I have this friend and she has a lot of debt. Auto loan: check. Student loans: check. Credit card debt: check. This friend also loves to shop, which is why she is hesitant to use her credit card. This made me stop and think about how not everyone is like me. I have written plenty about how great credit cards can be and how to make money from them, but I’m a freak of nature. Well, not necessarily a freak of nature, but I’m very frugal, calculating, controlled, and organized when it comes to money. It comes naturally to me, when it doesn’t for everyone else. For some people, it might not be environmental factors that keep them from prospering, but their personality type. So what do you do when taking control of your finances doesn’t come easy for you?
Cutting Up the Credit Card
For all you Friends fans out there, do you remember how Rachel cut up her credit cards in the first episode to avoid spending money she no longer had after her father cut her off? I applaud that idea. While cutting your credit cards up is a bit dramatic when you can simply put it away somewhere, it’s a good idea to stop using the card until you can get your credit card debt under control. Don’t close the account. That could hurt your credit score and you will still have to pay off the balance on the card so there really isn’t a benefit to it. Remember to periodically make a small purchase on the card to avoid having your account closed for you due to inactivity.
Pay More than the Minimum
Credit cards generally have high interest rates. If a person with credit card debt, student loans, an auto loan, and a mortgage asked me which debt they should put more energy into demolishing, the answer would be simple: credit card debt. Paying more than the minimum on any type of interest accruing debt saves you money, but it is the most noticeable with high interest credit cards. If you can afford to pay more than the minimum then do so. The sooner you pay off your debt, the sooner you can start using your credit card the right way and start earning money from it instead of losing it in interest payments.
Treat Your Credit Card a Little More Like Cash
Once you’ve paid off your credit card debt and are ready for a fresh start, it’s time to change the way you think of and use credit cards. I just read an article about how things like Apple Pay make it easier for people to overspend because it’s not like cash where you have only a tangible amount to spend and you have to stop and think about if you have enough to afford a purchase. The same problem is true for credit and debit cards. You might keep swiping and swiping until your card gets declined because you just didn’t realize how much you’ve been spending lately. But I, being the cash and debit hater that I am, have a solution to this problem. Once again, I am using Mint as my tool of choice. Since the Mint app allows me to connect all of my accounts and view them in one place, it’s relatively easy for me to look at my budget, my cash flow, or my checking account and credit card balances. However, it’s a bit much to ask that I open up the app before every purchase. That’s where the lovely widget comes into play. You can change the layout of your Mint widget, but I love the balance and cash flow views. If you can see your checking balance stacked on top of your credit card balances when you unlock your phone, you will constantly be aware of how much you’ve spent on your credit cards in relation to what you actually have in the bank which can make you pause and think about whether or not you can really afford those shoes you’ve been eying. The cash flow view is also helpful, but instead of focusing on the total amount of money you have in your account, it focuses on your income versus the amount you’ve spent that month. That is comes in handy when you are trying to not spend more than you earn.
Know the Best Time to Make a Payment
I always like to pay off my credit card statement balance automatically on/before the due date because, while I love rewards cards, their interest rates suck. Automated payments make life easier because it prevents the human error of forgetting to pay by the due date. Paying the previous statement’s balance by the due date allows me to avoid being charged interest and it works for me, but it might not work for others. For some, it might be best to pay down the entire balance at the end of each month or every other week. You can pay the balance in full every week if that’s what it takes to prevent you from spending more than you have in the bank. Find what works for you and stick to it.