One of the most common complaints I hear is “I’ve had this credit card debt for years- and I always pay way more than the minimum- but the balances just never seem to budge”. There are three common reasons I see that contribute to this.
Did you get into a planning groove?
I got loads of emails and social media pings in response to my last post on how spending 15 minutes a week saves me thousands of dollars every year. Because so many found the post applicable and seem to be implementing it, I decided to share a suggestion for how to go a layer deeper with the calendar planning.
Car buying is the one area of my financial life that I can say for certain I have repeatedly made mistakes that have cost me tens of thousands of dollars. I’m not exaggerating either- I have actually purchased or leased 6 cars in the last 10 years. I really can’t put my finger on why I’ve been so financially irresponsible in this area given that with other major purchases like buying my home, leasing my office space, and making business technology investments I’ve always prided myself on doing my due diligence and finding the best deals. All I know is that I’ve always been so overwhelmed with the process, that I’ve just given up- feeling like the odds were against me in this area because of the lack of transparency in the industry and expecting to overpay no matter how much research I’ve done. Writing this now, I admit it’s pretty stupid, but it’s the truth. This past November, I got a letter in the mail from the dealership that sold me my last car letting me know that with 6 months to my lease expiration, it was time to start thinking about my next car. I determined when I got that letter that this time, I’d break my bad car buying habits and use the time I had wisely to build new, good, car buying habits that I could be confident would save me money- and I’m happy to say I did!
I hate budgets. Can I say that as a CFP®? I’m a save first and spend whatever is left person (even if that means needing to take the subway for a week instead of Ubering and driving to avoid paying for parking when my monthly spending is high). Rather than trying to stick to strict spending categories, that’s what works for me – getting the money out of site (and into an investment account) and then not feeling guilty about what’s left. If you’re struggling with savings and in a love-hate relationship with budgeting, here are some tips and tricks to try while you’re figuring out what works best for you:
1) Not eliminating spending on the cards or credit lines you’re working to pay off
Because points and cash back are so attractive and paying with plastic is just a normal part of society, many people- even those looking to eliminate the balances on their credit cards- tend to continue spending on the same cards they want to pay down. Why? It’s easy, they can keep earning points, and they figure if they spend $500 this month on their card but pay off $1000 at the end of the month they are still making meaningful progress and not paying interest on the new charges they’ve paid off in full. Unfortunately, this is not how credit cards work and this is why many people find themselves throwing extra money on their cards only to find themselves still carrying a substantial balance years later when they expected their efforts would have paid off. Once you have a balance on your credit card and have incurred interest on that statement, anything else you charge on that card also becomes part of the interest bearing balance. In English? You’re paying interest on your Netflix, Coffee, Gym Membership, etc. i.e. the things you can afford to pay in full this month from your bank account and you’re ensuring you’ll be carrying your credit card balance for longer.
Last January, I tried Whole30 for the first time. If you’re not familiar, the program involves eliminating sugar, alcohol, grains, legumes, soy and dairy from your diet for 30 days at which point you add certain items back in to your diet (ideally) one by one so you can see how they individually affect you personally. We love it because during the holidays we tend to feel sluggish as a result of higher than usual alcohol and unhealthy food consumption and less control over what we’re eating because of more meals hosted at restaurants and the homes of friends and family. Whole 30 allows us to become more conscious about what’s in the food we eat and how it makes us feel and the result is a month of better sleep, better fitting clothes, and a renewed sense of making healthful eating a continued priority when we transition out.