I was feeling nervous about my credit cards and insurmountable debt and looking for a solution. My only hope was to give myself a spending time out. I froze my credit cards in water and this is what happened…
My huge credit card debt
My husband and I were in college, and we were barely scraping by on our part time jobs making minimum wage.
We were living in a very basic apartment and sharing a car.
Neither one of us fully understood how to use credit cards, and yet, we were both using them to buy all of our necessities.
After about a two years of living together, we found ourselves in a huge amount of credit card debt… to the sum of about $20,000.
I started to feel nervous about the growing debt we were amounting. And it didn’t feel like we were ever going to be able to pay it back.
We thought we knew what we were doing, but in reality, we had no idea how to manage our money.
While I had been educated in finances from my parents, they never showed me how to actually budget or manage credit cards or loans. And my husband had even less training. We were in a hot mess of money trouble, and it was getting worse month by month.
What we were doing wrong with our credit cards
Delaying Payment
We were using our credit cards to go out to dinner, buy clothes, pay for books, school, and travel. We thought having a credit card meant you could delay payment later down the road. And so having a credit card meant we could enjoy in the moment.
While credit cards can allow you to purchase items on a whim, they should only be used if you fully understand how they work. When you have no idea how much an item will really cost you because you waited 2 years to pay it off, you should NOT be using credit cards.
We delayed paying the balance by paying the minimum payment each month. This was a huge mistake. Credit card companies often only require you to pay $20 to $25 as a minimum payment. So with time, you can very easily accumulate a large debt.
According to NerdWallet, the average debt of credit card holders is around $6,081. If you make just the minimum payment, it would take about 169 months to pay it off. And it would cost another $4,064 in interest!
Keeping a Balance
Our biggest mistake with our credit cards was we always kept a balance and never paid them off.
We made the minimum monthly payment month after month. This is how we accrued over $20,000 in debt in just under two years.
As long as you make the monthly required payment, the credit card companies are never going to complain to you. You are making them rich by keeping a balance, so why would they say anything.
No one ever told us that keeping a balance was a bad financial decision. And it wasn’t until we finally sat down and looked at what that balance was costing us month over month that we started to realize the trouble we had created for ourselves.
High Interest Rate
Our credit card interest rates were around 22% and 24%. We were new to credit and oftentimes when you have no credit history, you will start out with a high interest rate. This means for every dollar we spent, we would have to pay between .20 to .25 cents! AND that interest gets tacked on to the bill, so you end up accumulating debt month after month.
This is how credit cards can very easily send you into a debt cycle. You pay the minimum monthly payment, and then the interest ends up being more than what you pay, and the debt starts adding up tremendously.
According to a report from Creditcards.com, the average interest rate on credit cards hit a new high of 16.71 percent. This rate keeps going higher year after year. The credit card companies are not going to call you up and offer you a lower rate any time soon.
0% cards to move money around
Another tactic the credit card companies use to keep you in a debt cycle is providing you with a 0% offer for six months.
We fell for this offer and didn’t realize that there was a balance transfer fee to move the money from one card to another. The credit card companies make a percentage of the amount you transfer. So while it may seem like a great idea to move money from one card to another, look at the fine print of the offer.
Every time you tack on more fees, you are getting further away from paying off the debt.
No plan to pay off the debt
If you have no plan to pay off the debt, then it will never get paid off.
My husband and I were purchasing items without thinking or living frugally. We just bought what we wanted instead of thinking about whether we really needed the item or not. Not only did we end up buying things we never used, we ended up with credit card debt up to our eyeballs!
No one taught us the hacks to credit cards.
It begins with having a plan!
Read on to learn how I created a plan for myself to get a handle on my credit cards.
I froze my credit cards in water and this is what happened
Drastic times called for drastic measures!
I didn’t like feeling nervous about the insurmountable debt that was accruing each month. And I realized I was probably the more financially savvy person in our family.
So I decided to take a credit card break.
I had heard about cutting up your credit cards, and I thought that was a little drastic. Plus, I was starting to read up about credit and the importance of building up your credit. Many articles stated that you needed to have credit cards to show credit history.
And this is true, the credit bureaus want you to have a certain amount of revolving lines of credit (such as credit cards) as well as installment credit (such as auto loans, student loans and mortgages).
But it doesn’t mean you have to keep a balance on those. You simply need to use them and then show that you can pay them off. And paying them off is the key!
But I was nowhere near being able to pay them off. I was having trouble with spending. And so I made the decision to put my credit cards in Ziplock bags and fill them with water and freeze them.
You could say I gave myself a credit card time out.
When I froze my credit cards, it was the best thing I ever did!
What I learned after I froze my credit cards
Freezing my credit cards gave me a chance to understand exactly how much money I REALLY had to work with each month.
It forced me to only buy things with cash and check. Now I could only spend what I was making each month.
And boy was that an eye opener! I ran out of money fast. I have to admit, there were times when I panicked and took the frozen bags out out of the freezer and thawed the cards under hot water. Oh my gosh, thinking back to those days makes me laugh now, but in the moment, it was an awful feeling.
I quickly realized that I would need to plan out my expenses better for the entire month.
When I froze my credit cards, it helped me slow down my spending, and it forced me to think about what I was going to buy.
I created a very simply budget for myself for the month and this helped me see what I was making for income with my part time job and what I was spending on bills and school.
If I was going to splurge for something during the month, now I looked at how long it was going to take me to pay it off. And usually, just seeing that it might take 2 to 5 years to buy a gadget caused me to stop and think, “Do I really need to buy this?”
I knew I wasn’t happy with the yuckie nervous feeling I was getting from having huge credit card debt, and I made a goal to pay off the debt as quickly as possible.
I didn’t want to make the credit card companies rich anymore!
Getting out of debt
My new goal of paying off my cards as soon as possible gave me the momentum to set up a payment plan for my credit cards.
It started with looking at all my credit card statements and placing them in order of lowest balance to highest balance. I listed them out on a spreadsheet and made the decision to pay off the ones with the smallest balances first. A few of the lower balance cards could be paid off in a matter of months and that would make me feel relief sooner, so that’s what worked for me.
Another method I have heard about is where you look at the highest interest balance card and you pay that off first, That would make the most sense financially because that card is costing you the most.
But creating a plan is the most important thing, and only you know what will feel like the right path.
After I froze my credit cards, I was able to pay off two cards very quickly and this helped me feel like my plan was working. I was finally getting a handle on my finances!
Related Articles
- How I Paid $20,000 in Credit Card Debt and Saved $50,000 in Three Years
- 11 Ways to Be More Frugal and Save Thousands of Dollars
Using credit cards responsibly
The best advice I can give now after having been through problems with my credit cards is to simply pay the statement balance off every month.
It starts with having healthy spending habits, and if you need to do something as drastic as putting your credit cards in a bag of frozen water, then do it! Take a spending time out for yourself and really look at your income and expenses. The first steps to financial freedom begin with knowing what you make and spend.
Credit cards can give you a false picture of what you really have available to spend every month. The credit card companies are very good at making you feel like you are lucky to have credit. And they perpetuates a feeling of deserving… like you deserve to spend whatever you want whenever you feel like it.
Remember, they make money off of encouraging you to take your time with paying off your debt to them. And they are charging a premium to allow you to lengthen that time frame. Do you really want to work hard to make them rich???
How I earn cash back from my credit cards now
One of the ways I feel like I am getting my money back from the credit card companies now is by using my cards responsibly and utilizing cash back reward cards.
Every month, I make most of my purchases with my credit card, and I earn points which convert to real dollars. I can do this with no worries because I live frugally and scrutinize my budget every month. So I spend money on the things I most need and make me happy.
The credit card balance gets paid in full every month and I feel a little giddy that I am earning cash back from the credit card company. There are many types of rewards cards available. I use and recommend the Chase card because they have great bonuses and points cards. You can sign up for a Chase checking account here and with this link you could get up to $350 for signing up (see their guidelines). Once you have a checking account, you can apply for a Chase rewards credit card and start earning cash back!
What is your credit card situation? After I froze my credit cards, I was able to pay off debt. What crazy things have you done to pay off your credit cards? Comment below or ask questions!
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