Thursday, February 26, 2009

Credit Card Debt Freedom Day

For my whole adult life it's been my intent to not carry credit card debt. Don't mistake me: I do use credit cards, but the plan is not to carry debt month to month on them, but to always have a plan to pay off anything put onto credit cards within a fixed and short timeline, ideally within a month so that no fees ever accrue. Carrying credit card debt is insidious: once you've got some, it's no big deal to add to it, and soon you don't realize how much you're really spending on finance charges, nor what impact it's having on your financial flexibility. Credit cards are useful if you can control them, and dangerous once you lose control.

That said, only about half of my adult life has actually been spent out of credit card debt. When I first moved away from home, it was impossible to avoid during that "just getting started" part of life, when there were college tuition debts and the necessities of life far outstripping the meager salaries. This is how the trap gets set. Once careers started to advance and salaries improved, we deferred some improvements in standard of living and turned the extra money to getting out of that debt, which is how we avoided that trap. (To be fair, we had much less school debt than most college graduates, and a few spots of good luck mixed in the bad luck most people have, plus not having kids made a world of difference.)

Moving from Alaska to Vermont incurred a little bit of debt, particularly since we arrived with no jobs waiting for us, but we got out of that quickly thanks to starting with some savings. We managed to mostly stay out of it for quite a few years, but then the process of building our dream house caused another big pile of debt. There were a lot of things, notably the kitchen, where it made sense to put in good stuff up front because putting in lesser stuff and upgrading later would considerably add to the overall costs.

It's been four and a half years since then and we've been carrying credit card debt this whole time. All along we've been planning to get rid of it, and have several times deferred purchases (most notably the audio part of the home theater system we set up for the house a few years back) in favor of getting out of that debt earlier. However, other things, like the costs associated with the MGB, have pushed back the date of credit freedom by a lot.

But there was always a plan. And today is the day the plan finally reached fruition. This year's tax refunds arrived and the last credit cards have been paid off in full. Hurray! In fact, the only debt we're carrying now is the house and car loans.

In anticipation of hard times, my plans for what to do next are fuzzy, and not focused on extravagance. (Except I do plan to finally go ahead with that home theater stereo system soon.) Mostly I'll be focusing on building up savings (both fluid savings and a higher contribution to the 401k) and paying down other debts (the car first, then increasing payments on the mortgage -- even a small overpayment on a mortgage adds up to huge savings over the life of a loan).

It's so nice though to be able to say I'm back out of the trap, and hopefully, will be able to stay out of it from here on.

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