Everything I Wish My Dad Had Taught Me About Debt
This is the second post in the Quicken Blog mini-series, Everything I wish My Dad Had Taught Me About Money. Have Americans finally learned our lesson when it comes to debt? We’re carrying less today than we were last year at this time. The Federal Reserve says that U.S. households carried $945.9 billion in revolving debt in March, down from $957.3 billion in last year’s first quarter.
Credit: ann-dabney
Meanwhile, in April, the U.S. savings rate rose to levels not seen in 14 years, the Commerce Department reported Monday. Consumer spending fell 0.1 percent. Joe Sixpack, meet Jane Tightwad.
My own personal data tally is less encouraging — our personal debt still hovers in six-figure territory once you factor in home equity lines — but shows signs of improving thanks to spending cutbacks.
Still, it’s going to take us years for us to pay off what we owe. My Father’s Day wish is that my children avoid this fate. To help, I’ve enlisted frugal friends and acquaintances to share their tips. Here’s how they are slaying the debt dragon.
1. Make cash king
One friend, a director of marketing for an L.A.-based wireless ISP, says that he, too, was once thousands in debt before an overseas stint allowed him to live on the cheap for a year. The experience changed him.
“When I got back to the States, I adopted a “debit card” purchase strategy,” this friend says. “I used my debit card as a Visa, but knew that every purchase was cash-based. Over the course of about 6 months, it really helped me rein in my spending and adopt a much healthier purchase pattern.”
2. Be aggressive
“Two words: diligent credit card payments,” says Lydia Dishman, a Greenville, S.C. freelance writer who is also my co-moderator for a weekly discussion between writers and editors using the microblogging service, Twitter (follow Quicken Online on Twitter too).
She’s referring not just to on-time payments but an aggressive strategy to pay off debt. A little math reveals the wisdom of this approach. Say you have $10,000 in debt in June but pay $1,000 towards the principal. Your creditor will include that payment in calculating your average daily balance for the month, which is certain to be less than ten grand. The result? Less interest to pay in July.
Balance transfers offer similar comfort to writer Steph Auteri. “I transferred all my debt to low-interest cards, and stopped shopping with credit cards completely,” Auteri says.
3. Match your eyes to your wallet’s stomach
“My main rule: don’t buy something until I can afford to pay for ALL of it at once. Minimizes debt quite easily,” says Dave Taylor, a Boulder, Colo.-based writer, speaker and consultant who maintains the popular AskDaveTaylor.com tech support blog.
If only I did that more often, Dave.
What other lessons about debt would you have me pass along to my kids this Father’s Day? Use the comments box below to share your story.
Tags: father's day, get out of debt | Categories: Debt, Personal Finance |
[...] are hoarding more. The savings rate is skyrocketing, money market and savings deposits are up and good offers are starting to [...]
[...] I asked friends to share their best tips for slaying the debt dragon, they echoed EncinoDad. They counseled me to use cash, to be aggressive with credit card payments, [...]