How To Be A Deadbeat

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Is Financial Freedom Worth The Hype?

How to be a credit card deadbeat

One of the conveniences of capitalism is the easy availability of credit. You can buy almost anything on credit and applying for a credit card is easy! Some credit card companies give out free Pizzas just for signing up!

Average credit card debt is over $15,000 today whereas the average median household income in the United States is about $50,000. That’s a whopping 30% debt! But if you believe the financial burden is worth it as long as you have ‘one low monthly payment‘ to make, I don’t think you should even be reading MoneyCone! You are better off writing a fan mail to Chase or Citi!

The High Cost Of Low Monthly Payments

How would you like to purchase a TV that’s on sale – $900 off list price! The list price on a 65″ HDTV is about $4500, but if it went on sale for $3600, I think it is a good deal. Don’t you think? Maybe you waited almost a year for this TV to go on sale before snagging it for $3600. If you intend to pay it off with your credit card minimums, here’s what you are actually paying – $11,725.59. That’s $8125.59 in interest alone! That $900 savings doesn’t seem much now does it? In fact, you should probably pay the full amount and stimulate the economy!

Making Money Work For You Is Hard, Real Hard

To put this into perspective, let’s say you gave Chase Bank the credit card issuer, $3600 as a savings deposit. According to Chase website, Chase offers a whopping interest of 0.10% for your $3600 deposit. That’s right! When Chase lends you the money it is 14% interest, whey you lend Chase the money it is 0.10%. Even the stock market averages cannot beat the 14% rate! And miss a payment and your rate jumps to 29%! Now you see why credit cards are a real sweet deal for the credit card companies?

In Pursuit Of Financial Freedom

So how does one become free financially? What is the magic technique? The technique is pretty simple actually and it works provided you meet the prerequisites.

  • You must be able to make your monthly payments
  • You must be motivated to become debt-free
  • You should not take on additional debt (exception home, auto)

The Magic Technique

  • STEP 1: List all your debts in ascending order and indicate your monthly minimum next to each
  • STEP 2: Add up the minimums (which you should be able to pay) and determine how much more you can afford each month as extra payment towards your debt.
  • STEP 3: Make this payment toward the first debt in your list. That is, the one that can be paid off the soonest
  • STEP 4: Once that is paid off, add the minimum you were paying for this debt along with any extra payment you can make to the minimum of the next debt in your list till that is paid off
  • STEP 5: Repeat the same for the next by adding up the minimums of both the first and the second towards the third thus having a snowball effect towards tackling your debt

Not surprisingly, this technique is called the Debt-Snowball method first proposed by Dave Ramsey. It works because it is easy, and keeps you motivated since you tackle the smallest debt first. There is no rule to how much extra you can put in. Set aside whatever you are comfortable with and this can vary month to month.

Next time when something goes on sale and you make a purchase intending to pay it off in full, you beat the credit card companies by benefitting from the 1% or 2% rewards they offer and having free credit!

You are now what credit card companies call a deadbeat! Congratulations!

24 thoughts on “How To Be A Deadbeat

  1. I must be one heck of a deadbeat. Totaling up the interest at the end of the bill is at first depressing, and then motivating, or at least it should be.
    That’s a good photograph, by the way.

  2. Yikes, the thought of having 15k in credit card debt makes my heart race. I learned the no-credit-card-debt when I was 23 and out of grad school. I put some of my schooling on a credit card and I paid that off as quick as I could. I never paid another dime in credit card interest after that.

    The only thing about the Dave Ramsey thing is that I would want to pay the higher rate debt first, even if it is bigger. I understand the thought of having small victories, but I hate throwing money down the drain.

  3. If I can’t pay it off in full every month I don’t buy it, no matter how I may covet something. For those who have let their debt get out of control, by all means pay off the highest interest rate first.

  4. @Kris@ET: That is awesome! If you have the discipline to pay off your debts, paying off the debts with higher interest is even better – you get more to keep!

    @101: Great going, deadbeat! ;-)

    @Biz of life: ‘If I can’t pay it off in full every month I don’t buy it’ – commend your motto!

  5. I think I’m such a dead beat I probably fly right under the radar. No debt. None. Own my home and my car. They aren’t new but they are MINE. I pay my utilities, buty groceries, put a bit in saving and am free to do what I want with what is left.

    It can be done.

    Darla

  6. @Darla: That is very commendable! Being debt-free starts with a mindset and then becomes a habit.

    Thanks for sharing.

  7. We are great dead beats too! For anything more than $150, we actually have a separate sub account, save for it and then buy. 15k in CC debt would make me work day and night to pay it off, never had any CC debt luckily.

    Great pic btw :)

  8. Oh I’m much more than a deadbeat (I wonder if the credit card companies really use this term).

    I only use reward cards and I always make sure I pay them off each and every month!

    If you always pay your credit cards off each month, and you don’t use a rewards credit card, you are throwing money away (at least in my opinion).

    If you don’t pay off your balance each and every month, don’t go for a rewards card, they usually have a high interest percentage that they charge!

  9. If they consider a person like me to be a deadbeat, then so be it! Not a fan of carrying credit card debt at all, or really any debt for that matter. Would be great to have a paid off home, though that’s not happening anytime soon by any means. No car loan, though.

    Three cheers for Deadbeats!

  10. @Suba: Having sub accounts is an excellent way to manage and plan for bit ticket items without falling into the credit card trap!

    Luck had everything to do with you not having cc debt. Prudent folks are always lucky! :-)

    @Money Reasons: Paying off the entire balance every month is the only way you can ‘win’ this game!

    The credit card industry actually uses this term to refer to customers that pay off their balance in full.

    Think about it. When you pay off your balance in full, you are getting an interest-free short term loan with no collateral. Most of the 2% or so the credit card company gets from the merchant from your purchase too is passed on to you as rewards and other perks! No wonder they use this term!

    @squirrelers: Having an auto or home loan is unavoidable – there is no excuse for CC loans. You’ve managed to pay off your auto loans and don’t keep a cc balance. That is awesome!

  11. Knowing the true cost of those credit card payments, it’s just not something I’d be willing to do. Either pay it off before paying interest, or pay less interest than the money you saved, at the very least!!!

  12. 14%? My credit cards are more like 19%! Not that I’ve ever paid interest on any of them. Interest rate is something I didn’t even pay attention to when I applied for my rewards card, because I don’t plan on ever paying that interest!

  13. I wouldn’t give auto an exception either. That’s a bad financial deal to make. Pay CASH!! :)

  14. Yay for me, being a deadbeat is great (I never thought I’d say that)!

    That (Don’t be shy!) prompt on the Comment Form is great!!! I never noticed it before :)

  15. @Invest It Wisely: Very true! Pay in full and enjoy the perks!

    @Kellen: Same here! Only gotcha I look for in a rewards card is if it has any annual fees – some are sneaky, no annual fees the first year but will charge you for the subsequent terms.

    @RB40: Paying cash for auto may not be feasible if you are a student or if you are in your first job and you need an auto to get to work. But if you can pay cash, of course, you should! I’m assuming you did and that is terrific! (My first car I did take a loan, all subsequent ones I paid cash)

    @MoneyReasons: You sir, are very observant and obviously not shy! :-)

  16. We used to have 15K in c/c debt. It takes a lot of effort and sacrifices to pay it down. We are not debt free but we are working on it. I promised myself that I never again will get into c/c debt. Whatever it takes… And it does take a lot. Great post!

  17. Looks like you’re preaching to the choir. Obviously there are a lot of people who need this message but are they getting it?. I wonder how many commenters credit their parents for their frugal ways. I want to take credit (no pun intended) for my kids being deadbeats!

  18. @Aloysa: As long as you consciously manage your debt, you should be fine. All of us have had our share of rough patches. Hang in there, I’m sure you guys will come out just fine!

    @DIY: Good point! I would totally credit my parents for my debt-free ways! Would be interesting to find out how many decided to be debt-free without parental influence! They would be the true heroes!

  19. Buy it on CC only if you can pay it in full without interest. Lots of people out there need to have this message drilled into their thick skulls! Thanks for doing your part of the drilling ;)

  20. Great article and picture, too! The numbers are mind boggling, 15K in CC debt. No wonder we all almost bit the dust a few years back. Sheesh, people, control your finances! Nice example of the tv ballooning to 8000 bucks. We need more of those in your face examples to get through thick skulls. Deadbeats Rule! :)

  21. Wow. Look at all the comments! LOL. Looks like you hit on a good topic! :)

    As for me, I think credit is only good if used towards something that could possibly increase in value. That way you offset some of the interest being gained. My other rule of thumb is always to pay three times the minimum due to, again, offset the interest. For the most part, though, I won’t put it on credit unless I know I can pay it off by the end of the next month. I worked too hard to get out of debt–interest frightens my delicate sensibilities! :)

  22. Great example with the T.V. and credit card interest. Sometimes we don’t realize how much we are actually paying for a particular item because we only see the expenses in small payments.

    I think this was a good wake-up call for many.

  23. I guess I’m a deadbeat as I don’t carry credit card debt, or car debt and I soon hope to not carry mortgage debt either.

    I like your TV example because we didn’t buy a new TV until last year (when the CRT finally died). Well, our big plasma TV was $900 and I remember when they were over $5000. There is definitely a benefit to not being an early adopter when it comes to technology.

  24. @First Gen American: Oh definitely! For me, the iPad can wait! :)

    @LifeAndMyFinances: Thanks! I cringe every time I hear ‘one low monthly payment’!

    @Jessica: You are obviously smart and a deadbeat!

    @Buck: Deadbeats rule! :)

    @BeatingTheIndex: Couldn’t agree with you more!

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