At the beginning of the week, my wife and I decided to give up our water softener. We’re not doing it because we can’t afford it; we’re doing it because we really don’t know if it’s working throughout the entire house, and if we’re not sure it’s working or not, then there’s no benefit to us.

Once the decision was made, my wife said “Now we can take that money and apply it to the roof fund.” If you read this blog you’ll remember that when I wrote about my 2009 financial goals, I talked about trying to increase the value of my house. A big part of that is the roof, which has been the bane of our existence since we moved into the house. However, my response to her was “no, that money will get recycled into paying down more of our debt.”

What most people don’t think of when trying to assess the differences in saving money rather than paying down debt is that debt is actually more detrimental than saving is positive. Take your average credit card, where you might have an APR (annual percentage rate) of 15.9% on your outstanding balance, whereas you might be in a money market that’s paying you 3.5%, or something in your bank savings account that’s paying you way less than that. Debt is sneaky in that you see those low monthly payments and figure that’s easy to take care of, but low monthly payments means the debt you owe is getting bigger and growing faster and, ultimately, is going to take you longer to pay off, if you ever do pay it off.

Saying that, what I truly believe is that most people need to set up a process and plan for paying down debt, especially credit cards, than in saving money for the future, although that needs to be a part of it also. Many years ago, back in the early 90’s, I got into some credit problems myself, and I figured out that what I needed to do was a two pronged approach to paying off debt.

The first thing you have to do is actually write down all the debt that you have. This scares many people, but it has to be done because you can’t fix what you don’t know is out there. When you list everything, you need to have a column showing what the APR is, because it becomes an important factor in what you’re going to want to do. And I mean all debt, which includes car payments and mortgage, and any other outstanding loans you might have. Once you look at balances and APRs, you have to know what to pay first, and how. The way I did it was that I made slightly bigger payments to the smallest amount I had and the account that had the highest APR. When I got the lower balance to a place where I could actually pay it off in one chunk, I did that, because you learns that it feels like a victory whenever you pay off the entire balance of an outstanding debt, and that makes you feel empowered and in control of your finances, increasing your dedication to your goal. For all the other debt, continue paying the amount that’s being requested of you for the time being.

When you’ve paid something off in full, you then take that money and roll it into the next lowest debt to try to accelerate paying that one off. And you will continue with this process until you’ve finally gotten yourself to a place where your debt load is manageable. Notice I didn’t say when your debt is totally done. That’s because almost no one ever totally gets rid of debt, since we all need stuff, including houses and cars, but you have to be willing to stop spending and using credit cards just for the sake of wanting new things. When I made my budget, I decided I wasn’t going to use a single credit card until I got caught up, and I was able to stick with that for the most part. Turns out that I needed some new clothes when I got a new and higher paying job, so I did have to break out that one time to purchase new clothes. Other than that, though, I bit the bullet, paid for everything with cash as much as possible, and eventually cleared up all my outstanding credit card debt, since, at the time, I didn’t have either a car payment or own a house.

One thing you can do is cut up your credit cards and send them back to the issuer. I did that for most of my cards, but realized back then that I needed to keep at least one major card, and in today’s world that’s even more important than it was before. You can’t rent a car without a card. You can’t easily get a plane ticket without a credit card. You pretty much can’t get a hotel room without a credit card, as they want to have something on hand in case you decide to become a rock star overnight and trash the room. And, in today’s world, once you’ve gained control of yourself, you might start thinking about something I was recently reading, that being to always use your credit card if it builds up points or cash, then pay off the entire balance whenever you get the bill. That way, you actually start earning things while still staying out of debt.

However, let me mention this one to you, something that caught me off guard, but that I was able to rectify. I had paid off one of my wife’s credit cards, and the next month she still got a bill for the interest amount that supposedly had generated from the time the bill went out until the time the card was paid off. I had her call the credit card company up, then I got on the phone and ranted until they removed it. In my mind, that’s another one of those sneaky, underhanded things these banks and credit card issuers will do to try to get you in some fashion, and if that’s allowed to continue then you’ll be in perpetual debt, even if it’s only pennies. I don’t remember reading about that when I wrote about the new credit card rules coming in 18 months.

While you’re at it, you might want to think about getting a free copy of your credit report, just to make sure you’re looking at all your possible debt that’s out there. That might save you some consternation in the long run.

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