The history of credit cards and what they mean to you: A guide on how to pay off debt

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I didn't have any credit until I was 24 years old. 

I had never applied for a credit card, and I didn't want one. Unfortunately in order for me to get an apartment that my soon to be wife and I would be living in, we needed to have credit. (Or so we thought)

My wife had an American Eagle Charge card that she would pay off every month, that was what we used to establish our credit. We still didn't get a credit card, we used debit and cash. Then my wife started working for Fifth Third Bank and we wound up with a credit card.

Only two years later, we found ourselves with $5000 in debt, from purchases and a small pyramid scheme type of business that we thought was a good idea. Yep, we fell for one too. (Everyone makes a mistake like this, no exceptions).

I don't think that we would have ever spent $5000 we didn't have, if we wouldn't have had that credit card. It gave us the illusion that there was money somewhere, when there really wasn't. (The truth is, we did it to ourselves)

WHERE DID THE CREDIT CARD COME FROM ANYWAY?

Bank-issued charge cards originated in 1946 when a Brooklyn banker named John Biggins launched the Charg-It card. Charg-It purchases were forwarded to Biggins’ bank, the middleman that reimbursed the merchant and obtained payment from the customer in what came to be known as the “closed-loop” system. Purchases could only be made locally and only bank customers could obtain a Charg-It card. Five years later, New York’s Franklin National Bank followed suit, issuing its first charge card to its loan customers.

With postwar America on the go, two dining and entertainment charge cards quickly followed. 

The Diners Club Card, which debuted in 1950, was inspired a year earlier by an “a-ha” moment when a customer named Frank McNamara forgot his wallet while attending a business dinner at New York’s Major’s Cabin Grill. Months later, McNamara and his partner, Ralph Schneider, returned to the restaurant with a small cardboard card and a proposal that resulted in the Diners Club Card.

- Source (CreditCards.com)

Now, if only I could find Marty McFly, we could go back in time to give Frank McNamara his wallet. I'm sure it would be some elaborate plan where I rappelled off the roof of the Cabin Grill and made a scene that would distract Frank from the Dinner while someone else slipped a wallet in his back pocket. I can see it now.

Thanks Frank. You really helped everyone out. Adam made the original sin, Frank the 2nd. Thanks guys. 

Credit cards became more prolific over the next 40 years, and by the time the 90's hit, it was crazy. Listen to the Huey Lewis song "The Power of Love", which was also in Back to the Future. (You don't need no credit cards to ride this train), or better yet, watch this clip from the movie Ghostbusters. 

Now, we are in the days after the 2008 downturn (Insert whatever vernacular you choose). Our national debt is at an all time high. Student Loan debt is taking over. Americans have managed to go deeper into credit card debt. (You think we would have learned). 

The truth is, we don't need credit cards. We need a plan, a budget, and a system.


 us government debt, 1790-2015  wallethub.com

us government debt, 1790-2015 wallethub.com


DO YOU WANT TO SEE SOMETHING CRAZY?


 

STEP 1: HOW MUCH DEBT DO YOU ACTUALLY HAVE?

This may be a weird question right? It might even be scary. 

Whichever it is, it's time to confront it. Start figuring out how much debt you have. Some things to remember are:

  • Auto Loans
  • Student Loans
  • Credit Cards
  • Store Cards

Write it all down on a piece of paper, make sure you don't forget or exclude anything, even that $1000 you borrowed from your parents.

Once you have that number (Whatever it may be), it's time to figure out how much money you have coming in (Your Income).

For example:

Your debts might be:

  1. Auto Loan - $8500
  2. Student Loan - $25,000
  3. Auto Loan 2 - $6400
  4. Credit Card 1 - $1000
  5. Credit Card 2 - $400
  6. Kohl's Card - $300

Your total Debt would be : $41,600

And your income might be: $55,000

To figure out your debt to income ratio use :  Debt/Income

In this case our debt to income ratio is: $41,600/$55,000 = .832

This might seem a little indimidating or overwhelming, I know that when I first started working to pay off my debt, I was a wreck. I had a hard time even sleeping at night, and my debt to income ratio was 1.20.

Get started right away paying off your debt with this step by step guide


 According to   wallethub.com

According to wallethub.com


STEP 2: START PAYING YOURE DEBTS OFF. ONE BY ONE

Once you have determined how much you owe, you can start breaking it down into small chunks.

Most bills will need to be paid monthly or quarterly, so you can categorize them as such. However if you have late payments on credit cards or student loans, those are only going to get worse.

You have to hit them hard. Can you start paying extra on them? Is there a penalty for paying them off early. Check out these cool calculators at Nerd Wallet.

Dave Ramsey suggests something called the debt snowball, which is exactly what my wife and I used to pay off $55,000 in debt.


Step 3: CHANGE THE DEBT CREATION HABITS THAT EXIST IN YOUR LIFE

Creating debt is a cycle. Usually it is linked to our emotions.

What does that mean? Well, much like Tyler Durden said in the movie "Fight Club":

We are consumers. We’re by-products of a lifestyle obsession. We buy things we don’t need, to impress people we don’t like. The things you own end up owning you.”
— Tyler Durden

The debt cycle looks a little something like this:

 

thedebt cycle.PNG

Seems like a lot of unnecessary work to me. 

The best way to get out of debt is to CHANGE your bad habits. It is true that you will have to cut some things out for your budget, but it may be even better to look for a side hustle, or earn extra money as a pizza delivery dude.


Step 4: DO WHAT RICH PEOPLE DO

There is a common misconception among the masses that includes how millionaires and billionaires spend there money. All most people see is the nice things that they have, and so they assume that all millionaires have more money than they need.

Just keep in mind, that when you make a million dollars in this country, about 30-40% is lost in taxes and other sorts of fees. So, millionaires (anyone with a net worth of $1 million or more), are very careful and wise with their money. They invest it in 401k's, mutual funds, stocks, and real estate. 

In his book "RICH HABITS", Thomas Corley talks about the habits of the rich, things that they do everyday to keep them on the right track.

I have made a Downloadable PDF of these habits for you. I suggest printing it and hanging it in a place that you can see it to remind yourself of what it takes. I also have a FREE Budget form for you to use. It is the same one that my wife and I use every month.

 


STEP 5: TAKE ACTION

The words in this post mean absolutely nothing if you do not take action.

The fact that you are still reading this lets me know that you are serious about cleaning up this mess. I know it seems overwhelming, and it feels like you will never get free, but I assure you, with a plan and some minor habit changes, you can do it.

It took my wife and I almost 3 years to pay off $55,000. Some days it felt like it was three steps forward and to steps back, but we just kept doing our budget, and paying as much as we could on the debt. Eventually, it went away.

There are several actions that YOU can take today:

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  • Find out how much debt you really have
  • Start using a budget (Use this with your spouse if you are married, it is imperative that you become a team.)
  • Call your debt collectors and see if they will take less money. Let them know that you don't have the full amount and that you can only pay a little bit. One time, I had a doctor bill that I couldn't pay, I didn't have insurance and they wanted $2000 by the end of the month. I called them and told them that there was no way that I could pay that in 1 month. They said if I could pay half in 3 months they would take it. Suddenly $2000 became $1000 which came to $333 a month. It was tough but doable.
  • Work on creating your debt snowball. (You will need to know how much debt you have first, and where it is going.)
  • Cut up your credit card, charge card, or favorite shopping card. Stop spending what you don't have.
  • Get help from a counselor, pastor, or mentor. Sometimes problems are bigger than us, and require help.
  • Read  "The Big Short", by Michael Lewis
  • Read "The Total Money Makeover", by Dave Ramsey
  • Sell Something on eBay, amazon, craigslist or Facebook marketplace
  • Get another job, even if it's cleaning toilets. (I got a job at McDonald's, and even painted the building to pay off my debt.) You are not too good for any job. You got yourself in this mess. Humble yourself and get to work.
  • Start Listening to the Dave Ramsey Podcast
 

I am rooting for you, and you can always contact me if you have questions about some things that I did. It's not necessarily about making a ton of money, it's about having freedom and the ability to do what you really want to do.

It's your life, you only get one. Do you want to live as a slave to your money, or make it do what you want it to do? Credit cards put people into debt, plain and simple.

- Stephen