When Money Stops Being A Drag And Starts Feeling Good
I've had credit card debt for a long long time. It started with a credit card offer from Discover with an obscene credit limit when I was in high school. This was a card, offered to an underage teenager, without a requirement for a parental cosigner. I'm pretty sure that is illegal but if it isn't it should be.
Oh wait, what was that about the bankruptcy bill and why we should all oppose Joe Biden's bid for the White House?
But I digress. In college my debt increased and ever since I have been working hard to completely eliminate it. As Julie and I both approach this important finish line, now set for later this year, we are starting to plan for a life completely free of debt.
I can't say that without pausing to think about how wonderful that will be... (sigh)
We are now at a point where we have been living within our means for so long that this new era will be one of intelligent financial decisions. We are already aggressively saving for retirement.
This process has taught me some hard but important lessons about the minefield that is credit card debt. Because so many people I know also suffer in the same position and the numbers for America at large are even worse, I will attempt to offer some tips that make the most sense to me:
- Stop spending. This is the most important and the hardest lesson to learn. You just don't need it. I don't care what it is but you can live without it. Make a budget for rent (that you can afford). Set aside enough money to buy food that is up to the quality you require. If you must drive, reserve money for gas. AND DON'T SPEND ANYTHING ELSE! You don't deserve to spend your paycheck if you don't have your debt under control. The money isn't yours, you already spent it. Remember that pair of pants, skirt, expensive dinner, trip, etc. that wasn't worth this agony in retrospect?
- Don't just pay the minimums. The minimum payment is set by your lender. Do you think that they set this amount in a) your interest or b) their interest? If you guessed a you are simply naive. Whether you owe money to a credit card company or for a mortgage, the lender is in it to make money. For fun, if you're a masochist, calculate how long it will take you to pay off your balance paying only the minimum payment at your current interest rate (which will likely increase over time). Does it take longer than your life expectancy?
- Pay the worst debt off first. It might be fun to play the balance transfer game for a little while but sooner or later you are going to have to face up to what you owe. Once this moment comes you should start with your highest interest debt first. This might not be your highest balance but it is most likely the one that is costing you the most in the long run. Be careful when calculating this. If, for example, you accidentally overdrew your checking account and your bank "generously" pulled a preset amount from your credit card to cover the check you now owe that money at the highest available rate for "cash advances" on your credit card. When you write your check to your bank for your credit card bill they will apply your payment to the lowest interest debt first. So if you owe a really high interest rate on that $100 dollar advance for the overdraft it will sit there at that interest rate until you pay everything else off first. This is not a corner you want to get backed into.
- Live within your budget. I find the best way to do this is to set aside the money for debt and savings first thing. Having lived this way for so long my mind has adapted to only thinking that I have what I allow myself to have. As I transition from paying down debt to saving and investing I won't miss this money every month.
- Reward yourself with numbers. If you're like me, you want to know where you are at all times so you can feel good about the progress you are making and you can remind yourself about why you didn't buy that thing back in tip 1. I find that when I'm not constantly paying attention to my numbers I lose track of my progress and slip a little. Keep up with your situation and you will be out of debt faster than you imagine.
- Create a Roth IRA and save for retirement. If your employer offers a matching contribution to a 401(k) or a 403(b), take them up on it. This is free money for your retirement. If your boss isn't this generous don't bother with any other kind of investing until you have maxed out a Roth IRA. This after tax contribution will make money until you retire and, when you redeem your forty years of earnings, you will owe no taxes, not a dime. There is nothing better than a Roth IRA for saving your money. Like any retirement account, the longer the principle sits there the more money you make, so get started on this right away. A fair question to ask is whether you should do this before eliminating your debt. Look at your interest rates. Once you've paid off everything over 8% start to look at this option, until then go back to step 3.
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of luck, pure and simple. If this or that one circumstance the whole house of cards could have come tumbling down. Because we live in a corrupted version of America with no safety net left to protect against bad luck I shudder to imagine what position I could be in right now.
It is repugnant that Congress, with the active participation of many Democrats, made it harder for most Americans to free themselves of the chains of personal debt. Being in debt is not only painful on your pocketbook, it eats at your very being. Our society revels in the consumerism that causes debt but doesn't want to look at what this c
ulture does to those people who can't afford to keep up. Credit card companies may be fueling the spending that keeps our economy from recession but the long view will show them to be leeches on our society. They offer nothing of value and exact an enormous toll. To be in debt is to feel that you are somehow failing to live up to the ideals of our society. And yet you look around and are at the same time told to buy, buy, buy. It is the obligation, the duty, of the state to protect the weakest among us.
Luck and charity are hardly the foundations of a strong and stable society. As for my life, I seem to have been dealt a good hand in recent years and was able to emerge relatively unscathed from this blight.
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Who is this guy?
It will be interesting comparing my foray into the financial world to yours. Your habits are certainly commendable, but I have a bit more student debt than you, I think :^). Congrats