Monday, March 18, 2013

Smart Money: Credit Card Time-Out

One technique for getting your spending under control is to put your credit cards into a "time out".
Now stop and take a breath. The way you reacted to that sentence was a good indicator of how much trouble you are probably having with credit card debt. If you reacted with a shrug and the thought that it might be a sensible thing to do, you probably don't need to do it. But if you reacted with a racing heart and a feeling of "oh my gosh, what would I do?"You are probably in need of a time out for your credit cards.  

Here's how it works - you take all your credit cards, remove them from your wallet and put them in a secure place - a drawer, safe deposit box, under your bed, etc.  Then you pledge to yourself that you will not use them, barring a drastic emergency, for a period of time - typically 90 days to six months.  

Is it hard?  Yes, of course it is, but I think it is a worthwhile exercise.  I've done it several times myself and currently my Discover card is in a time out while I'm working to pay off the $2,000 worth of car repairs I have on it.  

The benefit to it, is just to put yourself into a different mindset that it is possible to live without your credit cards and to put yourself on a cash basis.  That is such a typical American mindset, that we have just unlimited funds available from our credit cards.  We've just forgotten that we have X amount of money on payday and when it's gone, it's gone.  That just isn't a reality most of us have lived with for a lot of years. 

It's interesting, on a very basic level, we have a completely different relationship with plastic money than we do with paper money.  I've read several books lately where they have done experiments that revolve around money and whether they are talking about stealing, spending, or earning, the results are totally different based on whether the monetary reward is actual cash, plastic, or tokens that can be exchanged for real money (like checks).  That's just the way our goofy little brains work.  

So, the question is - will you do it?  If so, how long are you willing to commit to?  If you won't, why not? 

If you'd like to see previous posts about women and finance, click the Smart Money link below.



Great idea Adrian - this spoke to me. I am in a permanent time out until I can get my spending under control. My husband said I need to get rid of ALL the plastic (even debit cards) because he agrees you still spend more when paper is not involved.

I think people are in for a rude awakening next year with the expiration of the current tax breaks. I think the whole country needs a credit time out.

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