After spending much of the last decade paying off the financial mistakes of early adulthood, I have decided to swear off credit cards for 2012, if not forever.
Debt is not a bad thing. Without the use of debt, college would be unaffordable for most Americans. Houses would still be just a dream except for the wealthiest Americans, or require years of frugal living in order to purchase a home later in life. But not all debt is good debt.
According to the Federal Reserve, total consumer debt in the U.S. is close to $2.5 trillion, with $792.3 billion of that being revolving debt. Nearly 98% of revolving debt is made up of credit card debt. Combine that with an average APR of over 15% (for new card offers) and you have a society that will be perpetually in debt. Instead of falling in line with the masses, I have decided to truly put some effort into paying off my remaining credit card debt.
A multiyear process
I began in earnest in 2010, using a deployment to Iraq and the reduced living expenses that came with it to start tackling my outstanding credit card debt. With limited options to use credit, I started to make a dent. Upon my return stateside, I had to reduce my monthly payments slightly after reincorporating many living expenses, and I still had some difficulty eliminating the use of credit cards from my life completely.
But that is all going to change in 2012. One of the first steps needed to truly combat dreaded credit card debt is not to add to it. Some suggest cutting cards up; others say to put them on ice in your freezer. Probably the best thing to do is determine what works best for you.
For me, it was simply taking them out of my wallet and "losing" my credit cards on purpose. If I don't know where they are, I won't be able to use them. This has served me well thus far, as the spender in me sees available credit every month that would look great as a new TV or other purchase I don't truly need.
Debit cards (and e-payments) to the rescue
Don't misunderstand me. I haven't reverted to the pre-credit card days and started paying cash everywhere. With the advent of technology, I can keep an eye on the bank account balance linked to my debit card and only spend the money I truly have available. Using a debit card eliminates the interest charged by banks and credit card companies in order to use their money.
With the majority of my personal purchases made online these days, many sites allow for direct debit of a checking account so you can even avoid using a debit card online. PayPal is a payment option found on numerous sites outside of parent company eBay (Nasdaq: EBAY ) , the Amazon.com (Nasdaq: AMZN ) Marketplace allows for non-credit card electronic payments for many products, and Google (Nasdaq: GOOG ) Wallet allows consumers to centralize personal purchasing options.
Credit cards aren't totally bad
In spite of a pledge to not use credit cards this year, I don't know if I will eschew them permanently. When used correctly, credit cards can return rewards to users and add to purchasing power. But in order to get to the point where I can use credit cards positively, it is important to eliminate the debt that prevents me from using these rewards.
Join me in my quest!
Through effort and small sacrifices, I plan on having all my credit card debt paid off by the end of 2012. The first step in the process will be to not use them at all this year, and I encourage you to do the same. Not only will being debt-free allow you to put your money to work for you, but it will also provide peace of mind going forward.
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