Would you like to know more about:

Whether or not your debt level is reasonable?learn more

Managing Credit Cards

Picture this. You own a beautiful sailboat that's anchored in the middle of your favorite harbor. You and the people going sailing with you today are standing on deck looking out to sea and what you see is inviting, wonderful, and exciting. The ocean is a deep navy blue with gentle swells, the sun is warm on your cheek, and there are a few fluffy white clouds floating by on a twelve knot breeze. It's an absolutely perfect day for sailing. The sails are ready to hoist, the boat engine is idling ready to take you out to sea. Your sailor buddies are eager for a great day on the water and you are too, but you can't go out there to explore and enjoy the day-----UNTIL you "weigh anchor," (which means freeing the anchor from the sea bottom and raising it).

Credit card debt CAN be just like a ship's anchor. If you're not careful about using your credit cards, the debt will keep you anchored in one place so you can't get out there to enjoy the many delightful experiences the ocean of life has to offer. In another article on this website, Me Save, Are You Kidding?, I pointed out that the average credit card debt of American families was $9,312.00 in 2005. That's a pretty heavy and well-set anchor! But that's just an average, so there are a whole lot of families with WAY heavier credit card anchors keeping them stuck in one place.

Let's talk about weighing credit card anchors and learning how to manage our credit cards in some way that makes sense and gives us some financial freedom of movement.

First of all, the simple fact of having credit cards isn't a negative thing. Some businesses will take credit cards or debit cards, (we'll get to debit cards near the end of this article), but won't take your personal checks, so A credit card can be useful and sensible thing to use at times. For example, when I travel for business I put all travel expenses on A credit card partly because it's easier to track those expenses and also because hotels and restaurants like credit cards better than they do personal checks.

You probably noticed that the word "a" is capitalized, bolded, underlined, and colored red in the above paragraph. I did that to call attention to the meaning of the word as singular, uno, one, because there is probably no sound reason to have more than one credit card.

So the issue isn't that credit cards themselves are problematic, they're only pieces of plastic after all, its how you use them and what the consequence are to you when you do use them.

If your credit card use is fairly light, your balance due isn't huge, and you routinely pay it off every month, then credit card debt isn't a problem.

If, on the other hand, your credit card debt is anywhere near or above the $9,312.00 average mentioned above, AND you find yourself making minimum payments a lot of the time, AND you feel overwhelmed by debt, AND you fervently wish for greater flexibility in how your money is spent---well, your beautiful financial sailboat has a firmly set credit card anchor.

Ok, you might ask, how do I go about weighing my credit card anchor? You can begin following a few simple rules and procedures to get out of credit card debt initially and stay out of it in the future.

Rule Number One: Don't charge anything, anytime, on any credit card until you've paid down your current credit card debt to zero.

• The first step on the only path to getting a grip on credit card debt is to NOT create more of it. It doesn't take a rocket scientist level intellect to know that if your left hand is piling up credit card debt while your right hand is trying to reduce it to zero, you're stuck on a self defeating merry-go-round.
• If you have a spouse you will need to come to agreement and both follow this rule. I've known of couples who couldn't seem to work together in this regard, and it always turns out to be messy. The merry-go-round never stops.

Rule Number Two: Pay everything by cash or check.

• If your checking account and savings account balances are low, delay making the purchase you are considering until you can pay cash.
• There's nothing written in stone somewhere that says you're entitled to have everything you want this very instant. I think it's hard for a lot of Americans to delay gratification of their wants. Maybe in addition to being "Baby Boomers" we are also the "Instant Gratification Generation." As a matter of fact, there's a lot of excitement and pleasure in working and saving for something you really want.

Procedure Number One: Cut up all your credit cards except for one.

• Don't use this credit card for anything other than genuine emergency situations; like your car engine quits and you need to repair it so you can get to work, or a close relative dies in a distant part of the country and you've got to pay for airfare.
• EMERGENCY USE ONLY.
• If you find you can't seem to keep from using this card to make day to day, non-emergency purchases, cut this one up too. Force yourself to operate on a cash basis.

Procedure Number Two: Develop a plan for paying down all credit card debt to zero.

• Pull together a list of all your credit cards and the amounts owed on each.
• Start implementing your plan by paying off the card with the smallest balance first and paying the minimum on all the others. Doing the task this way will help you to feel successful immediately.
• Then pay off the card having the next lowest balance while paying the minimum on others, and continue this procedure until you've paid all of them in full.
• Understand that if your credit card debt level is high this won't be a one or two month project. When I was in my twenties, my lovely wife and I managed to get ourselves into a credit card bind from which it took about a year to recover.

Procedure Number Three: Never charge more on your one remaining credit card than you know you can pay in full each month.

• If you follow this procedure once you're free of credit card debt, it will never be a problem for you in the future.

The basic notion underlying all the above is for you to move to a cash basis for your normal day to day expenditures. A lot of people use credit cards to pay for all kinds of small buys as they go along each day, and that's Ok if the card balance is paid off every time a statement arrives. Otherwise, it's not a good practice because it can easily get out of hand.

Now for a word about debit cards. There are some situations where checks don't work well and it's not practical to carry enough cash to do what you need to do as, for example, at hotels and restaurants when you're traveling. You can still operate on a cash basis by using a debit card. When you pay with a debit card the money for your purchase is immediately taken from your account and transferred to the business where you are making a purchase. Businesses love that. You do have to know your account has enough in it to cover your buy when using debit cards; otherwise you'll be embarrassed when the purchase doesn't clear. You do have to remember to enter the transaction in your check book too, because if you forget you'll have a hard time reconciling your check book at the end of the month. I know, because I've been-there-done-that a few times

There isn't anything magical or mysterious about getting out of debt. Unless you're exceedingly discipline challenged, there really isn't a need to make loans to consolidate debt or to pay for some debt service to get a handle on it for you. Those steps will just cost money you could better use paying down your debt. You can do it yourself by making a common sense plan and sticking to it.

So, ladies and gentlemen, boys and girls, start weighing your credit card anchor so you can "make sail" and navigate your lovely financial boat to all the islands, coves, and beaches you want to discover and explore in your lifetime.

arley