Category Archive: Credit

What To Do After You Pay Off That Credit Card

You have selected and begun to execute your plan for getting out of debt – and you have just paid off that first credit card debt.

You are awesome!

Paying off that first account is an important milestone.  There’s a tremendous feeling of satisfaction which accompanies the completion of any worthy goal.  Take a while to enjoy the success – and then get pumped to move on to the next step in your plan.

Before you move too fast, however, check one thing – the next monthly statement from your credit card company.  You may be in for a surprise.

Even though you paid your balance – in full – you may still owe some residual interest.

Most companies charge interest based on your average daily balance – so while your current balance may read zero – the interest calculation is based on the average of the balance, throughout the month.  You will need to pay this interest, prior to your next statement.

When faced with this residual interest charge, I contacted my credit card company.  The entire conversation took less than 2 minutes and the company waived the interest charge!  I have found that contacting them via the “chat now” feature is really effective and saves a lot of time.

Side note:  Contacting the credit card company worked for me.  Each and every financial situation is unique.  I’m sure that various credit card companies have different policies for different cards, individuals, and circumstances.

Even after hitting zero – you’ll want to monitor your various accounts.  Check for possible charges – for things like subscriptions or annual dues – about which you may have forgotten.  Stay on top of things so you’ll know if any surprise charges hit your account.

Congratulations on paying off that first credit card debt!  Now, on to the next one!  Blessings.

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Credit Cards On Pause

When my wife and I decided to get out of debt, we did three things.

First, we created a simple to use zero-based budget.

Second, we established an emergency fund.

Third, we stopped using our credit cards.

Essentially, we put them on pause.

We didn’t cancel them and we didn’t cut them up.  Instead, we simply stopped using them.

Here are the details:

Why did we stop using our credit cards?

We were spending more than we made, month after month, and we were using credit cards to finance our bad spending habits.

Easy-credit made it easy to overspend – and we did.

Getting out of debt became a priority.  Putting away the credit cards – and the ease-of-use that they provided – helped us to reign in our spending.

What did we do with our credit cards?

We didn’t really “do” anything with them.  We just stopped using them.

If memory serves, we did cancel one or two store-branded cards – but that may have happened long before I started No Credit Needed.

We put most of the cards in our home safe and we each kept one, major card in our respective wallets, for emergencies.

We also transferred a balance from one card to another, to take advantage of a zero percent interest balance transfer deal.

That’s it.  We didn’t freeze them or cancel them or chop them up with a blender.  We made a decision not to use them – and we didn’t use them.

How did we live without credit cards?

We used (and use) the envelope system to manage our cash.

We used a debit card, associated with a secondary checking account, for online purchases.

We used online banking to pay our bills – along with the occasional paper check.

What about now?

Now that we have our spending under control and have learned many valuable lessons about responsible management of our finances, we will, occasionally, use a credit card.  We do so mainly for gasoline or groceries – and only for budgeted amounts.  We pay off balances each month and avoid interest like the plague.  Frankly, we find very little need for the cards.

What have we learned?

Getting out of debt can be a challenge.  By putting our credit cards on pause – we gave ourselves a built-in spending limit.  When the money ran out, the money ran out.  This radically changed our habits – and eventually changed our lives.

At one point, we needed credit cards (or thought we did).  Now, we don’t.  And that’s a big difference.

We are in control – not our credit cards, not our spending habits, and not our debt.

In my old age, I’m a little less dogmatic than I used to be.  In the beginning, I saw credit cards themselves as evil.  Now, I see that what I really needed was a good dose of self-control.  For me, that meant taking a radical step – of putting the cards on pause – so that I could really focus on debt reduction.  This was a great move for me and for my family, one that I would repeat a thousand times out of a thousand.  Be blessed.

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Reduce Credit Card Use

According to this recent L.A. Times report

Consumer borrowing increased at an annual rate of 10% in November,the largest jump in a decade… 

Outstanding credit card debt increased 8.5% in November… (emphasis, mine)

It appears that folks are using credit cards more than ever – and outstanding balances are increasing.

For more than seven years, here’s how I have reduced (and almost eliminated) my use of a credit card:

I live on a budget.

If we eliminate unplanned-for spending, we can eliminate unplanned-for borrowing.  At the beginning of the month, I know how much money I am going to spend and I know where I am going to spend it.  Some portion of credit card use results from poor planning.  Eliminate the poor planning, and we eliminate this type of credit card use.  I use a zero-based budget to manage our household finances and an irregular income budget to manage business finances.

I use online banking to pay monthly bills.

Instead of charging my bills to a credit card, I simply pay (the majority of) my bills from my online bank account.

I pay cash for everyday purchases.

I have mentioned it before, but it bears repeating.  I use the envelope system to manage my cash.  It works and is simple to use.  Again, if the goal is to reduce credit card use, the envelope system is a great tool.

I use a credit card only for reservations, not for payment.

I have used a credit card, on many occasions, to reserve a hotel room.  At the end of my stay, I pay with either cash or debit card.

I still write paper checks.

Yes, I know that I am a Luddite, but I will occasionally write a real, old fashioned, paper check.  I will do this when I give offering at church or when I need proof-of-payment for daycare or some other service.

I use a debit card when necessary.

There are some purchases (think online shopping) that really do call for either a debit or credit card.  Rather than worry about identity theft, and the loss of all of the money in my checking account, I have a dedicated secondary checking account, attached to my debit card, and I use that account for all online purchases.  When I create my budget, I allocate necessary funds to the secondary checking account and use the debit card for online purchases.  It’s not much of a hassle, and it eliminates the unnecessary temptation to use my credit card.

If I had to use a credit card –

I would only use a credit card to pay for budgeted items.

I would pay a credit card off – each month – in full.

I would refuse to use the card, simply to get a discount, points, or a reward.

I would consider the potential long-term impact of my short-term decisions.

When I combine the use of online bill pay, a debit card for online purchases, and cash for everyday purchases, there’s not a whole lot of room left for the use of a credit card.  Instead, things are simple to manage and I don’t have to add to any increase in those statistics.

Credit cards aren’t evil.  They’re neither good nor bad.  They do, however, provide an ease-of-use that can quickly wreck a budget.  I stick to my system, keep things simple, and rock on.

One side note:  I am glad to see that certain credit cards are beginning to offer longer-term zero-percent interest deals.  We used one of these deals when paying off our debt, and it significantly reduced our overall interest charges.

One final note: I do have a couple of credit cards, but I rarely use them.  Once every few months, I’ll charge a tank of gas or buy some groceries, and then pay the thing off.  I do this simply to have some limited activity on the cards.  I have monitored my credit score for several years and everything looks just fine.  There was a time when I was staunchly anti-use-of-credit card (and, I still think the world would be just fine without them), but now I’m more anti-over-use-of-credit card.  I’ve mellowed a bit in my old age.  The key is to be informed and responsible.  Rock on!

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