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Debt Elimination

I Did Something Crazy…

Finance Financial Paid Account Payment Money Pay

Getting out of debt is hard, but it’s doable… I know this because I’ve done it now several times over.

The first time I got in over my head, I took out a loan to pay it off, and then I buckled down and paid the loan off. It took me two years.

The second time, with a lot more debt, I did the same. Three years later, I was again debt-free. So, of course, I turned right around and dug myself another hole, not quite as deep… but, still… I spent a year-and-a-half paying it down for a third time, without any loans – just old-fashioned stubbornness.

So then, just for good measure (or out of sheer stupidity), I did all of that one more time: dig a deep hole, panic, smarten up a little bit, pay it all down, and take years to do it…

And then…

Yup.

Did it again.

Dig. Panic. Pay. Swear to myself never to dig another hole.

So, I’ve pretty much mastered getting out of debt. I just have to train myself to stay out of it.

This time around (#5!!!!!), I bailed myself out all at once with a crazy idea. Are you ready for this?

I cashed out my Registered Retirement Savings Plan (RRSP).

I took a hit and lost a couple of grand for closing it out 15 years early, and I’ll be paying a lot more income tax for the 2017 tax year than I’d like.

But…

There wasn’t a lot in there and the gains sucked. I had stopped paying into it years ago upon discovering that the yearly tax savings didn’t do a lot to help the finances of a person like myself, living on minimum wage.

RRSPs are designed to be a tax haven for people who earn enough money annually that the savings at tax time make a bigger difference, and their plans earn waaaay more money because higher earners can sock more into them on a yearly basis. They have more money to invest, and they are entitled to feed a bigger percentage to an RRSP, as well.

RRSPs are also designed for those folks that expect to earn quite a bit less in retirement than they did during their working years.

When I learned this, I was disgusted with the idea of continuing to squirrel away several thousand of my hard-earned dollars annually for a really very crappy return. I could use that “extra” money to pay down debt, after all, right? So, I quit paying into it and my already-paid-in money sat there for decades, earning its really very crappy return.

Meanwhile, I continued to max out my credit cards and then pay them down… max ’em out and pay ’em down… over and over and over (and over and over), while also paying monstrously high interest fees. On a big ticket item like a couch or a washing machine, I likely paid the value of the brand-spanking new purchase three times over.

So I decided to take my early buy-out penalty and my kick in the teeth next tax time. I’m preparing for it. Since I had been spending about $500 a month toward debt, that $500 will now be split and be put away against that tax hit as well as my “Pre-Paid Living Account” (more on Pre-Paid Living in upcoming articles).

Will I stop using my credit cards, though? Weeellllll…..

I will not be carrying a balance. If I don’t have the cash in my checking account to pay for something, then I won’t be using a credit card to purchase it, but some things – important things – are set to “autopilot payment” through a credit card, and that works for me. The bill is automatically paid, I get a notice in my email, and then I go to my online banking site and pay the balance.

Now.

For realz, this time.

5th time is the charm. 😉

Categories
Debt Elimination

Almost Free…!

MC-Paydown-Graph-20150622 copy

Categories
Debt Elimination

Rules of the Credit Card

credit cards
Tread Carefully…

If you’re in debt with credit cards, it’s time to make some hard and fast rules that will not only help you pay that debt down faster, it will turn your credit cards into powerful tools that will not only save you money – they will be a part of your income streams eventually.

Hopefully, by now, you’ve worked out exactly how much you owe on each card, and have chosen one to be your initial focal point. This is the card you will get paid down first – you will throw all your extra money at this debt until it’s gone.

Rule #1

This is the cardinal rule: if you owe money on a card, you are not allowed to use that card. Until it’s paid down, it’s in limbo – it exists, and you may even have a usable balance available – but you aren’t going to use it.

Once it’s paid down, I’ll show you how to use it wisely, as a tool to save you time, expedite your regular bill payments, and begin to work for your financial future, instead of against it.

Rule #2

This is nearly as (probably just as) important as Rule #1: Never, ever, ever take a cash advance on a credit card.

Ever.

Seriously, never do this. The interest rate on a cash advance is astronomical, and never part of a low-interest promotion. Cash advances are treated differently than regular purchases on credit cards.

When you take a cash advance, you are loaning yourself money – but the card company gets the interest.

In the past, credit card companies would always apply your payment to the lowest interest-rated balance on the card. This, of course, keeps you in debt longer, and allows the card company to make a bigger profit, since your interest payments are higher.

In 2010, a law came into effect in the United States that disallows this practice by credit card companies. Now, except for the minimum payment due, your payment will go toward the balance on your card that carries the highest interest rate, which works in your favor, unless you pay only the minimum balance. That amount, regardless, will go toward the lowest interest rated balance.

I’m still trying to find trustworthy information about a similar Canadian law, as well as laws in other countries, but so far, it looks like Canadian credit card companies, at least, are still applying payments to lower rated balances first. For this reason, I’m relieved to be able to say that I have never once taken a cash advance against a credit card – I think the only worse thing to do than this might be borrowing money against a future paycheck at a check-cashing outlet. I’ve never done that either, thankfully.

Rule #3

Always pay more than the minimum balance due on a credit card statement every, single month.

Here’s something that should scare the crap out of you…

126 Years!!!!
126 Years!!!!

This is a cut-and-paste from one of my credit card bills – sort of an “FYI” showing up at the bottom of the statement.

126 years.

Seriously. I don’t owe a whole helluva lot on this card, either. The only reason I’m not terrified by that screenshot is that I already have a date attached to Balance Zero on this card, and it’s only a few months away.

You can’t be afraid of your bills. Follow these rules, and you’ll get your credit card debt corralled and soon tamed.

That’s when the Money Game gets really interesting!

Stay tuned…

***

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