Living Credit Card To Credit Card: How To Break The Cycle

By Maxime Rieman

Most of us have heard financial experts decry the dangers of “living paycheck to paycheck,” wherein a person’s income is so close to their expenses every month that they’re unable to put any money aside for emergencies or retirement. Of course, these gurus are right to be concerned: saving is an important habit to get into because it is an important safety net and it allows us to build wealth.

So yeah, living paycheck to paycheck isn’t ideal.

But really, I think the personal finance professionals are barking up the wrong tree. They’re right to be concerned that a lot of us are failing to save, but living paycheck to paycheck isn’t the worst monetary state you can be in. As most of us who have been in serious financial trouble know, there is a much direr financial situation you can fall into: living credit card to credit card.

Yep, credit-card-to-credit-card living is about as bad as it can get. If you’ve never experienced this type of financial lifestyle, it goes something like this: you charge up a credit card to the point that it’s just about maxed out. You probably keep your head just above water by paying the minimums on the card every month, just to be sure your credit score stays solid enough that you can get another card. Which you do. Then you charge that card up, without ever paying the balance on the first card. Again, you keep up with monthly minimums, but pretty soon you need another card. And not long after that, you can’t keep up with the minimums on the two other cards, so you use the third card to pay the other two. But now you have no more available credit, so you need another card. And so on. And so on.

Many college graduates fall into this trap. They graduate totally broke – student loan bills, rent, a car payment, and a bunch of other expenses eat up their nonexistent paychecks. But they also don’t adjust their spending accordingly, and quickly open more credit cards first to accommodate their splurges, and then to pay off the other cards. Keep in mind, in the past--even just as recently as 2007--banks were still doling out credit as generously as those free lollipops. So for many graduates, it is—well was--really easy to keep getting new cards to bail themselves out of payments that were too high on the other cards, and, of course, gain a little spending money, too.

This cycle lasts for about a year, and by then most realize that they are drowning. This is when the stress begins: stressed out about money all the time; constantly concerned about missing a payment or worse, not having enough to even pay the minimums; and sweat-inducing nightmares. For those, who are experiencing this during the Great Recession, I can only imagine your feelings of helplessness and the perpetual state of fright you must be in.

The good news is that, you can turn things around. You can go from a total money-wreck to financially savvy with some stubborn resolve, sacrifice and the knowledge that it can be done; knowing that there is an end in sight can really help on those hard days. If you’re looking to break the cycle of credit card to credit card living, try a few of the tips below:

  • Stop using the cards This is probably the most important step you can take towards stopping the credit card madness. It will be painful and unpleasant, but you have to stop using your credit cards entirely, at least for a while. Freeze them, cut them up, give them to a trusted friend, whatever just keep those cards out of your wallet and out of your hands for the time being.
  • Dont open any new cards No matter how bad the credit card withdrawal symptoms get, resist the urge to open a new card. Even if you promise yourself youll be responsible with this one, just say no. At some point you may be in a financial place where credit cards wont pose a threat, but thats not now.
  • Put yourself on a budget One of the reasons you probably got into debt is that you failed to create a plan for your money, which is what a budget does. Figure out how much money you make every month, then make a list of all your expenses, including non-fixed monthly costs like gas and groceries. Decide how much you want to spend in each category, making sure to allocate a hefty amount to debt repayment. Then, stick to your plan!
  • Also, put yourself on a cash allowance Since youre not using credit cards, youll need a way to manage your spending money. I recommend cash. Go to the ATM every Friday; take out your spending money for the week ahead. Not only does this reacquaint you with the value of money (cash is concrete, credit cards are abstract), when it the money is gone, its gone. This will keep you out of trouble!
  • Increase your income Once youve quit credit cards and set a budget, its time to get serious about debt payoff by increasing your income. Get a second job, baby sit, walk your neighbors dog, or find some other income stream. But just be sure you use the extra cash to pay off your debts no shopping sprees allowed!

Breaking the credit-card-to-credit-card lifestyle is tough, but it is doable. Even after a month you’ll start to feel better. Keep your chin up and know that you’re working towards a brighter financial future!

Maxime Rieman is a writer for NerdWallet, a financial literacy site where you can find brokerage reviews, such as this TD Ameritrade Review, when you’re ready to start investing.

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