Be Your Own Credit Card Company and Avoid Adding More Debt

by Hank Coleman

I took my wife’s car to the mechanic this morning.  I forget just how expensive automobile mechanic labor and parts are.  This morning’s bill totaled $550.  Ouch!  It definitely does not take much to rack up a hefty bill on the cars that we own.

In the past, I would have freaked out by a $500 car repair bill.  The car needs to be fixed though.  It would be unsafe without the repairs that were needed.  A large bulk of the costs is for new tires.  The old ones are bald and needed to be replaced.  The old me who was up to his eyeballs in credit card debt would have hemmed and hawed, tried to cut corners on cost, and then finally would have pulled out one of my ten trusty credit cards to pay the bill.

Now, I have a decent emergency fund saved up.  All I had to do this morning was transfer money form our savings to our checking account and pay with my debit card.  All my adult life I have struggled with credit card debt, and I have promised myself and my wife that I will not slip back down that slippery slope.  Emergencies happen.  Murphy will hit you.  It is not a maybe.  He is lurking around the corner, and he will hit you just when it is least convenient.  And, that is why it is so important to have an emergency fund of three to six months of living expenses.

Be your own credit card company.  With an emergency fund, you can be your own credit card company and loan money to yourself.  Make yourself a loan to cover the repair costs, and then pay yourself back $100 a month (on top of your normal savings) to replenish your emergency fund.

Write It Down.  Make a commitment to yourself.  Sign a contract with yourself promising to pay back the money that you loaned yourself from your emergency fund.  Pay yourself the interest if you want!  Writing it down, as hokey as it sounds makes it official in your mind.  My mother use to write all kind of things down on a master calendar in our kitchen.  If it was not on the calendar, it wasn’t happening.  Write down you payment to yourself on the first of every month so you will not forget.

Budget Future Auto Repairs.  Cars are expensive.  We all learn that very quickly as soon as mom and dad stops paying for our car payments and insurance premiums.  We also find out the hard way that there are also more costs than loan payments and insurance that is associated with owning a car.  We are just kidding ourselves if we do not factor in car repairs in our monthly budget.  Experts estimate that car owners spend an average of $100 a month on repairs and services.  I know that that has proven true for my family.  We usually go four or five months between repairs and then get hit with a $500 bill like what happened today.  I surely would have reached for a credit card if I did not have an emergency fund or car repair savings account set up already.

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{ 2 comments… read them below or add one }

George S October 29, 2009 at 7:23 pm

I couldn’t agree more. My credit cards got me into a lot of trouble. So now I use debt cards to shop around. This way, I keep better control on my spending.

Nate May 17, 2010 at 5:37 am

If you’re up to your neck in credit card or other debt and are only able to pay the minimum, you should start doing some serious thinking.

Most people are of the opinion that it’s more difficult to part with cash than pay with credit card. Maybe. But it’s largely a mindset. If you tell yourself that credit cards are not an option; you just have to get creative and find ways to pay for expenditures in cash. I’d say it would sure feel good to know that you’re not relying on credit and instead of adding up to that credit card debt, you can work on eliminating it with continued pay down. So my take is take out credit from the equation and you’d feel liberated.

Keeping cash as emergency fund makes much more sense in making you learn to handle money. If you think about it, you got into credit card debt by using the credit cards; how is it going to make you any better at handling money if you still use credit cards for emergencies?

I personally prefer to have cash reserve. I can sleep better at night knowing that I can actually use it in case of financial emergency. Handing people a piece of plastic is much harder to think of when you know you can be compounding your financial woes.

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