It’s easy to handle life’s surprises when you have a credit card. Too easy. In the second part, we’re going to talk about beliefs surrounding debt. If you pay off your credit cards before the next statement date, you’re doing it right. Unfortunately, this isn’t possible for many Canadians. Debt can be used responsibly. But beware of the five types of borrowing styles that can land you into financial hot water.
The best thing about your debt is that you have something of value to show for it. You know, the so-called “good debt.” Your house, your graduate degree, an investment in your own business, even the reliable economy car that you need to get to work. That doesn’t mean, however, that the amount of debt you have accumulated fits into your monthly budget. Some bad debt may have wedged its way in, as well.
In 2019, retail was a $650 billion industry in Canada. They know how to reel you in, even when you have no intention of buying. Shopping is recognized by some experts as addicting. Shoppers buy things they really don’t need and couldn’t otherwise afford, sometimes just because it’s a bargain.
If the monthly payment is low enough, Revolvers are ready to buy. Like Shoppers, they may also constantly be on the look-out for bargains, both online and in stores. They may also have the latest toys since they can finance these items and still be “on budget.”
Family, friends, next door neighbors…everybody knows the Altruist will help them out in a pinch. Once they lend money or let someone use their credit card for an emergency, it’s very awkward to ask them to repay. In the case of family members, they may feel no sense of urgency whatsoever. Altruists are the proverbial backyard money tree.
Going into debt can be a gradual thing. Cascaders seem to accidentally fall into debt. Somehow, one bill at a time, their debt grows until all of their cards are maxed out and they have little or nothing to show for it. At first, they are able to handle the payments. But something unexpected happens, like a job loss or an emergency expense, and they have no emergency funds to fall back on.
Do you recognize yourself in one or more of the borrowing styles? Lots of people fall into one of more of these borrowing styles without really noticing.
Stop Credit Card Spending Now
So now what? In this e-course, we’ll identify many helpful strategies and tactics to whittle down your debt and get your budget back on track. Meanwhile, here are two exercises that you can try immediately:
- Pay attention to how you feel just before you reach for your credit card to buy something you don’t need. Stop. Put the card back in your wallet and sit quietly with the feeling.
- Are you bored?
- Angry at a loved one?
- Disappointed at work?
- Is there a limited belief playing in the background? (What’s the point in trying to save? I can never keep money?)
Once you name the feeling, it will be easier for you to find a substitute activity that won’t land you deeper in debt.
- Make a list of your most regrettable purchases. Don’t remember them? Walk around your house, poke through your closets, step into the garage.
- How do you feel about the purchase now?
- Take photos and create an album of “Purchases I Regret” on your mobile. It’s a great reminder to use your money on things that you value.
Also, take a look at Worksheet 2A. Feel free to mix and match the strategies that resonate with you.
That’s all for now. In the next couple of days, we’ll discuss living within your means. Be sure to do today’s action item now. Review the strategies and add your own.
Until next time…
1 action item, 1 worksheet
Action Item 2: Pay Off Takes How Long?
We’re going to figure out how long it will take to pay off your debt. It’s listed on your credit card statements. But let’s get a little more hands-on for this exercise.
Using the Allan Marshall & Associates debt calculator, determine how long it will take you to pay off your credit card and loan balances based on these scenarios:
- Minimum payment
- 2 X minimum payment
- 5 X minimum payment
Feel free to experiment with other amounts that could align with your budget. You may be able to pay down a debt at $500 or $1000 monthly, for instance. Complete the last column on Worksheet 1A.
How long will you be in debt based on your current payments? Five years… 10… 30?
Don’t worry, we’re going to make a better plan.
Worksheet 2A: Strategies by Borrower Style
There is no silver bullet when it comes to getting out of debt. Some of these strategies will be perfect for your situation. Others may not.
Are these things you can do? Before you summarily dismiss an idea, ask yourself our magic reframing question: What if the opposite were true? This will allow you to be in the best possible mindset to figure out how it could work.
- Investigate loan consolidation options
- Make extra payments, i.e. every two weeks instead of monthly
- Pay off your credit card debt to ease your overall budget
- Resist making new credit card debt
- Refinance your loan when the rates are favorable
- Sell your home
- Get rid of your car if you have an alternate means of transportation
- Plan your shopping in advance; always use a list
- Unsubscribe from shopping and bargain sites
- Avoid browsing in stores
- Get rid of all of your retail store cards and lines of credit
- Avoid peer pressure by declining to shop with others
- Stay out of loud, noisy stores; distractions can cloud your judgement
- Shop when you are in a good mood
- Avoid emotional purchases
- Say no to your children more often
- Rule out credit as a way to pay for things you can’t afford.
- Make a budget and stick to it (more to come in Part 5)
- Get rid of all credit cards except for one you’ll use for emergencies
- Submerge your emergency credit card in a bowl of water, and place it in the freezer
- See Shopper strategies, above
- Forgive the borrower (or don’t) and move on
- Take the borrower to small claims court if you feel it’s worth (a) the destruction of the relationship, and (b) the time and energy
- If your bill is past due, call the lender and work out a payment plan
- Stop using credit cards; you will be less inclined to lend them to others
- Politely refuse to lend money or your credit, but kindly offer to help the inquirer find another solution
- Always, always, always track your spending
- Look at your credit card bills each month
- Total up the amount you owe
- Never pay a bill or debt with credit
- Retire all retail cards and keep only one major credit card for things you can pay off before the statement date
- Pay with cash to avoid buying things you don’t need or can’t afford
- Save up for the big purchases