Wednesday, May 20, 2009

Is Credit Card a bill ?

After I got married my dad tried to help me put up a budget for our house expenses hoping to help me raise money for a down payment on the house.
I was already a bit in debt with my credit cards but I was able to manage it then. Actually I think the ship was already sinking but I just didn't notice the water comming in yet.
Anyway, my dad starts asking me about what things I have to pay every month and I'm telling him, water, electricity, fuel, food. He adds clothing and car repairs as montly items, probably to be saved up for when the real need comes up.
Then I had to tell him that I had to pay my credit card, and he said, "why"? I said it was one of my bills. And he said again "why"?. He calmly went on to ask me why was I paying credit card debt. He was under the assumtion that if I was using my credit card it was to pay for something that I could pay in full when I got my paycheck. He couldn't figure out why I would buy something with my credit card that I could pay at the most in two payments.
As you can imagine, his good help didn't sink into my brain soon enough.
Today I do realize that when I see people listing their bills, and they say "I have to pay the house, and utilities, and food, car, fuel, and the credit cards...." I ask the same  question, why is your credit card a bill. It should be just a payment type not an actual bill. I know that as most of us who are deep in debt and who owe so much money, the credit card was our tiny loan office. It allowed us to live beyond our means and not face the difficult task of having to put off purchases for when we really could afford such things.
Now years later I can't remember much what did I buy with my credit cards that was significant. I know that a couple of airplane tickets, a lot of groceries and utilities and cellphone bills, etc were put on those cards but back then I should've taken a look at that and stopped myself when I was starting on this downhill path.
I wish young couples or single individuals could read about our stories and look at their credit card statements. If you are only able to pay mininum balance, even if you are still not that much in debt, it's a sign you need to cut back on some expenses. It's a real nag to do so. To not be able to buy those nice clothes or shoes for you, your spouse or your kids. To not be able to have that meal out, that nice vacation that we THINK we deserve.
Well, it's is a horrible nightmare to do those things and them be left with the burden of debt long after the pleasure of whatever you bought is long gone. About the only thing I have to show for all my expenses on my credit cards is my kids education and my car. Everything else is just memories that I could've made sometime later, maybe a year or so, but without the burden of debt that I now carry. Without having to work two jobs and having all of that money go towards paying so much debt. Without having to think that I if I had all my income available to me today to pay the actual bills, with the money left over I could probably take all of my family to Disneyland every three months! IT SUCKS to owe this much money.
At least on a mortage you have a house to show for. it's the place you live in and it's eventually going to be yours. But credit card debt is like paying for sins of the past.
So, I'm working on paying up my credit card debt. I'm down to the last payment on my extrafinancing that I used to pay my car. The rest will go to paying my credit card debt. I hope that as I have to live frugally for several years, this new way of life will set into me and hopefully my wife. However I hope that most of all my girls get a good lesson on how to manage their money better than their dad did.
So, what do you think, is "credit card" a bill ?
I needed to post this, i've had it on my mind for a loooong time. Thanks dad for trying to steer me away from the dangerous waters, sorry that I didn't listen back then. I am listening now..
As usual, advice like this comes to us for free, and I guess because of that we don't appreciate as much...and yet we should. Have a good night.. my twitter updates in between my blog updates so you have a feel for how my days go by.


La Gringa said...

At first I didn't understand your confusion, but then I realized that you are talking about a bill in the sense of a budget.

If you are charging your monthly expenses (groceries or whatever), you'd be double counting if you also recorded the credit card bill. In your case now, as you say, you are paying for past sins, so yes, they are bills that need to be added to your budget.

Something that came to mind while I was reading your article was about the illogical rationalization of using credit cards. For example, you bought the Wii (or whatever that high-tech thingy was in the US). Maybe you bought it because the price was better in the US or it was on sale or something. Let's say that you paid $100 for it. The truth is that *you* paid probably $300 for it, maybe $500! Why? Because by the time you pay it off with all the interest, that is what it actually cost you. Sad but true.

I think that is the most important thing that you can be thinking about whenever you consider putting anything on your credit card. What is the real cost going to be?

Have you made any progress on getting a budget down on paper? I get the feeling that you are having trouble with it. If I can help, let me know.

La Gringa said...

Oops. Regarding this part:

"If you are charging your monthly expenses (groceries or whatever), you'd be double counting if you also recorded the credit card bill."

I meant to add, though, that you would need to add interest to your budget, unless you were paying off your balance each month and didn't pay interest.

I got off track.

AJ said...

I'm talking about credit cards shouldn't be a bill in your budget unless you are paying them off as a loan you took out for some reason.
Yet many people that took my path could rationalize that credit card was just another bill just to keep the line of credit open.

Yes i'm having trouble with the budget, mostly because things pop each month that I can't seem to be able to categorize and are unplanned. They usually come from my wife or my daughters.

The Wii I bought in the US was with part of the money I had earned while I was working there. I think I wrote it that way. I couldn't have bought it with my credit card because it's due date was on the first weekend I was there. In fact the cables I bought to fix the cabling at the office I had to buy with cash because they turned down my credit card. Then they did the same with the rental car and with the hotel.

So we could say that I used money that I could've put towards paying off debt to buy the Wii, but I didn't use my credit card for it, mostly because it was blocked. Thankfully!

Hmm, I guess I forgot to mention that on my description of the trip.

Cindy in California said...

When I work with people to help them with their budget, I've found several things to be helpful and I'll share them with you.

1. Creating a budget is a process. It will likely take 18-24 months to really get it working smoothly...if you keep working at it. It's not something you write down once in concrete and never change. Don't get discouraged and stop trying...instead keep working and refining it.

2. It's a pain, but record everything you spend for at least three months (minimum) and then categoize it on a budget form or spreadsheet so you can really see where the money is going. This then helps you plan for the things that come up. There are going to be some things that happen sporadically and somehow they have to be fit into the budget.

3. It's relatively easy to budget for the regular things (housing, food, gas, utilities) but it is the irregular things that become budget busters because they don't happen every month. That's why it's helpful to look at a whole year and plan for things that only happen occasionally. Some will be predictable because you know when will occur (holidays, birthdays, certain bills like school registration or house taxes) and some will be less predictable (car repairs, home repairs, events such as a wedding where you need to buy a gift, medical expenses). The key is to know how much these things will cost over the coarse of a year and then set the money aside in the months when you don't actually spend the money so you have it when you need it. Some people prefer broad categories and some people prefer more specific categories (such as car repairs vs. Car #1 Repairs, Car #2 Repairs).

For example, let's say you want $300 for Christmas spending. Then you want to set aside $25 per month so you have it. If on average, car repairs total $600 for the year, set aside $50 per month if you don't have a car repair. If you have a car repair that costs $100 then you take $50 for that month and $50 you have set aside. I suggest you have a savings account for this money with ledger sheets for each category. It sounds complicated as I try to write this, but it really isn't that difficult.

I'm so impressed that you are "keeping on keeping on" with your desire to get out of debt. Keep it up!!! I want to be part of your cyber support team and we all want to have a cyber party when you pay that final debt off!

I'd be happy to help you or answer your questions. Ask away! I'll even be in Tegus in early June for a week and could meet in person, although I know you're pretty busy with your two jobs.

sam @ moneypenny said...

If you have an outstanding balance on your credit card (ie. a balance that you carry over month to month without paying) then that amount is a bill. The day you decided to get your finances in order though, you correctly started budgeting / allocating those amounts as 'spent' the day you bought the item - ie. using a credit card as a payment system, so that when the bill comes in you have the money sitting aside eagerly waiting to be a payment!

Well done on coming to this understanding - it'll put you in great stead in the future!

Steve Smith said...

I use a simple monthly cash net worth system on Excel to track spending. I add my cash and bank balances and deduct what I owe, like credit card balance. Every day I update them from online bank info and my wallet and compare it to last month's ending balance. By deducting income I know what I spent. I take note of 'one timers' to calculate basic monthly spending.

This is a macro system of balances only. I can't be bothered with budgeting or bookkeeping detailed expense categories. It keeps track of total cash net worth which is what you need to track.

And rest assured, your interest charges are indeed a bill to be accounted for and should be part of your basic monthly spending.

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Jaden Allred said...

This somehow got me confused if a credit card is considered a bill or a type of payment. Well I think it works both ways. Technically, you pay for your expenses using a credit card but this is something you’d pay in cash post-purchase. It accumulates over the month which you have to settle by the end of the billing period. It makes it a bill because you paying for the amount that you rendered over the month that you have somehow “delayed” in paying in cash. Does that make it any clearer? Haha! Anyway, I really do wish you all the best so that you would be free from your debts soon. I do hope your family learned from this experience, so that they wouldn’t go through all the trouble of being in debt as you were.

Jaden Allred