WhereYouAreNow

A lot of what we talk about here has to do with debt and in particular, credit card debt. This is because it is a huge issue that deserves to have as much time spent on it as possible, without sounding like a completely broken record.

Today I want to focus specifically on how to avoid getting into credit card debt, and if you are in credit card debt how to start getting yourself out of it. I have written a lot about this in the past, so you will see references to previous articles here on our site.

We will first start with getting out of debt and then hone in on how to stay out of credit card debt.

The Snowball Effect

I have read numerous articles, books, and heard people speak on where to start paying down on your debt. There are many “theories” out there but when you really get down to it, they are just one persons idea up against another person’s. Here is what I have filtered out to be the best way to eliminate your debt:

On a piece of paper or in an Excel spreadsheet, list all of your debts (consumer and credit) starting with the lowest BALANCE (lowest to highest). Then, next to those amounts write who it is owed to and their minimum payments. That is your game plan on paper. You are going to, in the word’s of Dave Ramsey, get “gazelle intent” on eliminating the lowest balance while making minimum payments on all the rest. Once you knock out the smallest balance you roll the cash you were throwing at that right into the next balance. Defeat that one, roll that cash right on to the next. This is why they call it the “snow ball effect”.

Why pay the lowest first? Because you will get it done quick which will accomplish two things: 1) boost your ego. You now KNOW that you can do this. If you tried to tackle the highest first you would most likely fail and not finish it. This ensures that you will stick with it and move on to the next one, because you did the lowest one!! 2) it frees up cash quicker which can be thrown into the next debt. If you tried to tackle the big one first you would not free up cash for a VERY long time, which would keep your debt around longer. You want to free up as much cash as possible (and as quick as possible) and a very good way to do this is to get rid of the ankle biters, the little balances that are a nuisances.

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What to do to stay out of credit card debt

This article states that some 7.3 million consumers use credit cards to take cash advances. It also states that these interest rates can be as high as 29.97% for cash withdraws. This, my friends, is not a good way to stay out of debt and is not a good way to use a credit card. Period. I personally do not use a credit card for anything. I am a cash man and I intend to stay this way. You should too. Especially when you get out of debt. Cut up the credit cards and start to depend on cold, hard, cash. There is no better way to spend (and save!).

From the same article quoted above:

Once you have eliminated your credit card debt start SAVING your money. If you don’t have one already, get an emergency fund with no less than $1,000 in it. From there move onto getting 3-6 months of what it takes to meet your budget each month into savings. The idea here is to GET RID of debt and BUILD UP SOME CUSHION. Because here is the problem, an emergency is going to happen (I will personally guarantee this) and in order to stay out of debt, you need to have the CASH to meet the financial needs of that emergency.

Without the cash saved guess where you go…right back into debt.