposable income instead of a mountain of debt and means paying the true cost of an item instead of principal + compound interest. Get a budget, get debt free and change your financial destiny for the better!
Don’t Set Your Kids Up For Future Bankruptcy
We lead by example with our kids and if you’re living hand to mouth you are increasing the chances your kids will too. Teaching your kids about budgeting is a great strategy to not only give them valuable life skills but to keep yourself on track as well.
If our kids see us spending every spare dime we get and buying things on credit while living frivolously beyond our means, there’s a good chance that the minute they’re eligible, they’ll be signing up for credit cards as well. You don’t have to let your children repeat your financial mistakes.
If you’re in the midst of (or just starting the) mending your own spendy ways, you can teach your kids financial wisdom at the same time.
Teach Your Kids About Budgeting
-It’s a great idea to tell your kids about the family budget. You don’t have to reveal private details but there’s nothing wrong with telling them that something can’t be purchased because it is not in the family budget right now.
-It’s also a good idea to have your child set up a budget themselves within their own allowance. Teach them to save money, to tithe to charitable causes and to plan for the future. For instance, have them allocate a specified amount of their earnings to savings and teach them to give to charity either at church or at school.
-Don’t give your child unlimited access to their own bank account until they’ve demonstrated that they know how to manage money. Set a limit or require your signature as well for withdrawals
-Don’t give your child a credit card without strict rules and guidelines. If you’ve provided them with a card for emergencies only and they stray from that policy have a consequence
-Set up a bonus and tax structure for your child’s allowance. If they don’t do what they’re supposed to in order to earn that money, deduct from it. If they go above and beyond the call of duty with school marks or chores completed add a bonus. This teaches them how the real world works with rewards.
Don’t make money the absolute priority in life. You don’t need an Alex P Keaton ( a child too focused on money) but taking the time to teach your children about fiscal responsibility is something they’ll carry into their adult years which will make them self-sufficient and increase their chances of financial success.
Debt Payoff: The Pyramid Repayment Plan
A mistake a lot of people in debt make is that when a debt or loan is finally paid, they simply absorb that amount of money back into their variable spending budget and in essence, blow the money. If you split it between your other debts to top up payments, you’ll be debt free MUCH sooner and have more spending money permanently.
Pay Off Debts Sooner!
If you want to pay off your debts, the following method can be very helpful. There are good debts, bad debts and debts that are a bit of a gray area. The idea is to get rid of the worst debts first. Get rid of the debts that are most negatively impacting your cash flow. These are debts with high interest rates.
Classify your debts into three categories with your largest interest charging debt with the biggest balance amount at the top. The second tier should be your mid-level interest amounts and the bottom should either be your lowest interest amount or highest loan amount (such as a mortgage that will take longer to pay off.)
Allocate extra money every month to the top amount. You may have to go on a strict budget in order to find additional money to apply to this debt but it’ll be well worth it! Aggressively work to pay it off as soon as possible while still paying payments on tier 2 and tier 3 debts. You’re making all your payments but you’re aggressively paying extra into a specific debt such as a high interest credit card or revolving line of credit. After the tier one debt is out of the picture, take that amount of money and split it between your other payments. Move the next highest interest debt to the top spot of the pyramid and repeat.
Keep More Of Your Own Money!
The issues here are that you want to remove the highest interest rate loans as fast as possible so you’re putting more of your own money into paying your bills off. The great thing is that once you allocate a specific amount of money to debt repayment, you can continue to use that amount even when your debts become smaller becuase you’ll be paying things off all that much sooner.
If you calculate how much of your hard earned money is going to interest alone each month without even touching the principle of your debts you’d be astonished.
Need help paying debt off? Consider following the Money Jar Budget listed here on the home page.