Food & Fitness

The Living Healthy in the Real World Guide to Budgeting, Part Three: Debts and Loans

Check out the first two sessions of our Budgeting mini-series:

Part One: Understanding Your Expenses

Part Two: Making Sacrifices

Part Three: Debts and Loans

The most important piece of information I can give you right now is this: Do. Not. EVER. Get. Into. Credit card debt. Seriously. I cringe every time I hear that someone “forgot” to pay their credit card bill, or just “didn’t seem to have the money to pay it off this month”.

If you cannot afford to pay off your credit card this month, then you cannot afford to buy whatever it is you’ve been buying with your credit card. Put the credit card away if you cannot control your spending.

Credit card companies make their money off of interest. The credit card company that I’m with has an interest rate of about 20%, and most credit card companies have interest rates of 10% higher than that. As soon as you get caught up with paying interest rates, you’re going to be locked in there for the long haul.

The other issue about credit card debt is that it looks very bad on your credit rating. This is problematic if, in the future, you want to invest in a big-ticket item. It is also an issue if you want to apply for a different credit card or any kind of loan. Credit card debt tells the banks that you don’t know how to manage your money. If you don’t know how to manage your money, why would they want to give you any?

If it’s too late and you’re already in credit card debt, then what you need to do is get out of debt NOW. Cut back on as much as you can (and I mean really cut back and pay only for the very basic of necessities) and live incredibly frugally until your debts have been paid. And then make sure to never get into credit card debt again.

The simple fact of the matter is that there is a serious problem if you find yourself unable to pay your credit card bills. Some people simply can’t have a credit card because they go crazy with spending. If you know that you’re this way, then deliberately put the credit card away and pay with cash as much as you can. It will be a good reminder for you to literally see the money being handed over, and when you’re primarily dealing with cash, you’ll only be spending money on what you can afford.

Credit cards are important, however, in order to build up credit ratings. When I applied for a bank loan for my condo, I had had my credit card for about five years, so I had the opportunity in the past five years to build up my credit rating. And it paid off: my credit rating was perfect; the only issue that the bank had was that I wasn’t making enough money (right now) in order to pay my mortgage (but that’s because I was only able to work part-time because I was a full-time student. Now I am no longer a full-time student. Please someone hire me). If you know that you can control your spending, having a credit card and using it for nearly every purchase you make is an excellent idea in order to build your credentials.

What happens if you can’t pay your credit card bill because there’s really next to no money in your bank account, but you don’t want to go into credit card debt? Bank of mom and dad ๐Ÿ˜‰ Well, I’m only half-joking. Sometimes borrowing money from a close friend or family member is a good idea because it will give you more incentive to pay them back as soon as possible out of guilt; you wouldn’t want to leave them hanging. But if you do go the route of loaning money from a friend (in which case you won’t be paying interest), make sure that you also do pay them back immediately. And if you find that you’re still struggling to make ends meet, then it’s time to re-assess your lifestyle and perhaps find a better-paying job.

As we discussed in Part One, be sure that you track any money that you loan from someone else (or any money that you loan to someone else). Check what debts you owe and figure out how to pay them back right away. Your bank account will be happy to pay far less interest, and your mind will be at ease.

How do you feel about credit cards? Have you ever (or do you still) struggle with debt?

Coming up next is Part Four: Eating Healthy on a Budget!


  1. Monica

    Wow, awesome article. I had a small amount of credit card debt in college that I carried around with me for years. It’s somewhat embarrassing – I mean, I was a math major who couldn’t see how screwed I was being by my credit card company and their ridiculous interest rates. I think people get used to monthly payments and just accept it as the status quo. I now have only one credit card and I pay it off every month. End of story.

  2. Tracey @ I'm Not Superhuman

    This was great. I never got into credit card debt because I always figured that if the money wasnโ€™t in my account, I shouldnโ€™t use it. Even in college it never made sense to me to spend more than you have. I think that mindset is the single greatest reason we were able to survive when my husband got laid off. Not having any debt made that so much easier. My theory is, if I couldnโ€™t pay for it with debit, donโ€™t buy it on credit. We pay off the lump sum every month. (And the only reason I ever use credit over debit is because of the points and cash back I accrue.)

  3. asithi

    I had a friend in college who would charge up $10k every school year. Then he would spend all summer working to pay it off. He was able to get good paying jobs during the summer because it was during the start of the dotcom boom. Anyone who know his way around a computer was able to get a $20/hr job during the summer. I think his way of living is the path of financial destruction. You get used to carrying a certain debt level, that you don’t change your behavior even when you cannot afford it anymore.

    As for me, I only have a mortgage and student loans debt. I love using my credit card for the reward points, but I always pay it off at the end of the month.

  4. Sagan Morrow

    Monica- That’s the problem, isn’t it? We get so used to the “status quo” and just see it as natural. We think that “everyone has some amount of debt, so it doesn’t really matter”. But that’s like saying “everyone has health problems from eating unhealthy foods, so it doesn’t really matter”. It DOES matter, and we don’t HAVE to live like that.

    Tracey- That’s been my mindset, too. The idea of spending more than I have just never occurred to me.

    Asithi- Eek! Agreed, it’s just a vicious cycle to go with that kind of lifestyle, I think.

  5. Holly

    I actually didn’t get my first credit card until I was 23! However, that backfired (a little) when I went to buy my first car and didn’t have any credit established. Oops. ๐Ÿ™‚ Thankfully my dad co-signed, though.

    I do have a credit card now, but I have always – always – paid them off every month. The exception is a couple of credit cards from stores that offered 0% financing (when I bought my TV, computer, couch…big purchases). I pay those off monthly. But I can’t imagine paying interest on a CC. I had SO many friends in college rack up thousands of dollars in debt – and some are still paying it off! (8 years later…). I think it scared me from treating a CC like that.

  6. Meg

    Hey, great article. I got myself into a serious credit hole during my divorce and then further in debt during a period of unemployment (long story). I am just now climbing my way back out with careful financial planning and a serious safety net of good friends.

    Now to do something about those student loans….

  7. sophia

    Debts scare me.
    You know, I have this loan company hounding me every single day. It’s from my old membership with a gym, and I tried to cancel after a month because I never use it and uh, I kind of lost a LOT of weight from ED….and they would not let me. And so I just changed credit cards, and somehow they still traced me and am calling me every single day. Gosh, it’s annoying, and I don’t know what to do.

  8. Sagan Morrow

    Holly- It frightens me to see friends who have good jobs, live with their parents, and go to school with their parents paying part of their tuition, and they’re STILL racking up credit card debt. *shudder*.

    Meg- It’s always good to have friends! I just read an article yesterday about the impact that divorces can have on personal finances- gah. Sounds like things can certainly get messy.

    Sophia- That WOULD be annoying. What are they hounding you about? I hope you can get it sorted out soon!

    Steve- Absolutely. Just because we’re healthy in one aspect of life, doesn’t mean we’re healthy in all aspects. Gotta have a broad range of healthiness!

  9. Geosomin

    I was lucky that in university I only had a student credit card…a max of $800. Still more than I could affourd, but I’m glad it was that low. It was hard enough paying that off after (of course I’d maxed it out paying bills I couldn’t afford). Racking up money I didn’t have is just absurd.
    When I read this I had to comment to add: don’t ever get a student loan unless you absolutely must. 10 years after university and I’m finally paying off all but one of mine and hubby’s student loans. Student loan debt is especially evil – they don’t care who you are. They own your ass…in Canada you can’t even declare bankruptcy on a student loan…they own your ass until it’s paid and are NOT kind in trying to get it back any way they can. God forbid you lose your job for a while…they don’t care. (me? bitter? nah!) Maybe I had an evil run of things, but nothing brings on stress when you’ve graduated and are dead broke than suddenly having to fight off student loan creditors threatening you with all manner of nasty for $$ you don’t have. I had friends that would go on trips to use up the leftover loan $$ they had. Utterly dumb…

    It took us years (and finally getting decent paying jobs) to pay them down. Luckily our experience changed us budget wise – we’ve never really spent money we don’t have. We always paid our bills and did our best to live on what was leftover (which often wasn’t much at all). It paid off when we bought our house – we’d built up decent credit.
    So many people just ignore debt instead of facing it head on…it’s worth it to face up to it. To own what you have outright. Very satisfying ๐Ÿ™‚

  10. love2eatinpa

    great info! debt is scary.
    we try to use only one credit card, one that gives us frequent flyer miles, and we always pay if off at the end of the month. knowing that we want/need to pay it off at the end of the month helps to keep a cap on things.

  11. Biz

    Loved reading this post. My step-son got a credit card at 18. When I asked him what the interest rate was, he shrugged his shoulders! He and his girlfriend would eat out at Maggiano’s and steak houses – obviously living above their means but if you put it on a credit card, I think to him its not spending any money! Still trying to get it through to him.

    My husband and I ditched the credit cards 10 years ago – our only debt is our mortgage! ๐Ÿ˜€ It is nice saving each month and seeing that build – its a wonderful feeling!

  12. Dr. J

    This is all really great stuff, Sagan!

    Staying out of debt is so critical to having an easier life. I really caution people ion areas like insurance to never get any if you can avoid it, and NEVER too much. They are betting that you won’t need it, and they are almost always right.

    I have one credit card and always pay off the balance at the end of the month. The company hates me, but that’s their problem!

  13. Sagan Morrow

    Geosomin- GREAT advice! Many students take out a student loan just because they CAN, not realizing that often they don’t really NEED it. It’s better to not take out loans if we can help it.

    Love2eatinpa- It’s always useful if there are benefits- like frequent flier miles- on the credit card!

    Biz- That’s wonderful- you and your husband are way ahead of most of society! Hopefully your stepson will get a handle on his finances before it spirals out of control.

    Dr. J- To be honest, I disagree on insurance. I figure that you never know WHAT’S going to happen, and it’s better to be safe than sorry. Sure, for some things it’s a non-issue, but I always make sure I get insurance when I go travelling- and I am definitely getting insurance on the condo that I bought. But, that being said, you’re right; there’s no need to go overboard and spend TOO much on insurance. It’s all about balance ๐Ÿ™‚

  14. Miz

    at one point in our married lives we had MOUNTAINS of credit card debt
    it was an unavoidable thing (truly long story but we were forced to maintain 2 households) and the STRESS of it all was horrible.

    when we finally paid it down I vowed never again unless that precise situation occurred ๐Ÿ™‚
    I grew up in a family who paid for cars in FULL or didnt get a new car and who paid cc bills off every month.
    thats how I wanna be too.

  15. Sagan Morrow

    Diane- Congratulations! Building savings, I think, should be an ongoing, neverending process ๐Ÿ™‚

    Vered- I’ve read the book but haven’t seen the film (I’m nearly always disappointed by the end product of the movie adaptation of books), but you’re right- the main character’s in a horrific amount of debt, and then at the end of it she manages it as though it’s nothing. In reality, someone with that much debt would be paying it back for years and years, and it would be a major struggle.

    Miz- That’s a good aspiration to have ๐Ÿ˜‰

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