Are you in debt (besides the mortgage)? Do you have thousands of dollars worth of student loan debt and/or credit card debt? If you are struggling to make your payments, one of the best things you can do is to stop using credit and begin to use cash.
I know, I know, in today’s world, who uses cash? If you use cash, you have to actually walk into the gas station to pay for your gas rather than just swiping your card at the pump. More importantly, you have to remember to actually carry cash. After years of using credit cards to pay for all of your purchases, it may be difficult to remember to bring cash when you leave the house.
While there are certainly inconveniences to using cash for all of your purchases, the rewards will be great.
Let’s be honest; many people who have credit card debt will have it for the majority of their lives. They will continue to use their cards each month, paying off only what they charged that month, or worse, only the minimum payment they have to make. There is no end in sight.
However, if you quit using the cards, get back in touch with your spending patterns by using cash and only buying what you can afford, you will be in a better position to pay off your debts more quickly.
Let’s say you currently owe $12,000 on a credit card at 11.99% interest. If you only make the minimum balance on the credit card (2% of the balance), you will be debt free in 25 years, 11 months! If, instead, you take this month’s minimum payment of $240 and pay that same amount every month, you will be credit card debt free in 5 years and 9 months. If you can ramp up your payment and pay $60 more a month, making a payment of $300 each month, you will be credit card debt free in 4 years 3 months.
Yes, extra payments help you pay off the credit card faster, but even if you do nothing more than make the same payment your are making now and quit adding any new credit card charges, you will be credit card debt free in less than six years.
You will be off the endless credit cycle.
If you find using cash to be too difficult in some situations, consider using a debit card when you need to reserve a hotel room or pay for a purchase online. However, learning to not spend more than you make is vital. Not incurring new debt as well as making the same payment you are making now for the life of the loan will get you out of debt. Even if you do nothing more than that, you will be debt free in a few years. Isn’t it worth it to revert to cash for awhile until you no longer owe? Think of the financial freedom you will have.
I will be inconvenienced by using cash any day if it means I will one day no longer be inconvenienced by debt and limited cash flow.