You can never hope to get completely out of debt if you don’t first stop making new debt. That just makes sense doesn’t it?
The key to stopping new debt is eliminating those little debt makers you carry with you. It’s time to become a plastic surgeon and cut up your credit cards. This is absolutely necessary because when you look at it with complete honesty; you’ll discover that credit cards can really be as dangerous to consumers as cocaine is to drug users. In fact, to some consumers, you could say that credit cards are really consumer cocaine! And you can’t kick the habit if they’re constantly with you. If you truly intend to become debt-free, you have to stop using credit. If you’re going to stop using credit, why do you need credit cards?
Look at the results your credit cards have given up ’til now. If you continue carrying them, you’ll continue to get the same results. If you carry credit cards, you’ll use them, if you use them, you’ll spend money you otherwise wouldn’t. Let’s face it, using credit is easier than using cash or a check. Even if you promise to pay off the full balance when the bill comes in, you’ll still be consuming your wealth.
This whole credit card discussion is no different than people trying to quit smoking. What could possibly be their justification for continuing to carry cigarettes? The only reason people who are trying to quit smoking want to carry around cigarettes is because they know ahead of time they are going to cheat, so they need some handy.
It’s exactly the same logic for someone who intends to stop making new debt. The only possible argument for continuing to carry credit cards; is that you know you’re going to cheat, so you’d better have them handy. You can’t keep charging up credit cards and expect to become debt-free and build wealth. It’s just not possible. And you can’t expect not to use credit cards if you have them. That’s not realistic.
When you identify a behavior in your life that just doesn’t work… doesn’t get you the results you desire… why would you keep doing it? Credit cards don’t get you the affluence they seduce you into believing they will. They’re liars! They’re really stealing affluence from your life. So why would you want to keep using them?
You don’t need credit! You shouldn’t even want credit. Credit only makes things cost more. Why would you want to pay more for everything? It’s not important whether you can afford the monthly payment. What’s important is how much the purchase will cost in total – the total cost of all the monthly payments until it’s paid off – because that’s the amount of money that will actually leave your life. And since you will make a finite amount of income over your lifetime, the more you give away, the less will be left over for you and your loved ones. Cut up the credit cards!
Since I know you think I’m being extreme, I’ll concede to two possible exceptions:
- Business
- Emergency Use
You may want to consider holding on to the cards you currently have or even obtaining a new credit card for use in operating an existing business you already have, or to help you start a new business in the future.
The difference in using credit for business vs. personal use comes down to debt vs. leverage. Clearly most people use credit cards for things that do not produce any income, that’s debt. That’s what I’m trying to help you overcome. However leverage is the exact opposite; it’s when you use credit or other people’s money to earn income.
Beyond the benefit leverage provides in starting or operating a business, obtaining credit cards for your business is an effective way of documenting tax deductible business expenses.
This separation of business and personal purchases, also makes any applicable interest and credit card fees on the “business only” credit cards fully tax deductible.
The second exception is the “just in case” excuse, where you keep your credit cards to quiet your fear of the unknown. A fear that some necessary expense will come up that’s beyond your current cash-flow capabilities. Therefore I do recommend that – in the beginning – you keep one no-annual fee credit card in a safe place. Again, this is only to quiet the “just in case” emotion so you can sleep at night. Here’s what you should do…
Pick one no annual fee credit card to hold onto. You don’t want it to cost you money even though you’re not using it. And you’re not going to charge anything on it – unless a bona fide emergency requires its use. To assure its emergency availability only, I want you to put the card in a place where it won’t be handy to use impulsively. I suggest that you clean out a metal soup or vegetable can, drop the card in, fill it with water, and put it in the freezer.
This way it will be available for a genuine emergency, but not very handy for impulse buying. The metal can, will keep you from thawing it in the microwave, and by the time it thaws out naturally, so will any impulse that prompted you to reach for it.
Don’t memorize or write down the account number and expiration date.
It’s important that when you cut up each card, that you also close the account. This way the credit card provider won’t send you a new card when the old, cut up credit card expires.
You will also not be able to request a replacement card during a time of emotional weakness.
“But I Need Credit Cards for Business”
This is a legitimate concern, but I don’t believe credit cards are the only answer. If you need plastic for business transportation, lodging, meals, and entertainment, my first choice is the basic, green American Express card. It’s a charge card, not a credit card, so you’re required to pay the full balance each month. This card should be used for business purchases only. If you allow yourself to make personal purchases with it, you’re vulnerable to begin counting on the “thirty day float” between when purchases are being made and the bill comes due. So, if you don’t need it for business…you don’t need it.
For personal purchases I recommend a debit card. This is available from your bank and usually doubles as an ATM card. It looks just like a VISA or Master Card, but the money comes directly out of your checking account, just as if you wrote a check, so you can’t spend money you don’t have. This provides a measure of self-discipline not present in a true credit card.
Since a debit card deducts money from your personal bank account, I do not recommend it for business purposes as an employee. If your boss expects you to use your own plastic and later be reimbursed, I’d again recommend the green American Express card as my first choice. If that’s not an option for some reason, then get a no annual fee VISA or Master Card and commit to never using it for any personal purchases.
If you try carrying regular credit cards, even if you intend to pay the full balance monthly, you’ll make purchases you otherwise wouldn’t. Research has shown that consumers will spend an average of 30 percent more in a given buying situation if they’re using a credit card rather than cash or check – even if they intend to pay the full amount when the bill comes due. Those unnecessary, often frivolous purchases will diminish your financial potential.
And of course, if you have a credit card with an available balance, you’ll always be vulnerable to a well-timed temptation, such as a vacation offer, a new coat on sale, a new piece of furniture that would look perfect in your living room, or any of a billion other possibilities. If you have credit cards handy, your soul will burn until you use them. The smartest thing you can do, is to just get rid of them.
Develop a cash mentality. Since you’re not going to use credit any more, you’re going to have to fit your emotions back into your income. Of course when I say I want you to develop a “cash mentality,” your soul might overreact and interpret that to mean “Don’t buy anything – ever!”
That’s not at all what I’m saying.
The financial principles I’m unfolding are meant to create planned spending. My purpose is to simply put you back in control of what your money is spent on and when you make those purchases. Instead of spending in reaction to the media and peer pressure, you want to be using your money like a good steward to efficiently and effectively move toward your life goals. That takes spending control. You need to defend yourself from the temptation of spending more than you have.
If I haven’t been successful at convincing you to cut up your credit cards, at least be willing to meet me half way. If ever you use your credit cards in the future deduct the credit charge from your bank balance. In your checkbook, make an entry of “CC” under check number for credit card purchases or if you use multiple cards, develop a code system similar to the following:
V = Visa
MC = Mastercard
AX = American Express
D = Discover
Your bank balance shown in your checkbook will show the correct balance as if you had made your credit card purchases as cash purchases. Never allow your adjusted balance to be less than zero, even though you know you still have money in the bank.
When you receive each statement, match the charge amounts on the statement to the entries in your check register. Check off the entries in your check register that you are now paying by check to the credit card company. Since you have already deducted these amounts from your bank balance, do not subtract the check amount again from your balance. Any entries not checked off in your register are still outstanding but there is no need to be concerned, you have already deducted them from your balance and they will appear on your next statement.
I concede that cutting up the cards can be emotionally challenging, but it’s doable. Emotions are deep waters, but they are discern-able if you’re just honest with yourself. Feeling we need credit cards is strictly the emotional result of a constant lie that’s been told to you throughout your life. Let’s face the lie and take back control!
Right now:
- Select a no annual fee credit card to hold onto in case of emergencies. Clean out a metal soup or vegetable can, drop the card in it fill it with water, and put it in the freezer. Don’t memorize or write down the account number and expiration date. Use this card only in the event of a bona fide emergency.
- Cut up and close all other credit card accounts.
Enjoy your plastic surgery party!
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