Seems like the current economy problems are here to stay for good. Well, for some months, at least. And it is not just credit card companies and bank that suffer enormous losses due to delinquencies. Many American households in these trying times are struggling to make ends meets. A stream of easy credit that millions of American families came to depend on, now barely exists. Lots of households just lost a sufficient source of financing.

There’s a friend of mine, Dylan. He is an engineer in Silicon Valley. He seems to have it all – a beautiful wife Emily, who is a top manager at a big company, two cute kids, a house they bought, 2 cars and a dog. The couple’s combined annual income makes up about $ 220,000. Such an income level definitely allows a family to live in cotton wool. However, Dylan and Emily used to finance a significant part of their lifestyle using credit cards and taking out loans.

Now with a debt of nearly $80,000 on their credit cards (most of them are rewards card by the way, which means they have pretty high interest rate) in today’s economic situation they realize that they have to change their financial management scheme. Now they are trying to quire the skill of living within their means, without any supplementary source of financing.

But an actual income-based lifestyle requires not just the change of spending habits, it demands a radically different attitude to money issues. But as it turned out, it not that easy to live without an income supplement you used to rely on. “Tighten your belt” is so much easier said than done, as Dylan told me. Changing your mind-set about money and how to spend it overnight is close to changing your sexual orientation against your good will. In other words, it is really challenging.

They use to make a pretty big part of their everyday purchases with credit cards. I saw it with my own eyes. They used a credit card at a pump to save on gas, they shopped at a supermarket with a plastic that allowed them to save on groceries, they loved cash back cards.

This is how they started their anti-credit therapy. Dylan and Emily opened one bank account that is supposed to cover their household bills and pay off debt. In order to hold back their passion to unnecessary expenditures, each of them gets a cash allowance of $500 a month.

They can still buy what they need and what they are used to with the only difference that now they pay in cash. They can make purchases until they run out of cash. They say this method works so far.

They focused on eliminating their credit card debt in the nearest 2 years, before their older daughter enters college. They even enjoy paying in cash. I believe they will get used to it. And even low interest cards will not cause “the application itch”.

Similar Posts:

Comments are closed.

Get free updates...

RSS Feed