Debt: Credit Cards

If you are just joining the column, welcome! Over the past several months, I have introduced a financial system that I have followed, taught, and found a lot of success through. 

Just as there are 8 marks on your car’s fuel gauge, there are 8 marks on your financial Fuel Gauge that when worked in succession, will bring you that full tank confidence. 

They are: 1 - Balanced Budget; 2 - Give 10%; 3 - New Zero in Checking; 4 - Adequate Insurance; 5 - Consumer Debt Paid Off; 6 - Invest 15%; 7 - New Zero in Savings; 8 - Housing at 25%. 

Today, we conclude our conversation on debt as we talk about completing the 5th step of our financial fuel gauge: paying off consumer debt. 

Think back to the hole and the dirt I have introduced when talking about debt. Using your credit card makes a big hole with nothing to fill it in with. Using store credit, getting a personal loan for Christmas gifts, and any other debt that doesn’t have an asset bigger than the debt, has ruined our country’s financial prosperity. If I walk through neighborhoods in America, there are countless holes in yards with no dirt in sight. This leads to financial ruin. You are then a slave to that lender, with no way out. Any extra money you make just goes to buy more dirt to fill in the hole. Consumer debt keeps people on the vicious paycheck to paycheck cycle. 

I understand that times can be tight, but you are not captive to your paycheck. You are working on increasing your income. It will take time, yes, however, wealth gained bit by bit will last. Don’t speed up your lifestyle because your neighbors bought a boat faster than you. Build bit by bit. One step at a time. And when you do, you’ll look back and see you’re standing on a mansion and there are no holes in sight. 

If you’ve dug a hole of consumer debt, if you’ve racked up credit cards or taken out personal loans, it’s time to get to work filling in that hole. Once you’ve hit your first 4 marks on your Fuel Gauge, you need to allocate all additional money in your budget to paying off consumer debt. You can start with the smallest and work your way to the biggest or you can start with the highest interest and work your way to the smallest. It doesn’t matter. What matters is that you allocate every leftover penny each month towards filling in this hole. 

This is the phase where you really begin to ratchet up your income. You dug the hole, fill it. I know it may seem like a big hole, but can I let you in on a secret? The dirt needed may be equivalent to one or two raises. The dirt needed may be one promotion away. What do you need to do, what value do you need to create in order to earn enough additional income to pay off your consumer debt?

If you want to get side jobs to pay off your consumer debt faster, go for it. But your first move shouldn’t be to work for Uber Eats. Your first move should be to increase the value of the hours you’re working, not the amount of hours you’re working. If you feel you are maximizing your value, then as a second step, you can begin to increase your hours.  Value first, hours second. 

I mentioned in our budgeting section that I have a credit card. I do! I use it every month for almost all of my expenses. But all expenses that are on my credit card are part of my planned budget and at the end of each month, I pay off the balance. I use a credit card because I get free flights every now and then. I don’t hold a balance and I don’t make unbudgeted purchases on my credit card. If there’s an emergency, I use my savings account, not my credit card. 

If you have held a credit card balance and need to pay off consumer debt, you need to be consumer debt free for one year before I recommend even touching another credit card. You need a break and you need to learn new habits. I am not saying that you’ll never be able to use a credit card again, but it’s also not necessary. If you feel there’s even a chance you could fall into consumer debt again, there are no points in the world that are worth digging another hole. 

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Zach Santmier is the owner of Trumble Agency, Inc. and the author of the personal financial course, Increase. He focuses on helping families escape paycheck to paycheck living so they can freely pursue their ideal future.