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using cash instead of credit

Using Cash Instead of Credit to Keep You Accountable for Your Spending (and Out of Debt)

Get Out of Debt by Using Cash Instead of Credit

When Jenny and Kenny (the “Chargers”) came to speak to me the first time, there were raised voices and accusations. The Chargers recognized their spending had become out of control, but each felt the other was to blame. Using cash instead of credit was something they simply had failed to prioritize or learn and as a result, their finances, and their relationship, were a mess.

For many years, Jenny had been the consistent and larger earner. Kenny had focused on a few different careers and business opportunities, each of which he was certain could not (but did ultimately) fail.

As the years sailed by, the Chargers lived under the false impression that the credit extended to them via unsecured credit cards was their money. Of course, it was not. They played the game the credit card companies offered, moving debt from one card to another, “taking advantage” of teaser rates and promises of “points” for extra purchases and airline miles.

Accruing Debt Without Responsibility

Instead of really looking at their finances and analyzing what they were doing with their hard earned money, Jenny and Kenny lived every day with no plan, and they hoped for the best. Currently, Jenny earns a steady paycheck, and Kenny earns commission, so some months are economically better than others.

As a result of the uncertainty, the Chargers convinced themselves they couldn’t create or live by a budget let alone live by using cash instead of credit. After all, they never really know how much money they will bring in, in any given month.

As a result of the uncertainty, the Chargers convinced themselves they couldn’t create or live by a budget let alone live by using cash instead of credit.

At the beginning of their union, from their joint account, where all income was deposited, Jenny paid all the bills on a weekly basis. As Jenny saw the debt growing, her stomach churned. Kenny assured her everything would be okay, and he took over “paying” the bills. They never did it together.

Each was suffering, wondering and worrying about how they were going to dig out of the ever-growing hole. Yet, both were afraid to voice their concerns, so they continued to hide from reality and live a lie. The credit lie. The denial lie. The “if we don’t talk about it, it won’t bite us” lie.

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That worked well, in fact, for many years. Credit continued to be extended and while the teaser rates evaporated, the credit was still offered. The Chargers continued to feed their egos with thoughts of grandeur about when the day their inevitable success would arrive and get them back in “the black”.

Credit Limits Have Their Limit

More years passed and interest rates continued to rise, but the credit limit increases stopped. It seemed no matter how much money they brought in, at the end of the month the only way they could survive was by digging into another credit card. But, by now there was no more credit. The cards were at “the max”. What to do now?

It seemed no matter how much money they brought in, at the end of the month the only way they could survive was by digging into another credit card.

Ah, yes, our first meeting. Jenny spoke first and complained that even though they were short on funds and desperately needing to cut back on their spending, Kenny insisted that to make money he “had to” spend money. Jenny balked at Kenny’s “excuses” to buy new clothing, and treat for meals and drinks with clients, not to mention his expensive habit of constant car washes.

Kenny, irate at Jenny’s analysis of his overspending, confirmed his conviction that to make money he had to present himself as successful by the “American standard”. There was no way using cash instead of credit was going to make that happen. Then he blasted Jenny for “real” waste in the name of organic groceries, her gym membership and her monthly girls’ night out. And then, as if he had forgotten he could have had a V8, he smacked his head and blurted out that Jenny’s student loans were “the real killer”!

Things initially went downhill from there as Jenny defended her education and pointed out that her degree provided them the ability to accumulate her income (and so much debt). After some more yelling, tears and admission of fears, we were able to get down to reality. How could they stop the hemorrhaging and learn to live (happily) within their means? How could they live only on the money they were bringing in, and not rely on the false crutch of credit. It was and is a scary thought.

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What if you gave up all of your credit cards and lived your life using cash instead of credit, living exclusively on the money you earned? Where would you start? And how would that make you feel? Jenny and Kenny felt they could not do it. The Chargers needed their credit for everything, and especially for things you need credit for, like car rentals, airline purchases, groceries and gas.

As I see it, when your average credit card bill has a 23 percent interest charge every month, every dollar you “spend” that is not yours, is costing you $1.23, and if you continue down this road, you can never catch up. The only way to get ahead is to stop spending what isn’t yours. Just stop.

Live Within Your Means – and Mean It

I asked this crucial question to the Chargers: Are you ready to make a commitment to live only on what you bring in and not one penny more? After a considerable pause, Kenny asked, “How would we even start to undertake such a new and foreign idea?”

Music to my ears! Let’s look hard at the numbers:

  1. Write down all of your income, for every month.
  2. Determine an average amount of expected income.
  3. Using the last six (or twelve) months of income, then look at the percentages and see how much you are actually spending on different categories.

Laura Shin from Learnvest suggests a feasible 50/20/30 guideline. This formula, which is malleable, suggests that no more than 50% of your take home income be applied to fixed living costs (housing, utilities and transportation), 20% on your financial goals (long and short-term savings, debt repayment), and 30% on flexible spending (groceries, shopping and entertainment).

When we looked at the actual joint income that the Chargers were netting and compared it to this formula, they were rattled. It became immediately clear that while the “tissue issues” they were fighting over were real and could, and should, be addressed, the real crisis was in their fixed living expenses. The monthly mortgage (including property taxes and insurance), maintenance and utilities costs exceeded 75% of the Chargers monthly take-home pay.

When we looked at the actual joint income that the Chargers were netting and compared it to this formula, they were rattled.

Because they never bothered to break down the costs in that manner, both Kenny and Jenny blamed each other’s spending as the cause of their financial distress.

Get Creative in Trimming Monthly Expenses

While Jenny and Kenny did have a good deal of “fat” that needed to be trimmed from their monthly spending, the first step for them in reversing their downward spiral was reducing their fixed monthly expenses and increasing their take-home income. The Chargers were adamant they did not want to sell their home.

To get the ratio where they needed it, Jenny and Kenny worked creatively together to find solutions. They came to these joint solutions:

(i) Rent out their garage, a valuable commodity as they live close to an airport;

(ii) Take on an additional part-time job, which allowed for a greater “guaranteed” amount each month and busied Kenny- a distraction from and impediment to spending;

(iii) Cut off their cable TV subscription and Jenny’s gym membership; and

(iv) Commit to a limited $200/month personal allowance fund, using cash instead of credit, that could be used “without question or comment”.

The additional $1,000 monthly “income”, along with the reduced expenses, have allowed Jenny and Kenny to stop using credit completely. The Chargers are now jointly working on paying off their debt and they sit together to pay their bills, committed to openly discussing their goals and priorities.

When I met with them again, six months after the Chargers committed to credit-free living, both independently told me that they were sleeping better and were truly happier with less material possessions and demands. While they still hope to hit it big with bountiful successes, they are realistic that they have to be prepared for a future that is earned, one day at a time.

Are you ready to take the Chargers’ challenge and live without reliance on credit? For one month? Try it, and see…


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About Michelle Gershfeld

I’m a debt settlement and bankruptcy attorney who negotiates resolutions between clients and their creditors. I am also a real estate attorney involved in both sides of purchasing and selling distressed real property. I am passionate about teaching people about money and helping individuals of all ages achieve financial independence and success in a "no…

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