New to the whole budget/debt snowball thing

[Karlzmom]

We are trying to get a handle on our finances. No major disasters are happening, just an awareness that we are not pro-actively managing our money. As such, I enrolled in Dave Ramsey's online TTMO.

So, predictably, DH asked a question I can't answer but I'm sure that someone here can. Our Costco Amex. Should we use it [we usually pay it in full every month], switch to our checkbook [which essentially is the same money that we pay to the Amex, but we lose the cash-back bonus that covers our membership fee] or carry cash. What do you all do?

What about other pay-in full cards that you carry to get bonuses? Or for online shopping?

TIA, though I am sure we will have other questions as we take a stab at a real budget for the first time in nearly 20 years.

 

[OklahomaTourist]

My entire life, I've had exactly two credit cards, neither has a fee, and we've paid them off in full every month. One has a straight cash reward program, the other has a points-based reward system.

I, personally, would work as hard as I could to avoid any credit card with an annual fee. A great place to look for such cards is a credit union, which these days have much broader membership rules. To me, there's no benefit in a cash-back card for which the cash back just covers the annual fee, except I suppose the convenience of having the card itself.

I am a big fan of the Discover Classic card, if for no other reason than it has no annual fee, a minimum 1% cash back that bumps up to 5% on various targeted promotions throughout the year, and the cash back can be directly credited to your account (although they do tend to make that the hardest one to redeem ). If you pay your account on time and in full every month, you're quite literally making money using it. Once in a while, they'll target gasoline for their 5% promotion, and with gas at $3+/gal, that's a $0.15/gallon discount no matter how you slice it.

That's obviously just one suggestion, but you get the idea. Hope that's helpful.

 

[Karlzmom]

My entire life, I've had exactly two credit cards, neither has a fee, and we've paid them off in full every month. One has a straight cash reward program, the other has a points-based reward system.

I, personally, would work as hard as I could to avoid any credit card with an annual fee. A great place to look for such cards is a credit union, which these days have much broader membership rules. To me, there's no benefit in a cash-back card for which the cash back just covers the annual fee, except I suppose the convenience of having the card itself.

I am a big fan of the Discover Classic card, if for no other reason than it has no annual fee, a minimum 1% cash back that bumps up to 5% on various targeted promotions throughout the year, and the cash back can be directly credited to your account (although they do tend to make that the hardest one to redeem ). If you pay your account on time and in full every month, you're quite literally making money using it. Once in a while, they'll target gasoline for their 5% promotion, and with gas at $3+/gal, that's a $0.15/gallon discount no matter how you slice it.

That's obviously just one suggestion, but you get the idea. Hope that's helpful.

Thanks for the idea about the annual fee cards. I will certainly look into it!

The annual fee I was referring to was our Costco membership fee to be able to shop at Costco. Having the Amex allows us to capture cash back on our Costco shopping to offset the membership fee [and its one of the only types of payment accepted!]

 

[Pesky]

I have two credit cards and pay off the balance in full each month if I use them. For Costco, I use my debit card. Costco accepts debit or AmEx (or check or cash).

FYI, whether to cancel your card or not I think depends on the value you get out of it and whether you use other cards more. I'd just do a basic cost-benefit analysis and see what makes sense.

 

[angwill]

I have done Dave's plan too and have been debt free for years. I know he would say no about the credit card but I think you could get around it if as you charge you write in the charge amount in your checkbook like you paid for it from the account. Then at Month end when you get the bill just make sure you did write every charge in that checkbook and make out one check for the balance that you already took out of the account. Does that make sense? If you want to follow it 100% then no credit cards at least till you are done with his plan. Dave is very strict so we didn't follow it 100% and did use our rewards credit card in the way I described. Never carried a balance.

 

[msmama]

That's what I DON'T like about Dave Ramsay (and others like him).

Sure, cash works for a lot of people, especially people who have trouble budgeting and staying within their means. *IF* you have no trouble paying off your CC every month though (and have a rewards card, which you do), to me, it's like free money. Why WOULDN'T you use it!!

To me, it makes more sense to keep the cash in an account that earns interest (admitedly my checking earns ridiculously low interest) and make money via "cash back bonus" if you're trustworthy to pay it off in full every month.

 

[OklahomaTourist]

I have done Dave's plan too and have been debt free for years. I know he would say no about the credit card but I think you could get around it if as you charge you write in the charge amount in your checkbook like you paid for it from the account. Then at Month end when you get the bill just make sure you did write every charge in that checkbook and make out one check for the balance that you already took out of the account. Does that make sense? If you want to follow it 100% then no credit cards at least till you are done with his plan. Dave is very strict so we didn't follow it 100% and did use our rewards credit card in the way I described. Never carried a balance.

I know Dave Ramsey's plan is hard on absolutely *zero* credit cards, and I understand why they hold that position because they tend to target that program for folks who are already in a bit of a fix with credit, so the cure in that vein is by "amputation" as it were . And a zero credit card policy surely isn't inherently a bad thing, either. That said, there is a perfectly legitimate use for short-term debt such as has been described here - simply using a credit card conceptually like a debit card. For folks who are paid irregularly (or couples who are not paid on the same cycles), its a perfectly practical way to deal with expenses that gets reconciled at the end of the month/billing cycle. Zero interest, no "revolving" debt, no "creeping balances."

For me, I get paid every other week, but my wife gets paid exactly twice a month. That means that, over the course of the year, sometimes our pay gets "bunched up" on the same day, or just a day or two apart, but at other times, it gets oddly "spaced out." Managing a credit card like a debit card and paying it off at the end of the month makes managing this logistical hassle much simpler.

Credit can be such a source of pain for people who aren't properly educated/versed in how to use it, but on the other hand, if you do know how it works, and use that knowledge properly, you can very much make it work to your distinct advantage. I suspect I'm on one of Discover's least favorite cardholder lists for precisely that reason

I'm very thankful to my mom who gave me a great education as a kid about how to manage money and credit. If I wanted to buy something, she'd let me buy it "on credit" against my allowance, and then she'd write me an "invoice" when time came to pay up. When I had to part with the actual money to pay for whatever goodie I had "bought," it was considerably more painful!! But that was a lesson I thoroughly learned, became quite the saver as a kid, and those lessons have served me manifestly well through adulthood (although exactly how much I've traversed into that region might be debated by the Mrs )

 

[DJinPA]

I believe to have a Total Money Makeover, you need to deal with your traditional view of money and change it. I think Dave advises cash only because you spend it much more judiciously and you train yourself to see it in your hand and leaving... You don't have it in hand, you do not spend it. I believe it is extremely important to follow the plan for at least a few months because it really makes what you are spending so much more tangible and you can visualize the choice .., Starbucks, etc. or vacation paid in full before we go...

 

[2disneyboys]

I believe to have a Total Money Makeover, you need to deal with your traditional view of money and change it. I think Dave advises cash only because you spend it much more judiciously and you train yourself to see it in your hand and leaving... You don't have it in hand, you do not spend it. I believe it is extremely important to follow the plan for at least a few months because it really makes what you are spending so much more tangible and you can visualize the choice .., Starbucks, etc. or vacation paid in full before we go...

I agree totally with this. I am a Dave "follower", however, there are plenty of his practices that I don't 100% believe, and the fact remains that while you don't need " debt" to live, credit is still important, and if managed properly, is not the big ugly it can get portrayed to be. Personally, my opinion is that if you have any existing debt, not monthly paid in full cards, but debt that "rolls over to the next month, then you should go cold turkey on credit cards and the more you convert to cash, the faster you will see results. However, if u don't have any credit debt, then using and paying in full your cards would be ok but a few months of cash would not hurt.

When we started the program, we had very little credit debt (<$5000), no car or student loans and only our very modest home mortgage. OUR biggest problem was that while we had very little debt and always paid all of our bills on time, and were contributing more than 15% of our income to retirement, we WASTED so much money and had very small savings. We paid off the credit cards in 2 months, competed baby step 1 in just a few weeks, and are well on our way to a 12 month emergency fund (with the Economy we feel safer wih 12 months). We did not stop our retirement contribution during this time so our financial picture is so much stronger now the even just 3 years ago. Honestly I feel that no matter how financially sound a family is, you can always learn something from others.

Good luck on your journey. Some days will be better than others, but as long as you are moving towards you goals, your going in the right direction!

 

[lvillotta1]

I am a Dave fan. Have taken FPU and have all the dvd's to his program. I took the course 2 years ago and was going strong. I am a single mom by choice having adopted 2 babies from China over the last 9 years and paid cash. I put 13% towards retirement,but my company also contributes another 6%. So at the age of 41 we are doing ok. Unfortunately I have had massive medical bills over the last 3 years totaling $20,000. I was thankful for my emergency fund. I am slowly rebuilding and now have 4 months saved,but it will take me a long time to get to 6-8months. I also have college accounts for both girls,Xmas account,vacation account. Because of all that I have saved we live paycheck to paycheck. In then find that I rely on my CC for any needs before I get paid again. I know I need to stop doing it and I do carry a small balance. I do have a SW Visa and do charge on this card only. It does have an annual fee,but we love to travel so it works for me. My next big financial jump is to go cash only envelope system. It will be very difficult,but think in the long run it will pay off greatly.

 

[Ciao Mickey]

We are trying to get a handle on our finances. No major disasters are happening, just an awareness that we are not pro-actively managing our money. As such, I enrolled in Dave Ramsey's online TTMO.

So, predictably, DH asked a question I can't answer but I'm sure that someone here can. Our Costco Amex. Should we use it [we usually pay it in full every month], switch to our checkbook [which essentially is the same money that we pay to the Amex, but we lose the cash-back bonus that covers our membership fee] or carry cash. What do you all do?

What about other pay-in full cards that you carry to get bonuses? Or for online shopping?

TIA, though I am sure we will have other questions as we take a stab at a real budget for the first time in nearly 20 years.

The Costco American Express Card has no annual fee and gives you back cash so why wouldn't you use it?

If you send a lot of money at Costco it pays to be an Executive Member that way you get back 2% on your purchases there. My membership costs me nothing each year.

 

[bumbershoot]

I know Dave Ramsey's plan is hard on absolutely *zero* credit cards, and I understand why they hold that position because they tend to target that program for folks who are already in a bit of a fix with credit, so the cure in that vein is by "amputation" as it were

Exactly.

The people Ramsey is talking to do NOT have a grasp on how to use and pay for credit, how to make SURE you will have that money when it's due and not have to worry about an emergency coming up and taking that money away.

He's not really talking to those who have a handle on it already.

I believe to have a Total Money Makeover, you need to deal with your traditional view of money and change it. I think Dave advises cash only because you spend it much more judiciously and you train yourself to see it in your hand and leaving... You don't have it in hand, you do not spend it. I believe it is extremely important to follow the plan for at least a few months because it really makes what you are spending so much more tangible and you can visualize the choice .., Starbucks, etc. or vacation paid in full before we go...

That's actually a really good choice.

We're pulling away from being stuck in that spot right now; we were doing really well, then got a little sucked in to using the CC instead of cash thinking we would treat it the same, and even after 3 years of working Ramsey (not 100%) we've realized we're using it too much, far more than we would use cash.

I keep meaning to compare what we save in change when we pay all our groceries in cash vs what we're getting back from our rewards CCs, but then I get stuck in the concept that the CC rewards are "free", while it's OUR money funding that change jar.

Rough spot. It's a good point that they should try it for a bit 100%, just to see what it feels like. We should, too.

The Costco American Express Card has no annual fee and gives you back cash so why wouldn't you use it?

Because it's a credit card and they are doing Ramsey, who espouses NOT using credit cards.

 

[beansmom]

i think it's hard to argue with the success of Dave Ramsey's Total Money Makeover program. He's rich and I'm not.

It is called personal finance for a reason but, frankly, i see no reason why you can't cut up those cards and simply carry an envelope with your alloted budget amount in it. Cash don't bounce and it don't collect 18.9%.

Karlzmom, i cannot recommend going to a local Financial Peace University class in person. It really put dh and me on the same page and we were able to work together to come up with a plan for our money...something we had never had before. I bet it's about the best $100 you can spend this year.

 

[crisi]

I would know yourself. If moving to cash will have you spend less at Costco, then bring cash to Costco. If you are disciplined with your Costco trips and pay in full each month, then use the card.

I'm BAD with cash - I'm much better with a card. Cash means change (both the jangly kind and small bills), change means little bits of money to spend and then will end up with a candy bar I don't need from the gas station because "hey, I have a few bucks in cash." I won't pull out the credit card for that, so I'm way better with a card than with cash. But I suspect I'm atypical in this and for most people, spending on a card is "out of sight, out of mind." For me, its spending the small bills and change that's out of sight out of mind.

 

[Carlyzmom]

I'm a HUGE Dave fan and have been debt free for 7 years!! I definitely think using cash makes you think about your purchases! If you have a certain amount of cash budgeted for something, you KNOW you won't go over that amount. Not everyone agrees with Dave, but it does work!

 

[Karlzmom]

Thanks for all the input and perspectives. I want to do it "right", or it seems to defeat the purpose...KWIM?

No doubt I'll be hanging out here in the budget forum a bit more as I try an adopt new ways to save. I have goals to meet after all!

 

[pearlieq]

But I suspect I'm atypical in this and for most people, spending on a card is "out of sight, out of mind." For me, its spending the small bills and change that's out of sight out of mind.

I'm glad I'm not the only person like this! For some reason my brain acknowledges cc purchases as "real" that I need to consider and account for but cash is these cute pieces of green paper that get me free stuff.

Knowing that about myself, I keep cash only for pocket money and charge everything else.

 

[SUSIEQ]

The problem I see in the OP's first post is, we "usually" pay off the Amex balance each month.


Posted from DISboards.com App for Android

 

[Eureka]

I'm BAD with cash - I'm much better with a card. Cash means change (both the jangly kind and small bills), change means little bits of money to spend and then will end up with a candy bar I don't need from the gas station because "hey, I have a few bucks in cash."

LOL, that is me to a T. I almost never carry cash around so I am not tempted to spend it. The kids' schools require cash for field trips and any time we need to send in money, so I try to only take out cash for that besides the weekly $40 DH likes to have in his wallet.

I am also like a previous poster who said Discover probably doesn't like him. Right now I have $300 worth of car repairs on the card because one of my clients is backed up on paying out (I freelance) but normally we charge things like that, and travel plans and then pay it right off just to get the cash back reward.

 

[eMd]

I'm glad I'm not the only person like this! For some reason my brain acknowledges cc purchases as "real" that I need to consider and account for but cash is these cute pieces of green paper that get me free stuff.

Knowing that about myself, I keep cash only for pocket money and charge everything else.

I'm the same way too. With credit cards I get the bill every month, so if I start to rack up credit card debt I actually physically see how my spending has gotten out of control.

When I have cash on me? I will spend on stupid things, because I don't think of it as "my" money. "My" money is in the bank in my checking and savings accounts. When I carry cash I think of it just like you do cute green paper that gets me free stuff.

I work two jobs, one of which I sometimes get paid in cash, and/or will have cash from tips. I TRY to put that money into the bank when it happens. But if I don't count that, I only take cash out when I know I am going somewhere that only accepts cash or to a bar/restaurant.