As my husband and I are on our journey to pay off our student loans as quickly as possible, we’ve had to keep track of how much we’re spending so we live within our means.
Paying off debt quickly also means something else: not going into more debt, i.e. using credit cards for purchases.
Many credit cards come with “rewards points” to encourage you to use them. However, having “extra money” on hand can train us to spend more than we have and drive ourselves further into debt.
Best case scenario, even if you pay off the balance each month, the spending that credit cards lead to will slow down your debt payment progress.
I’m not a financial advisor by any means, just a mom sharing my thoughts. However, I believe that debit cards and cash are the best ways to manage your money and make purchases when you’re paying off debt. If you want more financial resources, I highly recommend that you check out Dave Ramsey and his resources.
1. Change Your Mindset
If you keep living thinking “Oh, it’s okay. I can always put it on a credit card” when something exciting or unexpected comes up, you’re going to continue the cycle of going into debt by spending more than you actually have.
Retraining your mind to operate on cash and your account balance will take some time and effort, but it will help you to focus on what you have in “present” money instead of what you would be paying off with supposed future money.
When you first stop using credit cards, you’ll probably have to set reminders or catch yourself more often, but after awhile it will become second nature.
2. Cancel and cut up your cards
Don’t be afraid. You’re not going to need it. Just use the motivation you have for paying off debt to fuel your courage to take your scissors to your card.
Then continue with that same courage to take off your card information from the online stores you shop at the most frequently. Or all of them, if you want.
However, I don’t think you need to take the time to track down every individual store you’ve ever bought something with.
Just take it off the ones you know off the top of your head, and then keep it in the back of your mind to switch that information over to your debit card information if you’re ever on a site you haven’t updated your payment information on yet.
3. Keep one checking account
The problem with having a credit card (or cards) is that each one that you add takes you further from having a complete picture of your finances.
The more segments your spending is divided into, the harder it is to know exactly how much your spending. This is why many people end up in more debt using credit cards because they don’t fully realize how much they’re spending.
Whether you’re married or single, keeping only one checking account can help you (and your husband, if applicable) keep track of your spending. Plus, if you’re married, it’s a lot easier to know who is spending how much on what when you’re working on building your budget (see #4).
4. Stop living paycheck to paycheck
One of the main reasons people resort to credit cards is because they don’t have enough money on hand or in their account to pay for something.
Depending on how deep you are in debt, this might take a while before you have at least one paycheck worth of money saved up in your account. However, it can be done. If you need help, here are some tips to get started.
Start a budget
Making a budget and sticking to it is key to stopping living paycheck to paycheck.
When you make a budget, you know what you’re making and what you’re spending. With those two pieces of information, you can make a plan for how to achieve your financial goals.
Start by listing your set expenses for each month, such as rent, utilities, and internet. These types of utilities are usually the same or similar month to month, so you will know what to expect for them.
Note: Sometimes if you talk to the company, you might be able to get a lower rate so you are only paying for what do you actually use.
Next, go through your bank account transactions from the past 6-12 months months to see how much you are spending on variable expenses such as food, gas, clothing, and entertainment. You can just go through three months to start, but I would recommend doing a full year so you can have an idea of how much you spend on things that fluctuate through the year.
Once you have that, list out your set expenses and the monthly averages for the other categories. Now compare that to your income.
- If on average you are spending more than you are making, you will need to cut expenses somewhere.
- If you’ve cut expenses, and you’re still short on some income, then you will need to find something to do to increase your income.
However, for most of us, we will be able to live on our income as long as we don’t have excessive spending in discretionary spending categories.
When you stick to a budget, it is easier to find where your money is going and cut expenses to save money so you’re not living paycheck to paycheck.
5. Don’t buy something you can’t pay for up front
This one is so simple, yet so hard if you’re used to charging expenses to your credit card.
If there’s not money in your account or wallet, don’t buy it. Even then, if it’s not in the budget, either don’t buy it, or strongly consider if it’s really an emergency before you buy it (see #6 for what to do before an actual emergency comes up).
If you want to buy something and it’s in the budget, but you don’t have enough in your account yet (maybe your paycheck hasn’t hit your account yet), then you need to wait to purchase that item. This goes back to changing your mindset when it comes to spending and charging things when you don’t have the money.
6. Have an emergency fund
One of the arguments lots of people use about credit cards is “What happens if an emergency comes up and I don’t have enough money to deal with it?” This could be a car repair or buying a new applicance because your old one went out.
The solution to this problem is to keep an emergency fund that you don’t touch unless it’s absolutely an emergency.
This is one of the first things you should focus on when working to pay off debt, as long as you’re current on the rest of your bills. By putting away a little bit at a time, you can build up an emergency fund of money that is ready for a rainy (or icy) day.
I would recommend putting this money in a separate account than your usual checking or savings account. I like using a savings account for my emergency fund so I can earn a little interest on it. That way it’s harder for you to spend the money than if it was sitting in your checking account.
How much should I put in my emergency fund?
This is completely up to you, but I would recommend having at least one month worth of expenses saved up if you’re working on paying off debt. If you’re barely making ends meet, start with a smaller goal (like $500 or $1,000) and work toward that first.
Once you have your budget under control and have some money to save, you can add it to your emergency fund.
I would recommend moving your larger goal up to 3 or 6 months of expenses and/or your annual insurance deductible. Since you probably (hopefully) won’t have to pay both of those things out at the same time, this should give you a nice cushion should something happen.
7. Utilize sinking finds
I’ll admit, I’m not the greatest at using a sinking fund. However, they are a great idea for a large purchase that you know will happen. They can keep those large purchases from completely throwing off that month’s budget like if you tried to fund them all with just that month’s paychecks.
The idea behind a sinking fund is to divide the amount of money you need for an item or event by the amount of time until you need the money. Then you save up that money little by little instead of having to pull it out of your budget all at once.
Sinking fund example
A great example of this is Christmas gifts. You know you’re going to buy them when December comes around, so why not save for them throughout the year?
For example, if you budget $500 for Christmas gifts, divide that by the total number of months until Christmas. If you start in January for next Christmas, that’s $42/month. If you start in August, that’s $100/month.
Each month, take the amount needed for your sinking fund and set it aside, whether in a savings account or actual cash in an envelope.
By the time you’re ready to start Christmas shopping, you won’t need to take $500 out of your checking account all at once and the temptation to charge it to a credit card will be a lot less.
There you go! Those are my tips for living and managing your money without a credit card.
It might take some time to change your mindset so you don’t automatically default to charging things on a credit card, but in the end it will pay off.
After awhile, you won’t even try to reach for your credit card anymore. And you’ll have a better grasp on where your money is going. Plus, you won’t have to pay extra interest if you’re spending your own money instead of someone else’s.
