Getting Out of Credit Card Debt

by Mack Bartlett

The unfortunate reality of today’s financial world is Americans are sinking deeper and deeper into credit card debt. There are so many reasons for it, but the main one has to be our inability to delay gratification. We want it now, and we’re not willing to wait for it, especially because we either have credit cards to buy it with, or we have a store offering us 0% promotional interest rates for up to 12 months. Everything around us tells us to go ahead and get it and pay for it later.

Have you heard the analogy of boiling the frog? You probaby have – if you throw a frog into a pot of boiling water, he jumps right out to avoid getting burned. But if you put a frog into a pot of cool water and gradually turn up the heat until it boils, he’ll sit right there until he’s dead.

I don’t think we humans (and especially Americans) are very different in our spending habits. For example, let’s say the pot of water is a furniture store. You walk in and see these amazing leather couches that would be perfect in your living room. But wait – the couches are $2000 each! “$4000 is way too much money for me right now,” you say to yourself as you turn to walk dejectedly toward the store exit.

But wait – here comes the trusty sales rep who noticed you eyeing those couches. “Anything I can help you with?” he says enthusiastically. “No,” you reply sadly, “I really like those couches, but I can’t afford to spend $4000 right now to buy them.”

“No problem!” replies the salesman with a big smile. “We’ve got a promotion going where you can get those couches with no interest and no payments for a full year!”

Well, now he’s got you doesn’t he? You start telling yourself that in a year your situation will be a lot different. You’ll have pleny of money to pay those off. In fact, you’ll pay them off before the year is up, won’t you? Yeah, of course you will. Which means you get to take those couches home today.

Here’s the problem: you are human (just like the rest of us) and you probably won’t pay off those couches in a year. In fact, you’ll probably take years to pay them off. If the salesman had said, “How would you like to pay $8000 for these $4000 couches?” you would have laughed and walked away. But that’s exactly what a lot of us do!

I’m not criticizing people for doing this (because the first finger would be pointed at me). I believe we make these mistakes emotionally and in ignorance of the real consequences.

Let me suggest one great way to take advantage of these promotional offers while completely protecting yourself from horrible interest payments that last a lifetime.

Let’s say you buy those $4000 couches with no payments and no interest for one year. It’s very simple to make sure they’re paid off before the year is up. The day (and I mean THE VERY DAY) you buy them, log into your online banking services and set up your bill payer to automatically pay off those couches before the 12 months ever arrives.

Here’s how you do it: take $4000 and divide it exactly by 11. This comes out to about $363.64. That is the amount you should tell your bill payer to send to you the furniture store every month. Why 11 instead of 12? For safety. Why let it go down to the wire?

Now that you’ve set up the automatic payment plan, you can enjoy those couches worry free. Best of all, you got to experience the instant gratification of the purchase without ruining yourself financially.

Here are two big disclaimers:

1. Before you make these kinds of purchases, you better make darn sure that monthly payment fits your budget. This is a strategy for people who could have paid cash for the couches (or whatever else) but decided to keep the money in their interest bearing accounts while the couches were in the interest free period.

2. The first automatic payment plan you set up must be THE PAYMENT YOU MAKE TO YOURSELF every week or month. Get a good online savings account (like ING Direct) and have them automatically withdraw from your checking every week. Save an uncomfortable amount! Heaven knows we all spend an uncomfortable amount. Pay yourself first, and then you can spoil yourself with what’s left over.

Hope this is helpful.

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