It’s Not Me, It’s You: Breaking Up with Credit Cards

Breaking up with a loved one is hard to do. When you decide to call it quits with the credit card company, it might feel as though you are breaking up with a psycho. They will say anything and everything to win you back. At least, that’s what it felt like for my spouse and me. When we ended our relationship with credit cards, they attempted to invoke feelings of dependency, urgency, and even charity.

We closed four credit card accounts on the same day. Here is a summary of what happened:

Credit Card #1

This card was a bank issued credit card.

• Me: We would like to cancel our card.
• Them: We see that you have not used it in some time.
• Me: That’s correct. We’ve been using cash.
• Them: We can increase your credit line.
• Me. No thanks. I don’t see us using credit anymore.

This conversation lasted about ten minutes.

Credit Card #2 – Two Store Cards

We had two store cards from a major retailer. Since it was the weekend, we decided it would be interesting to see who reached a representative first. We called the number at the same time and waited. My spouse won and was the first to reach a representative.

• Spouse: I would like to cancel my card.
• Them: Are you sure?
• Spouse: Yes. I do not have any need for the card anymore.
• Them: You can use the card for your Christmas purchases later in the year.
• Spouse: That is okay. We saved cash for that.
• Them: You will not be able to donate to the school of your choice.
• Spouse: That is okay. That relative graduated from high school last year.

This conversation lasted about 10 minutes. By the time my spouse ended the call, I was still on hold. I hung up my call and began speaking to the representative on the other phone. Thus, this conversation repeated itself twice when I finally spoke to the same representative. Although my spouse had just cancelled their card, this representative was not convinced that I was ready to cancel mine and offered a store debit card. Oh boy…

Credit Card #3

This card was another bank issued card.

• Me: I would like to cancel my card.
• Them: How do you plan to pay for your purchases?
• Me: With cash.
• Them: How do you plan to rent a car?
• Me: With a debit card.
• Them: How do you plan to pay for airline tickets?
• Me: With a debit card.
• Them: Don’t you want the card in case of an emergency?
• Me: No. I saved up cash for that.
• Them: Okay, but we would really hate to see you go. Would you mind speaking with my supervisor about your account?
• Me: Sure, but I still want to close the account.
• Them: I understand. Would you mind holding?
• Me: No, that’s not a problem.

This conversation last for 20-25 minutes with the supervisor.

Before calling to close our accounts, we waited until we received a statement from each of the companies indicating that we had a zero balance. To celebrate, we had a plasectomy a few weeks later with our Financial Peace University students. We are fortunate that we inspired others to do the same.

Life Without Credit Cards

Now that we do not use credit cards, we have two separate checking accounts: 1) one for regular living expenses, and 2) one for items such as car rentals, online purchases, or any other expenses that may require a credit card number to be stored on file. For example, one healthcare provider required a credit card number on file in the event that the insurance company did not pay for the preventative procedure. Really? This gives a whole new meaning to blood money.

We were really tired of the dark side of credit cards. It has been liberating to know that when we make a purchase, we won’t have a bill in the mail a few weeks later.

Going Cold Turkey: Goodbye Debt! Hello Debt Snowball!

When we decided to say no to credit, the decision was an easy one. In practice, life without credit does present some new challenges, such as completing school debt free. (Note: This blog is part of a college course I am taking this semester. The course was paid for in cash.)

At the time, we had credit cards, store cards, a line of credit, personal loans, medical bills, a vehicle loan, a mortgage, and an overwhelming amount of student loans. The weekend we decided to say no to credit, we had just attended the Dave Ramsey Live Event. We knew that we had an unhealthy amount of credit in our lives, and we wanted financial wellness in our family. Although our family consisted of two adults and two dogs, we were very concerned about the impact our current spending habits would have on our future children. So, in March of 2010, we went cold turkey and stopped borrowing credit. We saved $1,000 in our Emergency Fund. Then, we started Baby Step 2 and began attacking debt with the Debt Snowball. Other experts such as Larry Burkett or Gail Vaz-Oxlade may refer to this as the Debt Repayment Plan.

What is the Debt Snowball?

This method of attacking debt makes you list all of your debt (except the house) from smallest to largest based on how much you owe. You’ll continue to pay minimum payments on all of the debt, and if you have any excess funds after paying the minimums, you apply it to smallest debt. The idea is to gain momentum and meet progressive milestones as you eradicate debt from your life. This will change your life – seriously! Click below to hear Dave Ramsey explain the Debt Snowball.

We modified the plan and decided it was best for us to pay off everything that required a current monthly payment such as our current credit cards, store cards, line of credit, and our vehicle loan. Everything else that was past due just had to wait their turn. Sure, we received phone calls and letters from collectors, but we weren’t anxious anymore because we had a budget and a debt repayment plan. Those collectors waited this long. They can wait a little longer.

While working the Debt Snowball, we incorporated some of “Gail’s 7 Rules for Debt Repayment” into our plan. Since we were approved for forbearance on our student loans, we are able to focus on “Current Debt” first. The “Past Due Debt” had already been sent to collections, written-off, or in forbearance. So far, we have paid off two credit cards, two store cards, the line of credit, and a few other things. In addition, we refinanced our vehicle loan and received a lower interest rate. We are a few months away from paying off the vehicle loan.

In our family tree, we’re winning! We’re bailing ourselves out of debt!

Saving for a Rainy Day: Building Your Emergency Fund

Deciding to say, “No” to credit can mean that substantial changes must occur in your life. Your savings, spending, and shopping habits will need to be evaluated.

You should determine how much of a safety net you need for living expenses. My grandparents called this “The Rainy Day Fund.”

What do the experts say about the Emergency Fund? Let’s see what they recommend:

• Dave Ramsey: In Baby Step 1, Dave says should save $1,000 as quickly as you can. If you earn less than $20,000, shoot for saving $500. After you have paid off all of your debt, except the house, you should maintain an Emergency Fund of 3-6 months based on your living expenses.
• Suze Orman: In the past, Suze would encourage people to save six months of living expenses. Now, she recommends saving eight months of your living expenses.
• Gail Vaz-Oxlade: Gail encourages people to have an Emergency Fund amounting to six months of living expenses. If this seems overwhelming, she encourages saving $500 to start your Emergency Fund.

So one thing is clear, we need about six months of living expenses in our back pocket at all times. (On a serious note, keep your money in a savings account at a credit union or bank. I have had heartbreaking conversations with people whose relatives saved their money in places such as a mattress and had it stolen or lost it in a fire.)

This is why my spouse and I decided that we needed an Emergency Fund:

• We own (correction) owe on a home. Since we pay a mortgage each month, we are 100 percent responsible for everything that occurs on our property lot – like it or not.
• People, pets, and possessions will get sick. If we need to go to the doctor, take a pet to the vet, or take a vehicle to the mechanic, we don’t want that expense to come home with us.
• We need to protect our dependents: When you have children, move-in a relative, or adopt a pet, you have indirectly told them that they can trust you, and you are looking out for their best interest. Keeping your finances in check is part of that commitment.
• We needed protection in case of a lay off. My spouse had already survived two rounds of lay-offs. We wanted to make sure that we could weather the storm, if needed.

In the end, we have been able to build an Emergency Fund of three months. In order to do it, we worked on our budget, trimmed our expenses, and stopped borrowing. We aimed to keep our living expenses at 80 percent of our income or less. The next 10 percent of our income was dedicated to the Emergency Fund. Each time we got paid, we transferred funds. The last 10 percent went towards debt by paying the minimums. If we didn’t have enough for all of the creditors, we didn’t pay all of them. Those creditors below the line just had to wait, especially when we helped a relative purchase an inexpensive used vehicle with cash.

Sacrificing our time was the one step that helped us do this quickly. My spouse and I both taught in the evenings for nearly six months straight in early 2011. Generally, we worked from 8 a.m. to 10 p.m. most days of the week. It was a great way to pump up the Emergency Fund quickly, but seriously consider whether you have the time and the resources to take on two jobs temporarily. It is a rewarding, yet exhausting venture.