There was a time when I did the credit card shuffle every day. When I was in college, I would make purchases on my credit cards just to be able to pay for gas and groceries. Then, when the bill came due each month, I would take out a cash advance in the amount of the minimum payment. Although for a time it seemed like I had hit a magic fountain of free money, eventually reality set in, and I could no longer “shuffle” the credit card dollars around. There were no more dollars to shuffle. Then I got a new card and repeated the process again.
The First Light Bulb Goes Off
This continued throughout my college years until shortly afterward when I read the book Your Money or Your Life by Joe Dominguez and Monique Tilford along with some books about financial planning and responsibility by Suze Orman. The concept that really changed my life, which all of the authors hit on, was that I was trading my life energy for all the debt I was taking on. I also learned to re-calculate my wage in a more realistic fashion. Even if I earned $10 an hour, I hadn’t before thought about the fact that my taxes, uniforms, travel expenses, “decompression time,” drinks after work, and lunches out all lessened the amount of my real hourly wage. After I subtracted all that, I found myself lucky to even come home with $5 an hour.
The Second Light Bulb Goes Off
I also learned that when I bought things on credit, I paid a lot more for them in the long run, sometimes over five times as much as the item originally cost. If I could give you another piece of my best advice it would be this: before you do any of the other things mentioned in this article like consolidating your debts or seeing a financial planner, visit an online calculator to determine the real cost of the items that you buy on credit. That $4 latte may cost you $10 or $20 in the long run, and more expensive items may cost you hundreds or even thousands in interest.
* Know what you’re really earning per hour
* Realize you’re trading the hours of your life for your goods
* You’re trading future hours of your life for your current debt
* Calculate the real cost of the items you buy on credit
* Using your real hourly wage, consider how many hours of your life you’re trading for the things you buy on credit
Now that you know what you’re really paying for, some of the “must haves” in your life, reassess whether they’re really “must haves” or “I like to haves.” You don’t have to go crazy; life should be fun, after all, so don’t feel like you need to start living like a pauper. However, try to use the information in the previous two paragraphs to separate the worthwhile expenses from the worthless. Is having cable TV really worth the number of hours of your life energy it’s costing you to have it? If your “real” hourly wage is $10 per hour after your work-related expenses, and you have a cable package that costs you $150 per month, you’re trading 15 hours of your life for that cable TV package every month. That’s 180 hours of your life every year!
Sell Unnecessary Items
Go through your home and find all the items you don’t use regularly. Assess whether you can bring yourself to part with some of these items. Do you have fun toys like jetskis or a guitar collection that you rarely use? Do you have TVs for more than one room in the house? Sell what you can and use the money you receive for these items to help pay off some of your debts.
Get Help: See a Financial Planner
Because of the taboos we have around money in our culture, many people feel like they are afraid to ask for help when it comes to managing their money. Asking for help requires you to admit that things aren’t working anymore, and they require you to own up to your mistakes and face them. However, once you’ve taken this difficult step, you’re on the road to repair and recovery regarding your finances. A financial planner can help you see how to live within your means and help you learn how to plan for the future.
Take out a Consolidation Loan
Get a consolidation loan, refinance your home, or put up other collateral for a loan in the amount of your debts. Try to find the lowest fixed rate that you can. Don’t go for a variable rate – you might get a low initial offer but end up paying a sky-high rate later on. Consolidation loans work well when you’ve acquired the skill to live within your means and haven’t taken on any new debt but are having trouble keeping up with high monthly payments on many past debts.
This may sound like a drastic measure, and, believe me, it is. Don’t undertake bankruptcy lightly or without a lot of careful forethought. However, if you have what feels like an insurmountable amount of credit card debt, bankruptcy still exists as an option that provides true relief for people who have a lot of debts from credit cards. It can give you a fresh start on a blank slate and relieve the heavy burden of debt from your shoulders. Stay aware, though, that your credit will need repairing and rebuilding after bankruptcy. The bankruptcy will stay on your record for at least seven years, and you will likely encounter difficulty in getting credit extended to you during this period.
The key to taking control of your finances and stopping bad habits is to realize how much your debts really cost you in terms of your life. Most people haven’t received any training or education to truly understand the real-life costs of living on credit cards. Once you know what you’re really trading for the things you buy on credit, start making life changes that help you take control, such as changing your spending habits and doing what you can to reverse the flow of money in your life from negative to positive.
Steve Gott is always looking at ways to improve his finances. He frequently shares his insights on personal finance blogs. Click here for more information on short term funding alternatives.
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