As the recent economic crisis has shown us, there are dangers, obvious and hidden, associated with the abuse of credit.  Our economy, which is in large part based on the availability of credit, teeters on the brink of disaster.  At present, fifty cents of every dollar spent in the United States is charged on a credit card.  As a nation, our national debt has risen above $11 trillion.  Thousands of people are facing foreclosure and tens of thousands more are falling behind on credit card and automobile loan payments.  Now, maybe more than ever before, is the time to think about the dangers of credit.

Credit Creates An Illusion Of Wealth

Let’s imagine an average working couple.  Together, after taxes, they have an annual disposable income of $60,000.  That’s $60,000 per year to provide food, shelter, clothing, and to purchase needs and wants.  Let’s give our average couple two credit cards, one for his wallet and one for hers.  Assuming that each credit card has a $10,000 limit, we have just increased their spending power, as a couple, by $20,000.  We have, in essence, created $20,000 in spending power that did not exist on the day before we gave our couple their credit cards.  Our happy couple, instead of living off of $60,000, their actual income, can now, for a brief time at least, live off of $80,000.  We have given them the illusion of wealth – the idea that they have more disposable income than they actually have.

Credit Promises A Brighter Future

The credit system is dependent on two things: the ability of the lender to lend and the ability of the borrower to repay.  As long as these things happen, everything moves forward.  What happens, however, when the lender can no longer lend?  Or, what happens when the borrower can no longer repay?  We have a crisis, just like the one facing our economy today.

Let’s return to our couple.  Imagine that our husband, inspired by his friend’s new HDTV, decides that he too needs a new television.  He heads down to the local electronics store, plops down his new credit card, and is soon driving home with his brand new prize.  At the same time, across town, his wife is buying a new couch for the den.  Of course, in order to get her rewards points, she’s also using her credit card.  The both arrive home, happy as they can be, and they spend the evening cuddling on the new couch, watching the new TV.

We’ve just described a very typical, very normal series of transactions.  Clearly, there’s nothing wrong, inherently, in using a credit card to purchase the above mentioned items.  The real issue, the real danger, only becomes obvious when we take a deeper look into our couples’ finances.

Do to the availability of such good credit, our young couple haven’t given much thought to building up an emergency fund.  On top of that, because of their good credit scores, they have also decided to purchase a new automobile.  He wants to do the right thing, so they find a great deal on a new cross-over, with zero-down and low payments.  Total cost of the new car: $25,000.

Our couple, because of their incomes, can handle their monthly payments.  Sure, things will be tight, what with the new car and all, but they can make it.  Then the news comes.  The husband’s company is downsizing, and he has two months to find a new job.  After three months of looking, with very little luck, he takes another job, one which pays about two-thirds of his old salary.  This is when the problems really start to emerge.

First, due to the stress of the lost job, the bills have started to pile up, and our couple has had to pay a couple of late fees to their credit card companies.  Second, on more than one occasion, they’ve had to deal with over-draft fees at the bank.  Third, that new car, which just a few months ago was their pride and joy, has suddenly become a financial burden.  Unfortunately, they now owe more on the car than it is worth, and if they sold it, their friends and neighbors might know that something is up.  Afraid to death, they begin to argue more and more about money, and our happy couple isn’t so happy anymore.

For credit to be useful and have its proper place in the economy, borrowers must have the ability to repay their obligations.  Our young couple, who together brought home $60,000, now have over $25,000 in debt, he’s lost his job, and they have no money in savings.  They have nice, bright, shiny new things… but they have no money!

The scenario I have described to you above isn’t imaginary.  This is the reality that thousands, no millions, of Americans are facing, right now.  Overwhelmed with debts they cannot repay, people are worried, frustrated, angry, and depressed.  Who is to blame?  Sure, our couple should have known better than to buy such an expensive car, and maybe they should have waited a year or two before purchasing that new couch, but the money – or rather the credit disguising itself as money – was right there.  They believed, as most people believe, that their future income would pay for their past purchases.  Unfortunately for our young couple, and millions of other people just like them, the future isn’t always bright.  Life can throw some tremendous curve balls, and the pressure of being overextended can really slow down our swing.

Credit Justifies Impulsive And Irresponsible Spending

I can make the payments.  How many times have we heard this statement from someone who is trying to justify a particular purchase?  Is there anything wrong with purchasing a new television set?  No.  In fact, I have a nice, two year old HDTV sitting in my den right now, and I love it.  Is there anything wrong with buying a newer car?  No.  In fact, I just washed my wife’s van, which we purchased, slightly used, several months ago.  There’s absolutely nothing wrong with owning stuff, even new, nice stuff.  Problems arise when we purchase things that we cannot afford, based solely on the fact that we can make payments.

Several of my favorite personal finance bloggers use credit cards, but they use them primarily for convenience.  They never spend more than they can afford to spend, and they always pay their credit card balances off, in full, at the end of each month.  I cannot think of one writer who’s opinion I respect who would tell you to go out and finance a new car unless you had an adequate emergency fund in the bank and you were adequately prepared for a job loss or similar emergency.  I would suspect that even the biggest fan of credit card rewards points and credit card frequent flyer bonuses would suggest that credit can be dangerous when viewed as a solution instead of as a tool.

Our young couple would have been better suited to fully-fund an emergency fund, begin to live on a budget, and plan for their major purchases.  A year or two down the road, they could have paid cash for the new television, and really shopped around for the new sofa.  Perhaps, instead of financing a new car, they could have saved up a nice down-payment (or payment-in-full) and purchased a decent, used automobile, letting someone else take that depreciation hit.  When our husband lost his job, instead of arguing and worrying about money, they could really tighten their belts, use some of the money in their emergency fund, and given him an extra few months to find a job that he really enjoys doing.

Credit Can Be Beneficial

I almost ended this article with the previous point, but had I done so, I’m pretty sure that I can guess the types of responses it would have received.  There are those who would agree with all of the points above, but there are others who would point out a pretty obvious reality – credit can be beneficial.  So, instead of waiting for readers or detractors to point this out, let me be the first to agree – credit can be beneficial.

In certain circumstances, the availability of credit can makes things easier.  It’s easy to reserve a hotel room with a credit card.  It’s much more convenient to swipe a credit card than it is to walk around with a big wad of cash in one’s pocket.  Online, credit card transactions are processed instantaneously, facilitating the rapid purchase of goods and services.  There are those who are only comfortable when maintaining a rather large cash reserve in the bank, and these people would rather make payments on a car loan than be cash poor.  Without credit, millions of Americans might be shut out of the housing market, forced to be life-long renters.

I understand the role that credit plays.  I’m just saying, I think that role is too large.  We have become beholden to credit, and to the agencies that pedal it.  I think we have borrowed ourselves into a gigantic mess, and, unfortunately and unwisely, we are tying to borrow our way out of it.  It’s one thing to use a credit card to buy groceries, come home and pay your credit card off, and collect your rewards points.  It’s another thing entirely to max out that same credit card, overwhelm yourself with loan payments, and live without cash reserves.

The bottom line is, whether you use credit or not, you need a long-term financial plan.  This plan should be based on actual, real income and should take in to consideration that life doesn’t always move forward in a straight line.  You will face ups and downs, and abusing credit can lead to financial ruin.  If you must borrow, never borrow more than you can repay in a timely manner, and never extend yourself to the point that you are using credit simply to survive.  (Or, better yet, just roll with NCN, and live debt free!)

I’d love to hear your thoughts.  Have we overstated (or understated) the dangers associated with credit?  Does credit cause problems, or just reveal them?  Would we better off without credit?  Worse?  Leave your comments below.

Follow me via Twitter

Beware The Dangers Of The Abuse Of Credit

My wife and I have been living without credit cards for four years.  For those who are ready to get out of debt, one of the first steps is to break the credit card habit.  You can’t fill the hole in while at the same time digging it deeper!  Here’s how we made the break -

We Balanced Our Checkbook -

This sets you up for success.  If you are going to live without credit cards, you need to know, to the penny, just how much money you have.  Grab your most recent bank statement, or go online and review your recent transactions, and balance your checkbook.

We Started To Live On A Budget -

You know how it works.  You go to the store, you see something you want, you swipe your credit card, and ten seconds later, you have new debt.  It’s just that simple.  What would happen, if between want and swipe, you had to think about your budget?  Trust me, that seven second pause, between wanting an item and using your credit card can save you so much money.  Instead of want and swipe, there’s now want, plan, save, and then swipe – with a debit card!

We Simply Put Our Credit Cards In The Back Of Our Wallets -

We didn’t cut up our credit cards or freeze them in ice water.  Instead, we just decided not to use them.  Frankly, we don’t miss them, and once we made up our minds, done was done.

We Created A Simple System For Life Without Credit Cards -

I’ve written about our system before, so I will not go into the details here.  Suffice to say, we have a system for managing our day-to-day finances, paying our bills, reserving a hotel, or renting a car.  Click the link to read more.

We Learned To Manage Our Cash -

I’ve heard it a thousand times – “If I have cash in my pocket, I’ll just spend it.”  That might be true, if you still have your credit card to fall back on.  On the other hand, if you knew, and I mean knew, that the cash in your pocket was all that you had, I’ll bet that you could learn to manage it.  We use the popular envelope system to manage our cash, but you can use any system that works for you.  The point is, we are were trying to break a habit, a habit that had haunted our marriage for almost a decade.  For us, going cold turkey and learning to manage our cash really worked.

I Stopped Thinking “I Deserve This”

I’ll leave my wife out of this one, because I’m the one who struggled with this.  In the past, I could justify almost any purchase by saying to myself – “I deserve this…”  It didn’t how much it cost, or how little we had, I could somehow rationalize the use of my credit card.  In fact, I can distinctly remember thinking – “What’s a little interest?  I work hard, I want it, so I’m going to get it…”  When I think back to some of the silly things I purchased, and how I justified those purchases, I feel so ashamed.  What was I thinking?  Better yet, was I thinking?  Now, instead of thinking – “I deserve this…” – I try to think – “Can I truly afford this…”

Breaking a habit can be very difficult, especially a socially accepted habit.  Let’s face it, most people use credit cards.  And, after you get out of debt, you might want to start using yours again.  There’s nothing wrong, fundamentally, with credit card use.  The problem is, use can turn into abuse very quickly.  I choose to live without a credit card, even though I know, that at this point, I could use one responsibly.  For me, I just don’t want to deal with the hassle of credit card payments.  So, I’ll just continue to roll with my debit card and cash.

If you are struggling with a credit card habit, there is hope.  Have a good long talk with yourself, embrace some of the changes mentioned above, and break the cycle!

Follow me via Twitter

How To Break The Credit Card Habit

On February 6, 2006, I made the final debt reduction payment and finished paying off all of my debt.  Since then, I’ve been living debt free.

I do not make monthly payments to creditors.

I do not pay interest to credit card companies.

I am free to do what I want to do, when I want to do it, with my money.  Life is good.

I loathe the thought of paying interest.  I spent 15 years of my life paying interest – on cars, trucks, furniture, appliances, clothes, food, and dozens of other silly things.  Now, however, if I don’t have the money to pay for an item, well, I just don’t buy that item.  I have to wait until I can actually afford it and then I buy it, with cash.

(This is a novel concept, I realize, and one that has been soundly rejected by both our federal government and both major political parties, but I digress.)

Do you want to save some real money?  Then, get out of debt (especially credit card debt), learn to live debt free (with a long-term plan for remaining debt free), and stop borrowing money (and paying interest).

Now, there are those who will reject my idea of paying cash and they will extol the virtues of credit cards, with low interest rates, and the power of using other people’s money.  Hey, I’m cool.  If others want to borrow money, that’s fine by me, but I don’t want to use other people’s money, I want to use my own.  And yes, I am aware of the thirty-day float afforded to those who use credit cards… and the five percent back that you can get with each transaction… and the security features.  I still don’t like them, I don’t want to use them, and I’m convinced that most people spend more when using a credit card than they would if they had to live on a cash only budget (with no wiggle-room for going over).  I am very open to the idea that I am wrong, and I know that many of my personal finance blogging brothers and sisters love their credit cards, but I’m just not going to use them.  (Not to belabor the point, but let me say this.  With credit cards, I was in debt, I was paying interest, I lived month-to-month, and I was fiscally irresponsible.  Without them, I’m debt free, I’m funding 5 retirement accounts, 3 education savings accounts, and I have six months’ worth of expenses saved in the bank.  I think I’ll stick with what’s working for me.)

If, however, you must use a credit card, please, pay if off in full at the end of each month.  Credit card interest rates can be very high and credit card companies are constantly looking for ways to improve their bottom lines.  Be careful.  Make your payments on time, always open notice letters from your creditors, and keep tabs on your interest rates.  Credit card companies are constantly changing their policies and procedures!

If you click any of the links in this article, you will be directed to other articles about how I got out of debt and how I live debt free.

Click here to view all of the articles in the Top 10 Ways To Save Money series.  Rock on.

Follow me via Twitter

Top 10 Ways To Save Money – Number 3 – Avoid Paying Credit Card Interest

As I mentioned in a related post, over at No. Calories Needed, about weight loss and resolutions, Thanksgiving will be here in 21 days – and Christmas is just 49 days away.  2008 has just flown by, and 2009 will be here very soon.

Let me urge you – Please don’t wait until January 1st to get your financial house in order.  You do not need, especially in these strange economic times, to rack up a mountain of credit card debt, just to buy gifts!  Please, don’t limp through Christmas, without a budget, promising yourself that you’ll “fix it all come January.”  Instead, make your resolution today!

November is less than a week old.  You still have time to create a budget for this month.  List your income, list your expenses, and see where you are.  Take your time and be realistic.  I’ve written several articles about budgeting, including -

• 10 Ideas For A Better Budget
• Budgeting If You Have Irregular Income
• Creating A Simple Budget

If you have credit card debt, don’t add to it during December!  Instead, consider a No Credit Christmas and check out my ideas for inexpensive, awesome Christmas presents.  I know that you want to give nice gifts to your friends and family members, but if you can’t afford them, you just can’t afford them.  Do not go into debt in order to “keep up”.  Remember, we are working to change our futures, and this means that, from time to time, we must make sacrifices.  Plus, imagine how much better January will be if you don’t have to pay for December (or November, September, August…)

Today is your day.  You are in charge of you – and your destiny.  Don’t wait one more second to take care of yourself, and your family.  That’s what focusing on my weight loss and health is teaching me.  At first, I felt selfish about going to the gym and missing some time with my wife and kids.  Now, however, I realize that I HAVE to focus, on me, for a while, so that, in the long run, I can be a BETTER father and husband.  The same holds true when it comes to financial management.  Unless you take the time to focus on YOUR situation, you’ll never be able to focus, completely, on helping others.

Follow me via Twitter

Do Not Wait Until January 1st To Make Your Financial Resolutions

As the credit crunch continues, more and more people are learning to adjust to life without credit.  It’s been four years since I borrowed money or used a credit card.  Here’s how I live without borrowing money.

Budget -

I live on a budget.  My wife and I receive monthly paychecks and I receive irregular income from various sources.  I use the You Need A Budget software to create my budget and track my spending.  As I create my monthly budget, I’m able to think about the coming month’s expenses, and plan accordingly.

Many people, when dealing with personal finances, feel anxious and frustrated.  Budgeting can help with these feelings, because a realistic budget helps to remove some of the what ifs and replaces them with actual realities.  When you create your budget, you may not like the numbers that you see, but, at the very least, you’ll know exactly with what you are dealing.

Learning to live on a budget can take time.  Be patient.  It took me almost six months to get things right.  Eventually, creating a budget will become second nature and you’ll actually look forward to sitting down with your bills and hammering out your monthly plan.  Seriously.  Trust me!

Plan -

Sure, my budget helps me get through the month, but also create short-term and long-term plans.  Remember, you’re learning to pay CASH for every thing.  That new washing machine?  You are going to pay cash.  That newer automobile?  You are going to pay cash.  College for the kids?  Yep, you are going to pay cash.  So, you need to plan, plan, plan.  (Note, when I use the term cash, I mean that you are going to pay for these things, up front, instead of borrowing money and paying for them later.  The actual method of payment might be cash, debit card, online bill pay, or check.)

I have several short-term plans (and goals).  Currently, we are saving to buy new furniture, a newer automobile, and new appliances.  But, I also have long-term plans (and goals), including buying a house for cash and paying for our three kids to go to college.  So, even though we are debt free, and could spend our money foolishly, our plans keep us honest and frugal.  In fact, we have less spending money, now, than we did when we were in debt, because so much of our savings are allocated to future purchases.  (Of course, the cool thing is, even though this money is allocated, on paper, for specific future purchases, we could, in the event of a real emergency or opportunity, use this money for anything we wanted.  That’s what’s great about having money in savings.  It’s ours, and we can use it as we wish.)

Sacrifice -

There are no shortcuts.  If you want to have enough money in the future, you have to sacrifice today.  If I bought every gizmo and gadget that I wanted (and could, at this point, afford), I would never achieve my long term goals.  Right now, we live in a house that is provided as part of my compensation.  We really want to buy our own home.  But, our real goal is to pay cash.  So, we make a house payment, to ourselves, each month.  Even though I could buy name brands, I still buy generic, because getting out of debt was just the first step of a very, very long journey.

Focus -

It’s never easy to go against the grain.  When everyone else is buying new cars and upgrading to the latest and greatest, it takes a certain inner strength to be content with what you already have.  As recent events have shown, however, most Americans (and most politicians) would do well to learn a little fiscal restraint.  So, the next time everyone in the office goes out for lunch, proudly produce your brown bag.  When the newest cell phone hits the market, be content with the one in your purse that still works just fine.  If you can’t afford your lifestyle, make the changes necessary to bring your expenses into line with your income.

Side Note:  I’ve been living without borrowing money for four years.  I’ve also avoided using credit cards.  If you choose to use credit cards, and many do, just remember to pay them off at the end of the month, so as to avoid those pesky interest payments.  As credit card companies look for more ways to make money, in tight times, I’m sure that they’ll get more and more aggressive with their fees and charges.  If you must use them, be careful!

If this article inspired or informed, please Stumble It and pass the word.  Thank you.

I’ve written about this subject before, and you might be interested in some of those articles.

Click to read -

How I Live Without Credit Cards

Life Without Credit Cards And The No Credit Needed Experiment

Edit:  I just reread this post, and I think I want to write a little more about combining the budget with short and long-term plans.  I’ll write about that in my next post.  If you haven’t done so, consider subscribing to No Credit Needed and you’ll receive all updates and new posts.

Follow me via Twitter

How I Live Without Borrowing Money

Are you ready to get out of debt? Great! But, are you still using your credit cards, even while trying to pay them off? Boo! Here are some thoughts about breaking an addiction to credit -

Give Cash A Chance -

Instead of using your credit card for everyday purchases, use cash. Try the envelope system and see how you do.

For three years, I’ve been using the envelope system, and I’ve seen a dramatic change in my personal finances. I do use a debit card from time to time, but I still like the power of good old cash money.

Many will say – “I spend more when I have cash” – but that’s only because they allow themselves the fall back position of using credit cards. Imagine the following: If someone were to offer you a million dollars, and, all you had to do was live a month without using your credit card, could you do it? Of course you could! Well, I don’t have a million dollars to offer you, but I did just prove my point. We can do what we want to do, if and when we really want to do it.

Get Away From Negative Influences -

Is your life filled with people who love to spend money? Are you surrounded by people who spend more than they save? Are you listening to bad advice? Are you sick and tired of imitating the poor habits of others?

It’s time to move away from people who are infatuated with stuff and move towards people who are serious about saving money.

Whether we realize it or not, we are influenced by the company that we keep. Find people who are enthusiastic and supportive. Avoid situations where you feel pressured to spend money.

You are not what you drive. You are what drives you.

You are not where you live. You are what lives in you.

Imagine A Better Future -

Scenario One – You live paycheck-to-paycheck, always worried about how you are going to pay the next month’s bills.

Scenario Two – You have a savings cushion in the bank and you live your life, looking for opportunities to help others and bless your family.

Which scenario sounds better? Personally, I pick Scenario Two. While I’m not there yet, I’m doing everything that I know to do to improve my financial situation.

I had to break the cycle. For more than a decade, I lived under a cloud of debt. Now, I am debt free and I can plan for my future. I would encourage anyone, regardless of the amount of debt that they have, to break the addiction to credit. Live a more balanced, more focused life. Get rid of the extraneous things that you do not need and the people who drag you down. Focus on maximizing your income and reducing expenses. And, dream big dreams!

For those interested -

I have just recorded and released a new episode of the No Credit Needed Podcast and I am working on change number three over at 99 Changes.

Follow me via Twitter

Breaking The Addiction To Credit

Today, I went shopping for Mother’s Day gifts. As I was checking out at one particular store, the woman behind the cash register asked me if I wanted to apply for a credit card and receive a 10% discount. As I’ve written about before, I’m not interested in credit cards, especially high-rate store-branded credit cards. But, I’m also not interested in being a jerk, so I politely declined her offer. But, I couldn’t resist asking her if she ever tired of trying to get people to apply for the cards. She sighed and said yes. Then, she went on for about five minutes about how she and the other customer service people were required to produce a certain number of applications, every week, or they would be ‘written up’. Having worked in retail when I was in high school, I was familiar with that type of company policy. Apparently, her particular manager asks each CSR to get 2 credit applications, per week. I asked her what she thought about credit cards – in general. She cocked her head, slightly, and said – almost at a whisper -

“They tell us if we can get someone to sign up, and be approved, that we have guaranteed that that customer will shop at our store, on average, three times more often than they would have if they didn’t have a card with our store’s name on it.”

I hope those customer’s enjoyed their 10% discount.

(As a side note: I have no idea if what she said is true or not, but I am inclined to believe that part of the allure of the store-branded card is that it gives its owner a false-sense of belonging. Think about it. When you sign-up for the card, what type of process must you go through. Ah – an approval process. Interesting word, don’t you think?)

Cool thing about cash – no approval necessary. I don’t need a ‘cash’ score. And, I’m not paying for my shirt, three years after it went out of style, at 23% interest.

Follow me via Twitter

An Interesting Conversation About Store-Branded Credit Card Applications

Here is our current plan to live debt-free and stay debt-free -

1. We fully-fund four retirement accounts – my wife’s Roth IRA, my wife’s Pension Plan, my Roth IRA, and my 403b.
2. We save money for future ‘major purchases’ – newer cars, new furniture, new appliances – in our ING DIRECT Savings Account.
3. We are saving for a future home purchase in our brokerage account.  While not as tax-efficient as our retirement accounts, we have ready access to this money.  Should we need to purchase a home before we can pay full-price, we can use the money in this account for a healthy down payment.

We live on a strict budget, we fully-fund our retirement accounts, and we save as much as we can for future purchases.  Instead of making payments to an automobile loan, we make a ‘car payment’ to our savings account.  Instead of making mortgage payments to a mortgage company, we make a ‘mortgage payment’ to our brokerage account.

I like having interest and time work ‘for me’ and instead of ‘against me’.  Now, when I want to buy something, I save up for it, and then I purchase it.  Radical, I know!

Follow me via Twitter

My Life After Debt

I’m a pretty unique guy. I do not use a credit card. Why? I like using ink and writing checks. I enjoy the process of using “real money” and I simply dislike the “hassle” of managing credit card payments. Also, I have no desire to pay the interest, fees, or penalties associated with carrying a credit card balance. (Plus, it takes too much Ink to write all those checks.) Sure, I could pay my credit card balances off “in full” at the end of each month, but I have found that I will spend MORE whenever I use a credit card than I do when I use cash. Now, I may not be able to persuade you to give up credit cards forever, perhaps I can motivate you to get out of credit card debt as quickly as you can so that you can avoid the following FEES!

Interest: While not technically a “fee”, credit card companies charge you interest on the money that you borrow from them. According to Bankrate.com, the current AVERAGE interest charge associated with a “standard” credit card is about 13%. The greatest motivation for getting out of credit card debt (for me) was the idea of never paying credit card interest again!

Late Payment: If your payment arrives late (for whatever reason) you will be charged a late payment fee. I did a quick “search” and found that the average late fee associated with credit cards is $35! Remember, it does not matter if the postal service “loses your check”, you still have to pay the late fee. (If you get hit with a late fee, it never hurts to call and ask (politely) for them to waive the fee! It just might work.) Again, because I do not use a credit card, I never have to worry about paying a late fee.

Over-the-limit Fee: Credit cards have a pre-set limit, which indicates how much money they are willing to loan you. If you exceed this limit, you will be assessed an over-the-limit fee. Guess what? If you are “close” to the limit, and only pay your monthly minimum, and your card accrues interest, and the interest plus the balance = over your limit, you can (and will) be hit with an over-the-limit fee. Oh yeah… The average over-the-limit fee is about $30!

Payment processing Fee: If you find yourself in a ‘bind’ many credit card companies will allow you to pay via your telephone. Guess what? You’ll pay a FEE to make a PAYMENT. Not only will you be sending them a payment, they’ll gladly charge you for the privilege.

Cash Advance Fee: Many credit cards allow you to use your card at an ATM. But, they charge a pretty-penny for this service. In most cases, you will pay a 3% cash advance fee, up front, regardless of whether you pay off your entire balance at the end of the month. If you get a cash of advance of $1000, you’ll pay $30.

Annual Fee: While many credit cards do not charge an “annual fee”, some do! That’s right, you pay them for the privilege of carrying their card in your back pocket, regardless of whether you use the card or not!

Convenience Check Fee: Those nifty checks that you receive with your credit card bill are called “convenience checks.” Use one, and the credit card company will treat it like a cash advance and charge you a cash advance fee!

These are just a few of the fees that credit card companies CAN and DO collect each year. (According to this report in USA Today, credit card companies collected over $17 BILLION in fees last year. Yes, friend, that’s BILLION, with a “B”. How much is $17 BILLION Dollars? Well, if we equally divided $17BILLION between, say, 300,000,000 Americans, each man, woman, boy or girl would receive a check for more than $56!) My advice, based on two years of not having to WORRY about these fees and charges? Get out of debt, stay out of debt, use cash, and relax. Let somebody else pay your share of the $17BILLION!

Follow me via Twitter

Credit Card Fees (Further Motivation For Getting Out Of Debt!)

I have been debt-free for fourteen months. I prefer to live a life free from credit cards, borrowing money, or paying interest. If you are thinking about getting out debt, congratulations!

Escaping The Credit Card Web

Step 1: Stop using a credit card. I do not use credit cards, period.

Step 2: Pay you credit card minimums, every month, on time.

Step 3: Pay extra towards one specific credit card, either the credit card with the lowest balance or the highest interest rate.

Step 4: Call all credit card companies and ask for reduced interest rates.

Step 5: Consolidate (move debt from one card to another) IF you can get a better rate and you FULLY understand the terms of the balance transfer.

Step 6: Do not get frustrated if Step 4 does not work.

Step 7: Take a few minutes and plug your credit card information into this handy debt repayment calculator. Now that you are moving forward, you can adjust your goal dates and extra payments.

Step 8: Read this book for motivation and advice. Dave Ramsey’s: The Total Money Makeover: A Proven Plan for Financial Fitness (affiliate).

Step 9: Now that you have your basic plan and are moving forward, read this post, detailing (almost) everything I know about debt repayment.

Step 10: Find (or create) a support “network” or “group”. I believe in accountability. I have even created an online network where members can publicly share their progress! (No Credit Needed Network) You need to have (at least) ONE person who can support you, cheer for you, and encourage you. (I believe so strongly in this concept, I started a blog, just to share my journey with the whole world!)

If you enjoyed this article, you may be interested in the latest episode of my podcast, the No Credit Needed Podcast.

Additional resources that helped me to get out of debt include:

YNAB Personal Budget (affiliate)
Dave Ramsey’s Radio Program
Financial Calculators
Personal Finance Blogs

Follow me via Twitter

Debt Reduction: Escaping The Credit Card Web