It’s one of life’s great conundrums: how exactly does the average credit card user stay debt free? Surely the two are mutually exclusive, and therefore the stuff of fairy tales. Yet, while most credit card users find it nigh on impossible to clear their debts, there are a handful of very organized spenders who should be lauded.
They don’t necessarily clear their cards every month; they just use them wisely and manage their money well: think frugal and sensible, as boring as it sounds. And while it is a good thing to be able to clear your credit card debt, it’s actually healthy for your credit history to have some record of debt, so potential creditors can see if you’d be a worthy client.
The debt-free credit card user’s secrets are within your grasp – and all without a pair of scissors in sight. Here’s how they do it:
1. Show Restraint
Don’t throw your money around. The average DFCCU (debt-free credit card user) has had to learn to be strict with themselves and their wallet, and it doesn’t mean they only refrain from extravagance, it means they start with saving on the small things. So, eat out less, buy more home brand items at the store and shop around for cheap gas or better still, ditch the car – it’s often a huge drain on finances. Once you’ve cut costs you’ll find you’ll have more money to pay off debts.
2. Get a Steady Job
Before the bottom fell out of the financial market, the world and his wife were inundated with pre-approved credit card offers, and were often granted immediate credit without ever having to prove they had the means to pay it off. Now that the financial bubble’s burst those offers aren’t flooding letter boxes in the same way, but the people who were granted the credit are drowning in debt. So, the one and only way to get out of the mess is to have a job that pays well. And if you have a good job but you’re still finding it hard to pay off chunks of your debts, get a better one, or ask for a raise. Of course, changing spending habits would be the best route, but for some that’s harder than changing jobs!
3. Stay Strong
When the assistant behind the counter is trying to persuade you to get yet another store card that you don’t need, just say “No”. Sure you get $10 off the total cost of your bill today, but you’ll end up paying 10 times that over the next few months in exorbitant interest fees, which will probably keep building up because you only pay the minimum amount every month.
4. Have a Healthy Panic
Ignore all the advice you’ve heard to date about not panicking when you find you’re getting deeper into debt. Are they mad? A good controlled panic attack will scare even the most hardened debt junky into realizing that they can’t possibly go on spending as they are – and not on their wage. And don’t worry; even the DFCCU had to go through this stage, too. It’s like one of the five stages of grieving, but for cards.
5. Devise a Plan
Once the panic waves have subsided, take a deep breath, pull yourself together and start planning what to do next. Write down exactly how much you owe – it always looks much worse on paper, so will reiterate just how bad, or good, things are – then start calculating. How much you allocate to each card should depend on the interest rate of each. Start paying those with the highest interest rate first. If you can, consolidate all your debt onto one low-interest card, or one with a good introductory offer near 0% for certain period. Be warned though, always check the fine print on these offers so you’re not stung with a highly-inflated interest rate once the introductory offer finishes.
6. Make Direct Debit Your Friend
Without a doubt, everyone who has ever had a credit card will have missed a payment at some point, and while this is enough to push most people into setting up a monthly direct debit, others remain serial non-payers. True, it can be a pain getting it organized and usually involves lengthy calls to your bank, but once it’s sorted it is absolutely worth it. All you have to do is make sure there is enough money in the bank every month to cover the outgoing payments. See step 2.
7. Get the Devil Behind You
Do not use your credit card in place of a debit card. It’s a sure-fire way to ensure your fragile financial stability goes into a downward spiral. Many cash-strapped people start to use their credit card once their checking account has gone over the overdraft limit because it’s the only way they can get their hands on some cash. But don’t be tempted. Unless you are very good at managing your payments by paying them off every single month, keep your credit card locked away until desperate measures are needed. And that means not using it to go out with your buddies for a few drinks because you’re too embarrassed to tell them you’re broke! Peer pressure can be shockingly persuasive.
8. Make Small Sacrifices
Not the voodoo type; some of your own. List what you can do without and write down what you really need for the week/month, depending on how you calculate your budget. If you think you really need something and are tempted to buy it but know you shouldn’t, give yourself a 30-day cooling off period. If after then it’s still as precious to you, budget around it. It’s also a good idea to have days when you vow to spend nothing at all. Pick one day a week, stick to it, and you’d be surprised how much you can save.
9. Give it Some Time
Understanding that you’re not going to be able to become debt-free overnight is important. These things take time. As long you realize that it’s about how you use your credit card, and a budget is in place, things will get easier. And once you’ve mastered the art of debt-free credit card use you can start building those precious points that will lead to well-earned treats, without having to worry about how you’re going to pay for them.
David Boyd c0-founded a popular credit card comparison service in Australia. Follow him @thecreditletteron Twitter for more.