Shred the credit cards & gain personal freedom from unwanted debt.

Now that you’re on the road to recovery and have started to use a budget to set your boundaries, let me tell you, the quickest way to blow your budget is to use credit cards. Credit cards are deceptive because they make you think you have more money than you really do. Credit cards are virtual money (kinda like the stock market). Credit cards make you believe you have money until you get the bill. Again, the words of “Ms. Curves” ring true: Never spend money you don’t have. The deception of credit cards is that you think you will have the money by the time the bill comes. But usually by then, you’ve found something else to charge, and the billing cycle continues . . . until you’ve maxed out your limit. By this point you pay just enough to be able to keep charging within the window you’ve created for yourself . . . aah, am I singing to the choir here? reading anyone’s mail? I thought so.

The thing I hated about my budget was that a major chunk of my money was allocated to paying down credit-­card debt. Nothing can be more frustrating than still paying for a suit you’ve worn so much that you are ready for a new one. It just doesn’t seem right. Now one of my friends has a policy that when she charges an outfit, she doesn’t wear it until she’s paid the bill. But I wonder, What is the point of doing that? Why buy an outfit now if you have to hang it in your closet and wait to wear it? She reasons that the exact outfit in her size might not be available by the time she has the money for it, which kind of makes sense, but that doesn’t change the fact that I’m not happy about paying for something long after the thrill of acquiring it is gone. Something just doesn’t seem right about that . . . and that is the nature of the credit-card cycle!

I know I am not the only person who has been caught up in this cycle (creditors thrive off this), but I should know better. I go to Ghana to visit my dad, Mr. Hammond, several times a year. I’ve always marveled at the cash-­and-­carry mentality of the society at large. I’ve had several friends build homes bit by bit; as they got the money, they went to the next step in their building projects. If they didn’t have any money, the building stopped. At the end of the day, when they moved into the house, it was completely paid for! Same thing with cars, etc. I was sad the day I saw credit being offered in Ghana; there was something inspiring about seeing people who actually owned everything they had. No wonder the Bible says that you become a slave to the lender. I was working to pay everybody but myself!

So as a part of my financial recovery plan, I had to face the fact that my credit-­card bills were not going down because I just kept making room for more purchases. Something had to give, and it wasn’t going to be the credit card companies. I made a drastic decision. It was time for plastic surgery. Yup, you got it—time to snip up some of those cards and exercise self-­control with the others. Some cards I closed. I kept only the cards that gave me something back, like points that went toward being able to get something for free. (Let’s face it, it isn’t really free, but it feels like it.) I love my Needless Markup—I mean, my Neiman Marcus—card for that, so I keep it for the end-­of-­the-­season sales and then put it away until the next drastic markdown sale, better known as Last Call. That’s when I feel as if I get a present back when all my points from shopping add up and can be redeemed for dollars; yes, girl, it’s a beautiful thing!

But back to plastic surgery: As for the few department store cards I had left, I put them away after I called and had the limits lowered on them. Hey, does an alcoholic leave their favorite libations lying around in full view? I had to set limits for myself. I knew my illness. Lowering the limits ensured that if I had a relapse, I wouldn’t be able to do extreme harm to myself. After all, if you don’t have your card with you, the store clerks are more than happy to look up your number and give you access to your credit. In the midst of a good sale, that could be dangerous, but not if your limit is low. My new philosophy was if I couldn’t pay for it with cash, I probably didn’t need it anyway, although for most shopaholics need has nothing to do with the equation. Can I get an amen?

Finance gurus say it looks better on your credit score if you have more than half of your limit free on credit cards. My goal was to get to ground zero and then use every card I had as if it were an American Express, which meant I could not purchase more than I could pay for when the bill came. (The traditional American Express card requires that you pay off your balance each month.) Here’s the thing you must keep in mind whenever you’re tempted to use credit cards: Life happens. The money you don’t have now, you may never have. Therefore, you should never play with credit cards based on future earnings. What if you lose your job? What if your car suddenly needs to be fixed? The laundry list of what can and will go wrong is long and a gamble most can’t afford to take. What can happen usually does.

I do realize you need to have some sort of credit card because the world literally makes it impossible for you not to. You need credit cards for identification, for checking into hotels, for purchasing things online; however, trouble awaits you when you fall into the trap of not keeping up with how much you’re spending every time you whip that bad boy out and slap it down on a counter. Before you know it, you are clutching your pearls when you find yourself looking down at the damage done in a month’s time. This is when you have to take your life by the reins and drive it. Remember: You are to have the credit card. The credit card should not have you.

If you must use your credit card, keeping a ledger of all your purchases will help you know when to stop. Once again, set your budget. Decide how much you can afford for eating out, magazines, Starbucks, all the stuff you do beyond your household expenses and other bills. Even though you’re using your credit card, you have to stay within the boundaries. Keep a little notebook in your purse. Whenever you spend something, whether it is cash, debit, or credit, write it down. That way you will always know how much you have to work with. Mint.com is a great free application to help you keep track of your budget and your expenditures. You enter all your bills and your banking info, and it keeps track of your spending and shows you your balances across the board. It also shows you how much credit you have available on your card. Everything. It’s pretty sobering when you can constantly see what you still owe—the total staring you in the face. It’s much more fun to watch the numbers go down. It can become a game for you—kinda like when you lose a nice chunk of weight, seeing the scale go down encourages you to keep going.

If all else fails and you find you cannot set boundaries and still use your credit card, get a prepaid PayPal credit card. You can link it to your bank account and transfer money onto it. That way you never spend what you don’t have. And, you can actually make money while you’re spending it! That’s right; PayPal pays you one percent back for every dollar you spend plus interest on what is sitting in your account. You can’t beat that with a stick!

So there you have it: several options at your disposal to help you get a handle on the plastic. To choose the best option, you need to be completely honest with yourself. If you cannot exercise self-­control, then close all your cards down and get a prepaid one. That way you can only spend what you already paid for. This may sound drastic, but drastic times call for drastic measures. And nothing that is smaller than you should ever have the power to put you in bondage. It’s just so undiva-­like!

Diva Revelation

In a perfect world, I really think one credit card would be enough. If you own your own business, two cards are fine—one for personal expenses, one for business expenses. This will make your accountant very happy. Try not to use your debit card for purchases; use it only for cash withdrawals. This keeps scam artists from having access to your bank account and makes contesting charges and handling refunds a lot easier. True mastery is when your bank account is used to store your money and pay your bills in full at the end of the month. This is the vision we all need to write and make plain so we can see it come to fruition.

What’s a Diva to Do?

• Line up your cards, kiss them good-­bye, and put them away!
• Pay down cards and eliminate their use except for emergencies (and only if you will pay the balance in full when billed).
• Check your credit report to see if it is accurate, and clean up any discrepancies.
• Purpose to pay on time or ahead of time at least five dollars over the minimum.
• Get a prepaid PayPal credit card.
• Get some sort of tracking device for your spending. I highly recommend Mint.com.
• Log on to debtproofliving.com and check out their Rapid Debt Repayment Plan.

Taken from Divanomics by Michelle McKinney Hammond.  Copyright © 2010 by Michelle McKinney Hammond.  Used by permission of Tyndale House Publishers, Inc.  All Rights Reserved.