How to easily stay out of Credit Card Debt

14 Feb

The past few months, I’ve been doing a lot of personal finance stuff.

I created a course that teaches people about the basics of credit, debt, savings, investing, retirement, and banking in general, plus all the psychology about it. After showing the course to some people, testing the course with a few select students, and talking/reading/researching the ideas behind it, I found out one pretty simple fact:

People get in debt with their credit cards.


You might be thinking “This guy’s an idiot” and reach the mouse for the red “X” at the top right of the page. But seriously, I just don’t get it. I couldn’t think of any reason anyone would get in credit card debt, or how it could happen, or why people who get in debt once are much more likely to let it happen again.

So I asked myself “How does this happen?” and started looking in to it when I figured out ONE THING people do that causes them to get into debt.

This donned on me after talking to some people who were in credit card debt, and they seem to do something incredibly different than I do (And they never considered doing it another way).


Here it is:

They pay their bills with cash, and then buy almost everything else with their credit cards.

It seems like most people do this. They consider their credit card a bill, so they pay it off like it was and use it to buy all the stuff they might want (Regardless of a lax or a tight budget). So what does this cause?

By doing this, it makes it pretty hard to track exactly how much money you’re working with. How much you’re getting paid next week, how much is due next week, what about that other thing you should pay off? Or that thing you wanted to do? I’m being pretty vague, but it gets confusing for the person and you become more relaxed about managing your money and you just pay things off as they come. This leads to balances on your card, and a more frivolous spending pattern.

Here’s what I do:

I pay all of my bills with my credit card, and anything else I can spend on “stuff”.

It’s so simple. By using the two “backwards” of what people seem to be doing, I have removed any possibility of getting into credit card debt. Here’s what I do, in greater detail;

I have two checking accounts, and a savings account (That’s broken into sub-accounts with specific purposes like “House Down Payment” or things like “Food for next month” and “Gas” etc). I get paid, and 100% of this goes to my ING Orange Checking account. I then take note of which bills are upcoming, and determine exactly how much money I need to take out this paycheck to pay it, and I transfer that exact dollar amount to my Bank of America checking account. My credit cards are already set up to automatically pay ALL of my bills, and then the balance is automatically set up the remove the entire balance from my Bank of America checking account (Which I just put in all the money to pay off the bills). In doing that, I easily and automatically pay off all my bills by using my credit card. Next, I distribute some money into my savings accounts and I break my savings accounts into things I’ll need in 5-10 years, and things I’ll need tomorrow or next month (Like, gas, food, or future car downpayments etc) and in total I have about 20 savings accounts at ING (All free, no minimum).

100% of what’s left is free to be spent on ANYTHING I want. Do you see how that works? My credit card works automatically and pays my bills while deducting its entire balance each month from one credit card, which I switched money to after being paid from my primary checking account, after which I transfer money to savings accounts and after that anything left is free to be spent on anything. This removes so many possibilities of running into debt, and creates an automatic “wall” that prevents you from spending frivolously (It’s called running out of money).


This is one thing I started teaching in my personal finance class. Each student I showed this to, who had credit card debt, looked at me and said “ooooohhhhhhhhh”.

Start today. Make life easier and set up everything to be automatic, you can do it all online.

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Posted by on February 14, 2012 in Personal Finance


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