Truth time: I didn’t want to write a post about credit cards. It’s not a sexy topic.
But through my consulting work, I know that quite a few of you are overly dependent on your credit cards. I’ve heard stories of charging everyday expenses like groceries because you don’t have the cash on hand to pay for them up front. And I know some of you charge everything all month and then pay it off at month end.
Which seems okay … until you realize that you are now stuck in that cycle, because you just spent allll your income paying for last month’s expenses.
Not to sound like a cheesy infomercial, but what if I told you there’s a better way?
(There’s a better way.)
Imagine this: You budget for the current month with the income you made last month. You know exactly how much you have to spend because that money is already in your account. The best part? Your credit cards stay in your wallet, untouched.
Sounds amazing, right?
That’s what I want for you.
Why You Need to Break the Cycle
Some of you are arguing with me in your head right now. You’re telling me that you earn credit card points or that you always pay it off (well, most of the time). I hear ya.
But if you’re using your credit cards regularly because you don’t have enough money in checking, you are in debt, my friend. Even if you pay them off at the end of the month. Even if you are earning rewards.
In my opinion, living off credit is worse than living paycheck to paycheck because you are living on money you haven’t earned yet (and might not earn, if you’re having a slow month).
And from a purely emotional standpoint, it just doesn’t feel good to live that way, does it? I don’t know about you, but I practically have a panic attack just thinking about it.
Part of the mission here at the Republic of Freedom is financial freedom, and you can’t be financially free if you are riding the credit card float.
So let’s discuss how to break the cycle. Yes, it does require some hard work and sacrifice. But it will be worth it, I promise.
The Whys & Hows of FINALLY breaking up with your credit cards. Click To TweetHow to Break Up With Your Credit Cards
Don’t worry, you can leave the scissors in the kitchen drawer for now. But let’s work on breaking the dependency.
The ultimate goal here is to pay off your credit card AND live off last month’s income.
So, how do you get there?
The financial wizards over at You Need a Budget are all about living on last month’s income (that’s what prompted the company’s founder to create the YNAB software in the first place). They propose two methods for breaking the credit card habit.
The Dramatic Breakup
This one seems counter-intuitive, but they suggest that you do not pay off your credit card balance at the end of the month and stop using the card entirely. In other words, use the money you have coming in to pay for current expenses, not last month’s.
As for that credit card balance that you’ll now have (ugh), budget a set amount toward the balance so that you gradually pay it off. Once it’s paid off, direct the money you had budgeted for it toward building up a buffer account.
Eventually, you’ll have saved a month’s worth of expenses in your buffer account and will be ready to rock & roll!
The Slow Breakup
If you can’t bear to stop paying off your credit card balance in full, then you’ll have to slash your spending. Or find a way to make more money to pay it off and get in the clear. Or both.
In this scenario, you are using the card less and less, so that the bill at the end of the month is smaller. Eventually you’re not using the card at all and can start saving money in a buffer account. Like in the previous scenario, once you get to this point, you can start living off last month’s expenses.
Neither method is easy, I know. But I urge you to do this work now, so that you can enjoy true financial freedom in the future. A lean year is worth it to get out from under the thumb of credit card debt.
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