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Why I’ll NEVER Cut Up My Credit Cards

Why I’ll NEVER Cut Up My Credit Cards

    It’s been just over two years since I got my first credit card. I now have three and I’m never looking back. Ah, credit cards. How do I love thee? Let me count the ways:

    ·         Credit cards track my spending. The problem with withdrawing money from an ATM and paying for everything in cash is that you often struggle to remember exactly where your money went. With credit cards, I can review the statements every month and reconcile each line item to my Quicken records to make sure even a few bucks here and there are properly accounted for. I couldn’t do that with cash.

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    ·         Credit cards boost my credit score. As a college graduate with no student loan, no car repayments, and no mortgage, credit cards have helped me ‘get into the system’ and build a strong credit profile. By using them wisely, I’ve already qualified for lower rates that I can take advantage of when I eventually buy a house. If it weren’t for credit cards, I’d pretty much be off the financial grid.

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    ·         Credit cards give me awesome rewards. Each of my credit cards rewards me in a very useful way. One gives me up to 33% off food. Another lets me earn interest on any positive balance at a rate banks would only offer if I locked in a far higher amount for a far longer time. But my favourite is a 90% discount on my monthly membership to an amazing gym. This includes free wireless internet, not to mention unlimited classes like yoga and FUN’k off (don’t ask), for just $7 a month! When’s the last time cash treated you so well?

    At this point, you might be feeling uncomfortable. Heck, you might be downright appalled. But please put down the pitchfork and step away from the comments. Allow me to offer some clarification before you write me off as yet another 25-year old on the road to disaster and destitution:

    ·         I am NOT advocating excess spending. Most people avoid credit cards because they’re too much of a temptation to overspend. Given that the key to wealth is to spend less than you earn, this makes perfect sense. Credit cards should NEVER be used to spend money on things you can’t afford. In other words, NEVER buy on credit what you can’t already buy using cash. Period. I’ve never been a particularly extravagant person, which is why I actually like the fact that I’ve had the same pair of All Stars for about five years. My credit cards are only used for things I can already afford (mostly things I have to buy anyway), which is why the charges only amount to around 25% of my income every month. Nothing gets charged that cannot be paid.

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    ·         I am NOT advocating getting into debt. Another reason people avoid using credit cards is because they fear debt. This makes sense too. Debt. It’s a horrible word that conjures up images of shackles and a burdened life. But not all debt needs to be portrayed so negatively. One of the key things I learned at Rich Dad Coaching (and wrote about in The Beauty of Debt) is the distinction between good debt and bad dad. Good debt, like that used by Robert Kiyosaki to buy investment properties or that used by Bill Bartmann to become one of the 25 richest people in America, puts money in your pocket. Yes, credit card debt is bad debt, but it won’t cost you a cent as long as you ALWAYS pay the balance off in full (and can negotiate waived annual fees). This means your cash can stay in the bank longer (earning interest as it does so) and only be used to pay off the debt when the due date arrives. In some cases, that can be as far as 55 days away. Score!

    ·         I am NOT advocating getting credit cards purely for rewards. Too many people have been tempted by the promise of low rates and other amazing benefits only to find that they were temporary offers at best. Before settling on a card, make sure you do proper research and read the fine print. Since interest rates only matter if you have existing debt that you’re trying to consolidate, you have total freedom to find a card that works for your situation. Your best bet is to find one that rewards you for purchases at stores you already use all the time and/or rewards you with benefits you can actually take advantage of. Perhaps you’ll get lucky and score a free European trip!

    In conclusion, I hope it’s clear that credit cards are not the homewreckers everyone paints them out to be. If you already have a good dose of financial discipline (control your expenses by spending less than you earn) and use them with wise self-control (pay off the FULL balance every single month), they can be a really great part of your overall plan. But if you don’t and won’t, then burn this post immediately (figuratively, of course) and stick to what you know.

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    What do you think? Have any of you had good success with credit cards to help me build my case? Would you share your story in the comments, pretty please?

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    Last Updated on August 21, 2018

    How to Pay off Debt Fast Using the Stack Method (A Step-By-Step Guide)

    How to Pay off Debt Fast Using the Stack Method (A Step-By-Step Guide)

    Whether it’s consumer debt on credit cards, student loans or a mortgage, most people find themselves weighed down by debt at some point in their lives. This can keep us working jobs we hate just to pay the bills and keep our heads above water. By learning how to pay off debt fast you can release this burden and remove some of the stress from your life.

    Today I’m going to show you how to pay off your debt fast using the Stack Method:

    Step 1: Stop creating new debt

    Most people do not receive training in handling money and how to live within their means. If you’re in debt then you’re probably one of these people and it’s time to bite the reality bullet.

    It’s going to be impossible to get out of debt unless you retrain your financial habits right now.

    You must make a stand against all the marketers trying to take your hard earned money or offering easy finance. You don’t need more stuff to make you happy. What you need is financial peace of mind.

    So cut up your credit cards or freeze them. I mean this literally. Put them in a container of water and stash them in your freezer. T

    hen when there’s an opportunity to spend, you have time to thaw out (you and the credit cards) and really decide if you need that purchase.

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    Step 2: Rank your debt by interest rate

    Make a list of all your debt with amounts and the interest rate. The highest interest rate should be at the top as this is what you’ll pay off first.

    Paying off your high interest debt is the key to the Stack Method and paying off debt as fast as possible.

    Interest is a powerful weapon and right now the bank or other financial institutions are using it against you. Interest significantly increases the amount you need to pay back and often we’re completely unaware of how much that is.

    For example, if you have a $10,000 credit card debt at 20% interest where you pay a minimum payment of $200 a month, you will end up taking 9 years and 8 months to pay off the actual amount of $21,680 including $11,680 in interest!

    Step 3: Lower your interest rates

    You can often lower your credit card interest rates by doing a balance transfer. This means moving your credit card to another bank and they will lower the interest rate to get your business.

    Shop around and try to get the lowest interest rate for the longest duration (preferably until it’s paid off completely). Just make sure you’re reading the terms and conditions carefully so you don’t get stung by the new bank in other ways.

    Once you’ve done this you can order your list of debt again if things have changed.

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    Step 4: Create a strategic spending plan

    This is where we improve your financial control from Step 1. Take a piece of paper and write down your income after tax and all the expenses that you have. This will include the minimum payments on all your debt.

    Look at your expenses and then rank them in order of importance to you. Look at the items on the bottom of your list and decide whether you’d rather have them or be financially stable. The objective is to create a Strategic Spending Plan where your expenses are lower than your income.

    You also decide how much you are willing to spend on each area of your life. You can allocate amounts for rent, groceries, eating out, buying clothes and other activities however realize that once you’ve spent your allocated money there’s no dipping into other areas.

    It also helps to have a Fun Account that you can spend on what you like and an Emergencies Account in case your car breaks down etc.

    You also want to include in your Strategic Spending Plan as extra amount you’re going to use to pay off debt.

    Can you afford $20 a week? $50? $100? $200 or more? It’s important that you get a realistic number that you can commit to each week without fail and this is your Stack Repayment.

    Step 5: Create a repayment schedule

    The first part of the Stack Method is to cover the minimum payment on every single debt you have. Any time you miss a payment, you incur fees and these add up quickly. This also includes making the minimum payment on the debt with the highest interest rate.

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    Then for the debt with the highest interest rate (your Target Debt) you’re going to add the Stack Repayment from your Strategic Spending Plan. You apply this Stack Repayment and the minimum payment until that debt is paid off in full.

    As your official minimum payment decreases, you add that extra amount to your Stack Repayment. So as your minimum repayment drops, your Stack Repayment increases equally. This will compound how fast you pay off the Target Debt by adding even more to the repayments you’re making.

    Step 6: Reward your progress

    You want to track your Target Debt so you can see your progress along the way. You can also decide on milestones that you’re going to celebrate and reward yourself on.

    A reward doesn’t have to cost money but if it does then it comes from your previously allocated Strategic Spending Plan.

    This is an important step as it will keep your motivation going when you feel your willpower fading.

    Just like you’ve trained yourself to brush your teeth and shower, you can train yourself to manage your money. Feel great that you’re now entering the 10-,20% of people who are actually responsible with money.

    Step 7: Compound your results

    Once you pay off your Target Debt, you have a huge celebration and congratulate yourself. Then you move the Stack Repayment (which includes the previous minimum payment as well now) to the next debt with the highest interest rate.

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    This becomes the new Target Debt and you are using your Stack Repayment amount plus the minimum payment for the new debt.

    This is why the Stack Method is so powerful. As you decrease a debt you actually increase your Stack Repayment amount. This means the second debt will get paid off even faster, the third even faster than that, and so on and so on until you are completely debt free.

    Step 8: Be kind to yourself

    During this process, your resolve is going to be tested multiple times. Maybe you’ll have an emergency like your car breaking down or the need to travel for a sick relative. The important thing is to not throw up your hands in despair while going back to your old habits.

    Life will test your commitment to your new responsible money attitude and it’s up to you how you respond. When things go wrong (and I guarantee they will) you need to shrug it off and get back on track.

    Show compassion when you accidentally go over your Strategic Spending Plan and decide to do better next week.

    The bottom line

    The Stack Method is a powerful tool but it’s up to you whether you use it.

    If you really want results, then bookmark this article immediately and start working through the steps.

    It’s only by the decision you make right now that you will enjoy a debt free future and live a financially responsible life.

    Featured photo credit: Unsplash via unsplash.com

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