A Little Living Above My Means Taught Me a Lot of Lessons

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Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. For the next two months, we're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.

There's no other experience quite like getting that first grownup paycheck. Granted, I was close to 30 before that happened to me -- but still, it meant no more ramen noodle dinners, no more thrift shop fashions or hand-me-down furnishings. Most of all, my first solo apartment.

It was cause for celebration, but I celebrated too much -- not in a bar but in a mall. Worse, I used credit cards to pay for it. I'm hardly the first to make that mistake.

There's an old saying: "You live up to your income." That is, as your paycheck rises, so do your expectations, and your "basic" living expenses. There's nothing wrong with living well.

Average Credit Card Debt Is $15,000

But, increasingly, people are borrowing up to their incomes, too. And that is a trap. In 2014, the average household that uses credit cards has more than $15,000 in revolving credit debt, according to an analysis by NerdWallet. That's in addition to any mortgage and student loan debt.

For many of us, refusing to use credit cards is simply not an option. Without one, it is difficult or impossible to rent a car, pay for a business lunch, book a hotel, cover an emergency, or get a haircut the day before payday.

But excessive revolving debt limits your options, for now and for the future. If you're dancing as fast as you can, slow down and work out a plan. Here's what worked for me:
  • I got rid of all my credit cards, except for two. I kept an American Express (AXP) card -- the zero-status green card that must be paid in full each month. Plus, I kept one MasterCard (MA), although Visa (V) will do just as well. The AmEx was for routine purchases. The other was for purchases at businesses that didn't take AmEx and for emergencies that could not be covered in one month.
  • I paid off my debt slowly but surely, one card at a time, starting with the card with the highest interest rate and paying more than the minimum each month. (That's called the snowball method.) Every extra dollar I could scrape together at the end of the month went to that card payment. It felt great.
My Rules to Stay Out of Trouble

Longer term, it's all about passive resistance. Years later, I still have just those two cards, and I'm still resisting any and all offers of new credit. That includes these personal rules:
  • Never accept an offer of "special savings on your purchase" if you open a credit line at a department or specialty store. The interest rates on store cards are notoriously high.
  • Resist upgrading your American Express card to one that allows payments over time. You don't want the option to bust your budget.
  • Set up your automatic monthly payments straight through your checking account, rather than through your credit card, to avoid balance bloat.
  • If you feel your credit line is insufficient, you've probably allowed too much debt to pile up again. Pay it off before you make another big purchase.
  • If you're a good customer, the bank that issues your credit card probably will automatically boost your credit limit from time to time. Stay strong in the face of this added temptation.
One more thing: Take a look at your monthly credit card statement. It shows how long it will take you to pay off your balance and how much interest you'll pay if you pay only the minimum each month. (The short answers are "forever" and "tons.") It also shows the same numbers if the monthly payment is about 50 percent more than the minimum. This information is highly motivating.
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