In November of 2014, my husband Zac and I paid off the last of our credit card debt. Our remaining debt consists of student loans and our mortgage. In the almost seven years we've been together it's the first time we've been free from credit card debt. This journey started in January of 2014 when a friend gave us the home study kit for Financial Peace University. We paid off just over $23,000 in debt last year. You can read more about that here.
So why on earth would we open a new credit card?!?
Zac carries our benefits and because 2014 was our first year with a child, we opted to put away a much larger sum of money into the FSA account than we had in previous years. We assumed our medical costs would be significantly higher with Finn around and therefore would have no trouble using up the funds. Well that wasn't the case. In November there was still $1,900 sitting in the account. The thing with an FSA account is if you don't use it, you lose it.
At this point we had one month to use the money. This wasn't employer contributed dollars, this was money that was coming out of Zac's paycheck. We could not fathom letting it go to waste. The one medical procedure Zac has always wanted to do but we could never afford was LASIK. So, despite the fact that we cut up all of our credit cards at the beginning of the year, we opened a new one.
Because we are still working on our debt snowball, we didn't have $2,700 sitting in cash to pay for LASIK upfront. We decided to shop around for the card that would give us the most bang for our buck and landed on Southwest. This might seem like an odd choice, but we try to fly to Nevada to visit family at least once a year and Southwest is always the cheapest option. They had an introductory offer that would give us 50,000 bonus points, enough for two round trip airfares.
Zac had his procedure on December 17, 2014 and has 20/15 vision. He is thrilled with the outcome.
You might be wondering, what about the other $800? Our agreement when we opened the card was nothing could go on it that wasn't already funded. So we sold stuff. You can read more about our methods here. Before the charge ever went on the card, the $800 difference was already in our checking account. The FSA money was reimbursed to us immediately and the card was paid off in full before we ever received the first statement. Plus, the tickets for our trip this summer are booked and paid for.
I should probably stop here and tell you we never used the card again. But that's not true.
Come to find out, our checking account does not include identity theft protection (you can find out if yours does by calling the number on the back on your check card). So we went through the long, painful process of figuring out what bills and online accounts had our check card information and switched all the information to the credit card (Amazon, cell phone, car insurance, garbage, Netflix, internet).
Again, nothing goes on the card that isn't already in the budget (cell phone, car insurance, garbage, Netflix, internet) or that we have raised cash for in advance if it isn't (Amazon, mostly used for purchasing Zac's school books). For any other purchases, the card is only used when cash can't be (online purchases). We've been using this system for three months now and we've never carried a balance.
Here's my theory on why this is working for us now and never did in the past.
We didn't hate debt enough.
It took an entire year of living the Financial Peace program to understand the ramifications of going into debt. It took an entire year of not having a single credit card in our wallets to learn the discipline of only using cash. It took time to understand that if the cash isn't there, the credit card is not an option.
This might not work for everyone, and if you are in FPU right now, I would tell you not to think twice about cutting up your credit cards. There is a reason Dave Ramsey doesn't give any "what if" scenarios...because we would all put ourselves in the category of "what if" and claim ourselves exempt from the hard rules. I certainly would have. I am thankful we didn't give ourselves any wiggle room last year because it has totally changed the way see our money. We finally own it rather than it owning us.
"The rich rules over the poor,
nd the borrower is the slave of the lender."