Summary

The article outlines strategies for managing and eliminating credit card debt, emphasizing the importance of budgeting and the use of cash to curb spending habits.

Abstract

The article "How to Break Free From Credit Card Debt" provides a comprehensive approach to tackling credit card debt. It suggests that credit cards should only be used for purchases that can be paid off within the month and not as a supplemental income source. The article defines signs of credit card debt trouble, such as making only minimum payments or using one card to pay off another. It offers a step-by-step "Reboot" plan, which includes selecting one card for emergencies, cutting up others, and paying off balances one by one while making minimum payments on the rest. It also advises seeking professional advice, considering Covid relief options, and even bankruptcy if necessary. The article introduces the "Cash Challenge" as a method to gain control over spending by using cash for all transactions for two weeks, allocating funds into labeled envelopes for different expenses. The benefits of using cash include increased awareness of spending, a more tangible sense of money leaving, setting limits, and potentially spending less due to the inconvenience of obtaining more cash. The article encourages readers to continue using cash to build an emergency fund and prepare for future financial challenges.

Opinions

Credit cards should be used responsibly and not relied upon to extend one's income.
Individuals who are only making minimum payments on their credit cards or using one card to pay off another are likely in need of a financial "Reboot."
The "Reboot" process involves prioritizing debt repayment, canceling accounts after paying them off, and freezing the remaining credit card to avoid temptation.
Professional financial advice is valuable, especially in times of economic hardship, and should not be overlooked due to embarrassment.
The "Cash Challenge" is presented as an effective way to become more mindful of spending habits and to avoid the ease of overspending with credit cards.
Using cash is believed to make individuals more aware of their spending due to the physical act of handing over money, which can lead to healthier financial habits.
The article suggests that readers should plan for future financial emergencies by saving money regularly.

How to Break Free From Credit Card Debt

Taking the cash challenge reveals your weaknesses

Credit cards have a place in your financial life and they can be useful.

You should never use them to supplement your income or to buy anything that you couldn’t already afford to pay for with cash.

Don’t think of them as another source of money.

Any amounts you charge on a credit card should be paid off by the end of that month.

How to know if you are in trouble:

If you are barely making the minimum payments on your credit cards, you need to consider a credit card Reboot.

If you have more than one credit card and you are not paying them off every month you need a Reboot.

If you have ever used one credit card to make the payment on another one, you are in desperate need of a Reboot.

How to Reboot, step by step.

The first step is to stop bleeding money.

Choose one credit card for emergency use and get rid of the rest.

Look at the benefits and annual fees of all your credit cards.
Decide which one is the one you will keep.
Put that card in a container of water and put it in your freezer.
Cut the rest of them up.
Yes, cut up your credit cards.

Now you will pay them off one by one, while still making the minimum payment on the other ones.

As you pay each card off, cancel the account.

Continue focusing on paying them off until you are completely caught up, you have only one card and the balance owing is zero.

Leave that credit card in the deep freeze.

Get some professional advice.

It’s been a tough year for many people.

If you have been going deeper and deeper in debt to keep your family fed, that’s understandable.

Lots of us are in the same boat.

It’s embarrassing to admit that you need help, but there are professionals who can help you sort out the best way to approach your unique situation.

Some locations have implemented Covid relief, deferring payments.

Another choice may be bankruptcy. Don’t be afraid to talk about all of your options.

It’s a good idea to make a plan. Then when this whole Covid thing is over, you’ll be able to put it into play.

Once you’ve sorted out your situation, consider if there are any ways to protect yourself so you‘re ready for the next big one, whatever it is.

Once you are back on track, consider putting some money aside, a little bit every paycheck, so you’re a bit better prepared next time.

One thing I always suggest to anyone struggling to find ways to save is the cash challenge.

The Cash Challenge.

Are you struggling with overspending?
So much of what we do is automatic.
When it comes to plastic, it’s easy to go on autopilot.
We whip it out and tap to pay for a coffee at the drive-through. Add a donut to that and you are set for the morning.
You work hard after all, and you don’t always have time to make a lunch.
That shirt in the store window called your name. You think, ‘‘it’s on sale; I’ll never get a better deal.”
When you join friends at the bar at the end of a long day, it’s easy to buy a round of drinks.

Here’s a challenge that will help you keep track of what you spend.

For two weeks, use only cash.

You’ll need several envelopes.

Go to the bank at the beginning of the week and take out enough cash for one week’s expenses.

Write ‘ groceries’ on one envelope. Set aside the amount you have budgeted for groceries for that week.

Write ‘daily cash’ on another envelope.

Divide the rest into an amount for each day, and then take only one day’s worth with you in the morning.

There are many benefits to paying with cash.

You notice when you pay with cash.
The money leaving your hands is so much more tangible than using plastic. You feel it.
You see what you spend money on.
With plastic, you tend to lose track and small amounts add up.
You have set a limit for yourself.
You learn to say no to impulse buying.
You notice the cost of things.
You make your lunch more often or take time to eat something for breakfast.
It’s healthier.
You will have to work harder to overspend because you need to find a bank if you want more cash.
Sometimes you get a discount when you pay cash. Always ask, you will be surprised.

Continue to take the Cash Challenge to save money.

Use cash for your day-to-day spending, and put all of your extra money into savings to build an emergency fund.