Category Archive: Credit

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.

Continue Reading

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!

Continue Reading

Over 8 Million Users Stopped Using Credit Cards In 2010

According to a recent press release from credit bureau TransUnion -

TransUnion’s analysis estimates that more than eight million consumers stopped actively using bank-issued, general purpose credit cards over the past year. This deleveraging is believed to be due in part to charge-offs in the higher risk segments of the population, more conservative spending in the low-risk segments, and significant efforts by consumers across the board to maintain the health of their credit card relationships as a financial cushion. Based upon income levels estimated by TransUnion’s income estimation model, consumers with higher incomes were just as likely as consumers with lower incomes to suspend their use of this payment option.

(Emphasis mine. -NCN)

It’s interesting to note that the decrease is in the number of bank-issued, general purpose credit cards.  As banks cut bank in the number of cards issued to “higher risk segments of the population” – and folks in the “low-risk segments” cut back on their spending – credit card use has decreased.

It will be interesting to see if this trend is long-term – or just a result of recent economic conditions.  I think I’ll do a bit of research and see if store-branded credit card usage has decreased.

Source – TransUnion

Continue Reading

How To Eliminate Credit Card Debt

1.  Create a list of your credit cards.

  • Include account balances, interest rates, due dates, and minimum monthly payments.

2.  Make minimum payments to all credit cards, on time.

3.  Make an additional payment to one of the cards on your list.

  • If you make an extra payment to the account with the smallest balance, you can quickly eliminate an entire card balance from your plan.  This may provide a much-needed emotional boost and keep you motivated.
  • If you make an extra payment to the account with the highest interest rate, you guarantee that you will be paying the least possible amount of interest.  This is a mathematically-sound approach.

4.  Continue to make minimum payments and the extra payment until the first card on your list is paid off.

  • If you have the chance, make additional extra payments – micro-payments – throughout the month.  This reduces your average daily balance and really speeds up the debt reduction process.

5.  Continue to make minimum payments to the other cards, and take the additional amount you were paying on the first card plus the minimum you were sending to the first card, and apply that total to the second card on our list.

6.  Repeat this process of eliminating balances until all credit card debt has been eliminated.

This debt reduction process works with any types of debt and is especially effective when dealing with credit card debt.

This week I will be writing a series of Back to the Basics articles.  I encourage you to subscribe to No Credit Needed via RSS or Email.  Also, if you liked this article, please consider promoting it via the social network buttons below.  Comments are always appreciated – and don’t forget to follow me over at Twitter.com/NCN.

Continue Reading