I recently met with a couple, (I’ll call them “Joe” and “Julie”), who had completed a Debt Management Plan (DMP) with us about a year ago. When we first met 5 years ago, they were really struggling. Cards were maxed out and they had a few late payments. Their credit scores were taking a nose-dive. It was a very stressful time—they were fighting, losing sleep, and getting collection calls.
Joe and Julie now claim the DMP saved their marriage. I don’t know about that, but I do know they paid off more than $60,000 of credit card debt in four years. They saved many, many thousands of dollars in finance charges. The single monthly payment simplified their lives. And, most importantly, they learned to live on just their income.
They told me they felt in control of their finances for the first time in decades.
This time they came to talk about the offers for rewards cards they were getting now that their credit score is back in the excellent range. To them, it seemed like they were missing out on something, but were also very anxious about how manage a credit card without slipping back in to the old debt trap. It’s GOOD to be anxious sometimes. Anxiety can help keep us safe…make us stop and assess situations before we plunge in.
We didn’t talk about how to shop for a rewards card, except to urge them to shop and compare products. (There are plenty of sites online with card comparisons, how to maximize points, etc. Read them and find the right product for you.)
What we did talk about was how to stay on the straight and narrow. Julie and Joe had gotten used to operating with their checking and savings accounts only. If the money wasn’t there, they didn’t spend it. So how were they going to make sure they didn’t overspend since they would be using the credit card for everything?
Fortunately, the answer is pretty darn simple: Keep a ledger. The old-fashioned checkbook register works great. Ask your bank or credit union for one or create your own.
- Know your account balance and enter it, making sure there is nothing outstanding to throw you off at the start.
- Write down every transaction, whether it is by debit card, auto-withdrawal, paper check, or credit card. Use a code for the type of transaction like D for debit card, A for automatic, CC for credit card, CW for cash withdrawal, and the check number for the checks.
- Write down deposits.
- Keep a running balance. This is critical! You won’t be able to depend on your bank balance anymore to keep you in line. Double check your math, too.
- Use that running balance to guide your spending. If it’s low, stay home and eat out of the cupboards instead of the tempting dinner out.
That’s all easy enough, right? But, being the financial counselor that I am, I suggest taking it a step further and balancing your register with the bank balance regularly. This will prevent overdrafts from simple mistakes. Semi-weekly or weekly is easier than monthly.
- Review your credit card account online – are all transactions posted for the correct amount? Are all transactions recorded in your register?
- Make a checkmark in your register (there is usually a column just for this) if the transaction has posted to your credit card account.
- Do the same for bank transactions – debit card use, checks, cash withdrawals, and auto withdrawals.
- Subtract any outstanding checks or debit card transactions from your bank balance.
- Next subtract the current balance of your credit card account (plus any unposted transactions).
Your total should equal your current bank balance. If it doesn’t, there is likely a math error on your part because I’m pretty confident that computers correctly add and subtract these days. (I personally get excited when it doesn’t match because I get to find the error. That’s the nerd in me.)
Two final pieces of advice:
- The idea of earning points can drive overspending. If you find that thought creeping in to your mind, take notice and pull yourself back to reality.
- If there are fees to use your credit card (most government transactions will charge a fee, like paying property taxes or renewing your car registration) do the math. I have found it costs more to use the card than what I earn on it.
Wish you could qualify for a rewards card?
Did you identify with Joe and Julie in the first paragraph—the fighting, losing sleep, and the plunging credit score part? If so, contact LSS Financial Counseling today at 888.577.2227. The sooner you start the sooner you, too, can obtain peace of mind and start earning rewards for your regular monthly spending. Take action today to conquer your debt for good. Want to get started with an online counseling session? Click below:
Author Mary Ellen Kaluza is a Certified Financial Counselor with LSS and specializes in Budget and Debt Counseling and Community Education.