How to Dig Out of Debt, Part 2

By Deb Hoskins, CFP®, JD
Colorado Springs, CO
http://www.pikespeakfinancialplanning.com/

Have you lived without your credit cards for the last week? Has it seemed rather mid-20th century, or even un-American, to go “cash only” for all of your purchases?

If it feels odd, just remember that your ancestors lived this way for all of history; consumer debt is a recent luxury. You may also feel like a little kid again, carrying your weekly allowance around in your pocket for purchases. Trying anything new is bound to feel strange until it becomes a new habit.

If you are the type who is tempted to overspend, I hope that going “cash only” will be your new habit for 2010. Cash-only living forces you to recognize three things.

First, you will understand that you are dealing with real money. Intellectually, we all know that credit card balances represent real money, just like we know that Las Vegas casino chips represent real money. But somehow it just doesn’t feel that way. That’s why casinos use chips. If it doesn’t feel like real money, you’ll spend more of it.

The same is true with dining out. Next time you take your spouse to a restaurant, pay cash. That $60 food and bar tab will feel more expensive if you use three $20 bills than if you whip out your Visa card. Yes, the transactions are equal, but it will feel different.

Second, using cash pushes your spending habits into consciousness. Using a credit card can sometimes be an almost mindless activity, since you’ve pushed the day of reckoning into the future. You’ll pay your credit card bill next month and worry about it then. Watching cash leave your hands forces you to worry about it now.

Finally, using cash will remind you that you are dealing with a finite resource. If the $50 you intended as your walking-around money for the week is gone, it’s gone. With no credit card in your wallet to fall back on, you will feel broke—never a comfortable feeling. And you will feel it now, not just someday in the future. That immediate discomfort will change your behavior, and you will spend less and save more.

Just remember that your ultimate goal is to reduce your credit card balance to zero. These first steps to achieve your goal should bring some comfort and satisfaction