Credit cards are a powerful evil that controls a majority of the population. They tempt you with great offers and reduced interest rates to ensnare you for years of pain.
However, there is no use for us crying over spilled milk. It’s time to accept that we got ourselves into credit card debt and need to get the hell out of it.
Our story. At one point, my wife and I were roughly $40,000 in credit card debt. We weren’t crazy spenders or out-of-control dreamers. Life caught us up, and we didn’t recognize the signs of something draining our wallets.
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Today, we are debt-free, with no credit card bills in view. It’s a fantastic feeling to see your bank account full of cash and have options on how to spend it (I invest in dividends).
Today, my goal is to help you identify why you are in debt, give you a book to read and establish a plan that may help you. Everyone’s program is unique, and something radically different may lead to your success. But, my ideas may help you build your process. Let’s begin.
Why are you in credit card debt? The single most important question you can ask yourself is, “Why am I in credit card debt?” An excellent way to get to the root of the problem (root cause analysis) is to ask “why” five times.
When you are in credit card debt, something is out of whack—something is bleeding your pockets dry. It may be your spending habits, house bills, or expensive cars.
5 Steps to (financially) Running a Household
Our issue was our house payment. We bought our first house in 2008, then the market crashed. We overpaid and purchased a massive place. Our housing allowance in Arizona was $1,200, and our house note was $1,800/month.
I didn’t understand how much we were overpaying. Then I received orders to South Carolina in 2012. We had no option to rent or sell the home because it was upside down. Therefore, I moved to South Carolina alone, leaving my wife and kids in Arizona.
I had to establish a little life in South Carolina while maintaining all the identical bills in Arizona. This is where our debt started to grow. Although I lived in South Carolina for about $1,000/month, I was still bleeding money.
Net Worth vs. Passive Income
By the time I finished my tour, we were about $40,000 in credit card debt. We moved to Japan together and basically floated the debt—meaning we didn’t pay it down significantly.
After moving to Florida, we decided we had enough. At that time, we begin renting rooms, learning to invest, and becoming intentional with our spending. Once we got serious, we paid off all of our credit card debt in two years. It’s incredible what focus can do for your goals.
Identify what is bleeding you? All this was to say that our house was the culprit. That’s why I am so adamant about buying the right size house with the right size mortgage—especially for the average person.
It will probably be hard for you to identify the culprit of your credit card debt, but I have a method. The book “All Your Worth” does a fantastic job of helping you discover your trouble spots.
Your Income Should Increase Every Year
Elizabeth Warren (yes, the Senator) lays out the ideal household budget in the book. She states 50/20/30—50% for mandatory spending, 20% for savings, and 30% for optional items.
When you input your numbers, you will be able to see where you are bleeding instantly. Mandatory spending includes your credit cards, but only the minimum payments first.
What if your numbers are all jacked up? If you are in credit card debt, your numbers will be all screwed up. After reading “The Two-Income Trap,” also by Elizabeth Warren, chances are your house is too expensive.
If you make $6,000/month, your total household spending should be $3,000/month. That includes total mortgage, utilities, car payments, and anything else that requires a mandatory charge—even your gym membership.
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Today, people spend over 50% of their income just on their mortgage, not including utilities and cars. When things are this tight, credit cards become your safe haven. However, they are a trap waiting to be sprung.
First steps to getting out of debt. Once you identify what is causing you to be in debt (most likely your home), you have to decide how you want to climb out of the hole. It won’t be fun.
You can take Dave Ramseys’ baby steps, a proven method to get out of debt. I like Elizabeth Warren’s approach better because it is more aggressive. She recommends getting roommates, a second job, or even selling your home and moving in with family.
I’ll take it one step further and tell you to start a home business in addition to these. Businesses work slowly at first, as you learn the ropes. Since you won’t be going out while you pay off credit card debt, you (and your spouse) may as well focus on building an asset.
The Crypto Debit Card
Whatever you decide, you have to have a sense of urgency. If you try to take a long way out, your circumstances can change. Imagine starting to pay off your debt in 2016 and planning to finish in 2020?
As you’re about to finish your debt, the pandemic hits, and you lose your job. Now you are stuck going back into debt? Don’t let this happen to you. Pay this crap off with a burning desire and passion. Once you get out of the hole, you’ll see life in a totally different light.
Have you seen the movie “The Wizard of Oz?” When Dorothy travels from her black & white world in Kansas to the Technicolor land of Oz, it is absolutely incredible. Being debt-free is living in Oz versus Kansas.
Become CEO of Yourself 2
Should you consolidate debt? I wrote an article about consolidating debt a while back. The fear is that once you get all your credits down to zero with a $40,000 bank loan at 9%, you’ll go back to using your credit cards.
I like the idea of consolidating debt because it makes the process that much more streamlined. However, I recommend that you first go six months without using credit cards BEFORE consolidating. Get off the credit card drug; then, you can move forward safely.
Should you learn to invest while paying down debt? I go against the grain with mainstream finance people here. I wholeheartedly believe you should learn to invest while paying off debt.
Becoming an investor is the best way to stay out of credit card debt. You see, becoming an investor is leveraging the idea of compound interest in your favor.
Investing for Interest 101: What is Fixed Income?
However, as you’ll learn on your investing journey, credit card debt is the banks leveraging compound interest AGAINST you! That’s right; credit cards don’t use simple interest—they use compound interest.
So while you are trying to earn dividends, the banks are getting dividends from you. A true investor will put a stop to this instantly. Trust me; I started to invest a little cash as we paid off debt, which fueled my passion for paying off debt faster and more aggressively.
You don’t have to invest a lot of money while learning, but you don’t want to waste 2-3 years of your life as a saver. Learn to become an investor in the meantime. You’ll be in the markets when you finish your debt crusade.
Conclusion. This is just an overview of the credit card problem. The main takeaway is to identify what is bleeding you dry. Chances are it is your mandatory expenses—most likely your home.
Overcome Financial Adversity
The “All Your Worth” method is the best technique to determine where your money is going because it gives simple allocations. You can thus quickly find the culprit and work to reduce its negative impact.
Credit cards are clever, and they can become addicting in and of themselves. Once you have $1,000 in your debit card account, you may want to stop bringing credit cards around.
Also, it may be a good idea to remove your credit card information from Amazon. I know I had to do that at one point. Since I became an investor, credit cards and random spending don’t affect me.
JOMO vs. FOMO
I have my dividend debit card if I want to buy a random bag of M&M’s. Other than that, I have no desire to buy random crap. Becoming an investor was the best way for me to curb my impulse spending. Now I mainly buy dividend-paying stocks.
I hope I have given you some valuable insight into the dangers of credit cards. I have been there, done that, and got the T-Shirt. But, I am not going back. Find the culprit, take it seriously, and change your lifestyle—one day at a time. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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