I finally did it. I built up the courage to cancel our remaining credit card. Discover Card was our final credit card and had about a $12,000 limit on it. I can’t remember the last time we used it. The card was basically serving as a crutch and a false sense of security the past several years. My wife and I have been working hard to build our emergency savings fund to a level we are comfortable with to rely on versus having to reach for the plastic.
The Great Debate
To have or not have credit cards has become quite a hot-button debate over the years. There are financial gurus like Dave Ramsey who are adamantly against the concept while others swear by them – citing all the benefits. I have many friends who are pro credit cards because of all the points, cash back, perks, and rewards that accompany the privilege of owning said card. Some of my friends are very wise with their money and have turned using credit cards into a form of gamification. I have no problem with that because they are paying off their entire balance each month – credit card companies hate these types of customers! However, the reality is that most of us are not disciplined enough to properly manage the usage of credit cards without digging ourselves deeply into debt. That’s what happened to me.
It’s Started with the Miami Dolphins
My exposure to credit card use begin as a byproduct of rooting for my favorite team – the Miami Dolphins. Yep, that’s right, I was attending a Dolphins game while in college and got suckered into signing up for a card at the stadium kiosk in order to get my free T-shirt. I was around 20 at the time and the Dolphins Visa Card only had about a $500 credit limit. I had no credit history at the time, so I believe my dad had to co-sign the application for me. Cue the famous quote – “You can’t get credit unless you have credit.” Then how do you get credit if you have no credit? It’s quite the conundrum.
My Downfall
The Dolphins card would serve as a harbinger for my misuse of credit cards over the next decade. With little to no financial literacy to fall back on, I proceeded to acquire multiple cards (including the aforementioned Discover Card) and began drowning in debt. I swiped my credit cards for every purchase. I’ve heard some financial experts say that, on average, we end up paying double what we buy on credit after factoring in the compounding interest.
I frivolously used my cards on all the joys of being single: clothes, restaurants, entertainment, and vacations. I also swiped it for life’s staples such as groceries, gas, and car maintenance. There were no major buys or emergency purchases. It was a valuable lesson in how quickly debt can accumulate if you’re not paying attention.
In what seemed like a blink of an eye I had amassed approximately $13,500 in consumer credit card debt. While that might not seem like much, when you consider I was making just $23,000 a year at the time, the figure was enormous. The debt would serve as the trigger point that sparked me into a lifestyle change for the better.
Dominating Debt
The first thing I did was stop using my credit cards. I removed them from my wallet and buried them at the bottom of my sock drawer. I had absolutely no chance of paying them off if I continued to accumulate more debt. Then, I started using my debit card and began paying more attention to my checking account balance—making sure not to spend more money than I had.
My second course of action was putting together a budget. I determined where my money was coming from and where it was going to. Where it was coming from was easy—I grabbed a copy of my recent pay stub. Tracking my expenses was more challenging. I began this process by writing everything out on paper. I started by listing my recurring monthly bills: mortgage, electric, gas, cable, internet, car payment, HOA fees, cell phone, etc. It was determining all my other expenses that required work. I figured it would be easiest to log onto my online banking account and print out the previous month’s statement. This captured all my expenses that were attributed to my debt card. However, I also needed to account for my credit card and cash purchases. I then proceeded to construct a handwritten budget to have all incomes and expenses documented and accounted for.
These actions helped me develop a laser focus on getting out of debt as quickly as I could, giving myself a goal of one year. I would live frugally off my full-time salary and use any extra money to pay off the debt. Although I didn’t hit my target goal, I’m proud to say I crushed $13,500 of debt in just 13 months and haven’t used a credit card since. Looking back, I’m convinced that I would’ve never paid off those credit cards without ceasing to use them all together.
Criminal Interest Rates
Now let’s talk about credit card interest rates – because according to published reports they are now at an all-time high. I’ve seen credit card interest rates range anywhere from 15% to nearly 30%. If you have a rate below 15%, consider yourself lucky. The average credit card interest rate is 18.61% for new offers and 15.09% for existing accounts, according to WalletHub’s Credit Card Landscape Report. Numbers like these make it nearly impossible to dig yourself out of hole. Remember, it’s very easy to get into debt and very difficult to get out.
Did You Know?
- Americans owe nearly $1 trillion in credit card debt.
- Today, the average household with credit card debt owes a total balance of more than $8,398.
- About 72% of U.S. consumers report carrying a credit card.
- 48% credit card users only make the minimum payments and have an amount roll over to the next month.
- The average American household spends about $1,500 a year in credit card interest.
- The average credit card holder has at least four cards.
After reading all this, you might find it surprising to learn that 53% of households carry NO credit card debt, and of those that do, many pay it in full every month. Are you in the 53%?
Source: Federal Reserve
Life without Cards
Having my 4-year-old son do the honors of placing our final credit card in the shredder was quite a liberating experience. It felt like the weight of a false sense of security had been lifted off my back. Now the onus is upon me and my wife to continue being wise with our financial choices while keeping our emergency fund at a level that will act as insurance against any unexpected major expense.
As I reflect over the totality of this journey, I’m reminded of a powerful quote from a friend who said:
“If I charge it, I think it’s free. If I decide to pay cash, I find I don’t need it.”
For more on my financial journey and thoughts from other unique individuals, check out my book Margin Matters: How to Live on a Simple Budget & Crush Debt Forever.