At Figuring Money Out, the anonymous blogger behind the site combines an ongoing overview of money trends with personal insights about debt and personal finance. The anonymous blogger of Figuring Money Out stepped from behind the veil long enough to talk with us about debt, personal finance and how to really use credit cards.
You got your student loan and credit card debt paid off! How'd you pull that off?
I did! It was a very trying time as my debt payoff plan took priority over a lot of other things that were much more fun. I made large payments every month towards my debt because I knew the larger payments would eliminate it much faster than making minimum payments.
What were some misconceptions about debt you had when you started paying off what you owed?
I was pretty young when I accumulated all my debt. Since I had zero financial education at that point, I really knew nothing about how debt worked. At first I thought I would just pay the payment they required and that would take care of the problem in time. I quickly realized those small payments made very little progress and I'd be in debt for a long time at that rate. After a few payments, I got frustrated by my slow progress and started to research how to eliminate debt faster. The online world taught me how debt worked and how minimum payments kept you in debt for a long time and made credit card companies a ton of money in the process.
We hear a lot about debt "traps." How can we avoid them?
Most debt traps happen when people are emotional about making a decision involving debt. They fall in love with a house or car that is too expensive for them, for example. The best way to avoid debt traps is to not get emotional about big and expensive decisions and instead think logically and calmly about spending decisions. Sometimes you have to say no to yourself or find another alternative that won't sink you into a costly debt trap.
What should someone ask themselves before using a credit card to pay for a purchase?
I ask myself a couple things:
1) Will using this credit card give me a benefit over another payment form? For instance, will I get 5% cash back at this location or some other kind of bonus that makes it a better option than using my debit card.
2) Do I have the money in my bank account to pay for this? I firmly believe you should only spend on credit cards the amount you can immediately pay back.
What would you say to someone who's just graduated from college about debt?
If you've just graduated, you are in a great position to pay back debt. You most likely will find a job and start working, so your income will rise but your standard of living doesn't have to change. Living like a college student for a few months or years after college so you can save and pay down all your debt is a great thing to do. Life gets harder and more expensive later, and it's harder to go back to that standard of living, so take advantage of it while you can!
Do you still use debt, or are you done with credit cards, and why?
I do still use credit cards but in a different way. I use them for my monthly fixed expenses that can be automatically charged to a credit card. I know I will have to pay these anyway, so I take advantage of the credit card benefits. I also use a card that gives extra points for different categories each quarter so I also occasionally take advantage of this, usually when it's at gas stations or another place I'd be spending at anyway. I don't think credit cards are horrible, but you definitely have to be smart about how you use them and not let things spiral out of control!
For more from FMO, keep an eye on the Figuring Money Out blog!