How I’m paying off my credit card

by Frank Martin

I’ve written about money before, but its been a while. Yet money is an ever-present aspect of life in one way or another. That being said, my monetary situation has changed slightly to the tune of a rather large (couple hundred dollar) amount of credit card debt. Don’t ask me how it happened, but there you are. So now I’m revisiting some basic money management stuff (Mr Money Mustache & Blond on a Budget have been quite helpful, though most of this has been cribbed from Leo Babauta over on Zen Habits) and returning to my no plastic at brick and mortar policy (except maybe Amazon Books, though I’m hoping they start taking cash soon). There are six aspects to this approach:

Cash: any transaction that takes place in a real world location is done in physical cash money. Two withdrawals are made, one upon being paid, and the second at the middle of the next month. This limits the dripping faucet that can be caused by using cards without tracking spending.

Save change: All my change gets poured into a counting machine and deposited (along with any singles) into a savings account linked to my primary at the end of the month. Since the counting machine I use has a $5 minimum, this adds up relatively quickly.

Build a buffer in a non-primary account: The second part of that is key. Every time I’ve had a buffer in a primary account its disappeared. Needing to transfer to the primary prevents eating into it without realizing. I’d recommend shooting for $100 as soon as possible, with a long-term goal of getting to $500 and keeping a minimum of that much in the account. All change and singles should be deposited directly into this buffer account.

Emergency fund: This is a third account with a decent interest rate AT A DIFFERENT BANK linked to your primary. Having this account at a different bank is important as it prevents you from mindlessly dipping into it. Instead of credit cards, or the buffer account, this should be used to pay emergency expenses above and beyond bills.

Auto transaction: Lets face it, we’re all absent-minded to some degree. This i why automation is so important. I’ve got my accounts set up so transfers are made automatically. $25 is transferred to my buffer account on the first of every month, and my credit card payment (in my case 2xminimum payment, but the amount isn’t that important as long as its more than the minimum) is made on the 11th. This ensures that things are paid off and savings are built up without me having to remember anything. I’d recommend checking in on things using a program that collates all your banking info a couple times a month. I like Mint.com, but there are plenty of excellent programs out there for this purpose.

Extra goes to paying bills: Most everything up until now has been pretty much a retread of things I’ve already talked about, but here comes the new bit that I’m hoping is going to help get that bill paid off in less than a year. The first week of next month I’m keeping an eye on a friend’s place while he’s gone. He’s paying me a significant amount in total, and instead of putting the money into my spending account, I’ll be putting it toward paying off that credit card debt I mentioned. Savings are important, and its a good idea to build them up even while you’re paying off debt, but getting the debt paid down and taken care of asap should be the goal.

So there you have my current money management system. Notice there are only three accounts, and each has an explicit purpose. This is to keep things simple and straightforward. We’ve got enough headaches and stress around most everything including money without making finances intentionally more convoluted. Any and all feedback, as well as tips and tricks you’ve found useful in money management, are welcome in the comments.

ADDENDUM: After running across this article the other day, my perspective has shifted rather significantly. If you’re in debt, definitely read it.

PS: As a guy that has every intention of starting a family and having at least one mini-me running around in the next decade or two, allowance has been on my mind off and on. I can honestly say Mr Money Mustache has my favorite approach to allowance I’ve seen, and I’ll be stealing his system. Check out his post here.

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