More recently I have begun to grow up and take responsibility for the ridiculous amount of debt I have been so good at accumulating. Every chance I had outside of work, I was digging a bigger hole for myself to crawl out of – hanging out with friends which almost always included a few drinks followed by a late night stop at the local diner. Every day was a special occasion that warranted a meet up at the local bar. Everyone was doing it. We worked our asses off and felt like the bar crawl after was well deserved!
Trust me, it was fun while it lasted and I’m not here to make you feel bad if you’ve done that yourself. I had a blast and met some amazing people (others, not so great). I would probably do it all over again – but I’d bring my own road sodas as opposed to spending $3-$5 a beer. 🙂
I was just living the “normal” life to everyone around me, and it just seemed like the way things were done. I had no one telling me otherwise and I seemed to fit in pretty well. And because I wasn’t exactly a fan of math and looking hard at numbers, I just paid the minimum payments shown on my statements and forgot about them for another month. Little did I know I could have paid off my loans and been out of debt by now…but hey, math just isn’t that fun, right?
At the age of 26, I had started realizing I couldn’t keep living life this way, but I still hadn’t really done anything about it. How I really got started? Well, I got sick of listening to the music on the radio. Yep, that’s where it all began. Listening to the same songs, every morning, over and over again was really annoying me. So I went looking for something else to listen to on my way to work and started listening to e-books and podcasts instead. What a productive, grown-up way to spend my commute! It got me excited and motivated to see what else I could change. I was listening to podcasts from Suze Ormanwho is a special lady and definitely knows what she is talking about. But I just got so un-motivated when I saw how long I would be in debt. Aside from Suze, I heard so many conflicting ways to pay down debts, but it was always too overwhelming.
One night I sat down with my computer, opened a blank Excel file, and spent the next 4 hours playing around with the numbers. I went over every possible scenario trying to figure out what the best way to pay down my debt was going to be. I looked at all of my debts in one place, how long each would take to pay off, the amount I could really be using to pay down my debt each month, and learned how interest rates were really calculated for each debt. It was a lot of work, but I ended up with the beginning of my “modified debt-snowball.”
I was determined to figure out a way to pay off everything without spending the next 30 years doing so. And I did. It just took a lot more of my income each month going towards it and was going to take a ton of determination.
No more happy hour after work, no more impulse buying, or traveling all over creation “just because”….basically, no more spending money I didn’t have. What a concept! And I figured out I would only need to do this for about three years, and then I could go back to spending my money how I wanted. I can do that! 36 months of spending next to nothing, so I could live a “normal” life at the end of it. That sounds way better than 30 years in debt, doesn’t it?
I got really excited and decided I wanted to share my story, and prove that it could be done. So here I am. I’m counting on you guys to help me along the way too. Debt and finance are not something we can figure out overnight, so don’t expect me to know everything either.
In the next few weeks, I am going to figure out a way to share that Excel sheet system with you so you can have somewhere to start. After all, getting started was the hardest part for me.
I know you all have heard someone tell you about how they make extra money by using a credit card to rack up points or you have at least seen a commercial advertising these awesome “FREE” prizes and cash back offers. I also know that this sounds like a great idea, and you might even start to think you are getting one over on the credit card companies, right? Sorry to break it to you, but do you really think that these multi-billion dollar banks are dumb enough to let you beat them at their own game? No way. They wouldn’t be a multi-billion dollar bank if they did. But they know that as Americans, many of us are dumb enough to think that we are the ones coming out ahead in this deal, and they play on your emotions to keep you thinking that way.
Most credit card companies will give you one point for every dollar you spend, with “bonus” points in certain categories which may vary month to month. Think about that. You need to put $1,000 on your credit card to make a measly $10. Is it really worth it to put yourself in jeopardy of falling into debt for a minimal amount of “cash back”?
Not only do credit card companies charge the retailer a percentage of each sale to let you use their card, they also know that if you use that card and carry the balance for a few weeks, they are going to make money off of you as well. Pay your bill late and they make even more money. They can charge late fees and even increase your interest rate after just one late payment. Sadly, this is how a lot of people end up in a situation where they need to declare bankruptcy.
I know I will hear at least one of these so I will address them now:
“I pay it off every month and never carry a balance.” Be honest with yourself. Do you really? I dare you to go back and check your bank statements to see what your recent balance was over the last six months. I know it’s easy to think, “oh it’s only $50, i’ll pay it off the next time I get paid.” and then your phone breaks, or your car needs and oil change and it’s just easier to leave that $100 on the credit card so you can deal with your “emergency”. We’ve all been hit with at least one late payment fee, overdraft penalty or interest charge. It’s okay to admit it. There’s no need to lie to yourself about how responsible you are with your money, we all have our faults.
“But it builds my credit score.” I know that a lot of you are concerned with keeping your credit score up so the little credit score demons don’t come knocking on your door. Newsflash: they don’t exist. You are not going to be put in jail or be forced to get a tattoo on your head that says your credit score is less than 750. You know what kind of demons will come at you if you get in too much debt? The bankruptcy demons who will take your house, your car and your sense of security. The only people who care about your credit score are the ones trying to get you into more debt: the loan companies. In addition, carrying a balance does not benefit your credit score as you might think. Using the card once in a while to buy a stick of gum should do the trick.
“I use the points to go on vacation or buy Christmas gifts every year.” Do you know that someone with a $5,000 credit card balance with a 16% APR who pays $125 a month towards their debt will end up paying $2,000 in interest alone? That ends up being a 40% return on investment for the credit card companies. Not to mention, $2,000 would really be put to good use for a vacation, don’t you think? But, do you know who just earned a vacation fund out of this deal? The credit card companies. If you were to save $125 a month, you’d have the $2,000 in just sixteen months.
The 2014 U.S. Household Consumer Debt Profile shows the average credit card debt of an American household is $15,191. While this may not seem like a groundbreaking number, you have to realize that there had to have been a lot of people on the high end of the spectrum with well over $15k in credit card debt in order for this number to be an “average”. Thankfully, there are also people with no debt who bring that number down. Let’s try not to be the ones who send that statistic up higher next year.
While a small percentage of people actually do pay their debts off every month and cash out their points for real dollars and cents, the majority pay their bills late, carry balances for months or years, or end up in financial hell.
My Advice? Use your debit card to make purchases and save yourself a lot of mental stress when the credit card bill arrives, because your’s will be $0. Any checking account will do, but if you’re reading this you’ve probably been trying to get the most out of your money. I do this by having a high-interest checking account from Capital One 360(affiliate link) which pays you about .20% interest. Now I know this isn’t a huge amount but it is better than no interest which is what you get from most other checking accounts. I have used them for a few years now and love their service as well as the user experience they provide online. There are some other companies who have high interest checking as well and I think this is something to look into.
Now, if you still think you’re going to beat the companies and squeeze them out of a few bucks, make sure you at least take the cash back and don’t settle for the crappy gift cards. All of the ones I’ve seen not only cost more points than you would spend in cash (e.g. 5000 points for a $25 credit card), but I can guarantee that the companies only pay a fraction of that $25 face value for the cards. The cash back option is usually going to get you the most bang for your buck.
Just remember what they say in Vegas, the house always wins.
This post may contain affiliate links, meaning I may get a small commission for referring you but in no way does the product cost you more.
With the tax deadline coming up, I’m sure you have all seen at least a few “tax refund sale” commercials and ads. These make me sick. There are so many great things that can be done with a tax refund and all these companies want you to do is spend them on stuff you don’t really need.
Here is a list of 5 productive things you can do with that money:
1. Put it in your savings account. While this sounds really boring, having a decent emergency fund is far from a bad idea. Next time your car breaks down or the water heater goes, you’ll be so happy you had that extra money laying around. You never know when life will throw you the next curveball, and you need to stop relying on credit cards to make up the slack. Stop being addicted to OPM – other people’s money.
2. Fund next year’s Roth IRA contributions. Waiting until the end of April 2015 to fund 2014’s Roth contributions means one thing – you’ve missed all of the compounding interest you could have made during the year prior. It’s always a good idea to get your contributions in early so they have all year to earn you more money. If you’re not into the Roth IRA thing, Betterment is a great option as well.
3. Make extra payments on your debts – getting out of debt is the number one thing that will ultimately “set you free.” Not having to pay creditors means you can do what you want with that money each month. I feel like there is nothing similar to the feeling of being out of debt, and I cannot wait to get there. This is what I did with my tax refund.
4. Make repairs that will ultimately save you money in the future – Have a chipped windshield? Get it filled before it cracks and you have to replace it. Have a leaky faucet? Get it fixed and save on your water bills. Make smart decisions and they will pay off later.
5. Get ahead of your bills – if you really can’t come to terms with putting this money right into the bank, try paying off your bills early so you can use the next paycheck to pay down debts. A lot of money management is about psychology and how it makes you feel, so if this is what will make you feel productive, then go for it.
There are so many great ways to spend/save your tax refund. Whatever path you choose, just be smart with your money. Take your time, there is no need to spend this all in one place.
For those of you who have already received your refund, what did you do with the extra money?