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Living Credit Card-to-Credit Card: Escape from Revolving Debt Hell

Many people live paycheck-to-paycheck. Income goes into your checking account, and all of it’s gone before next payday. That’s scary.

Even scarier? Living credit card-to-credit card.

In other words, using credit cards that already have balances to make most of your monthly purchases. Then, when you get paid, you use most of your paycheck to “clear room” on your credit card balance so you can do the same thing next month. I was guilty of this tactic long, long ago, and have known others. I got out. One friend declared bankruptcy. Some are still trapped.

How Do We Let This Happen?

People start living credit card-to-credit card when they’re already in way too much debt. The credit cards are probably almost maxed out. They have other debts that have to be paid.

What happens is this: The money comes in. First you pay your biggest expenses that you have to pay with cash, such as your rent or mortgage, auto payment, and any other debts like student loans.

Then, you probably only have about half of your income left over (maybe less if your home and car payments are way over your head). Now you have to pay the credit card men. After you make your minimum credit card payments, you would only have a few hundred dollars left over. Even if you were living really frugally (which, if you’re in this situation, you probably aren’t), those few hundred dollars are not enough to feed your lifestyle.

So what do you do? You put almost all of your left-over cash towards your credit cards (paying a bit more than the minimum). Then, you use what’s left of available credit on those cards to get by the rest of the month.

Here’s an Example

Let’s say you earn $30,000 a year. After taxes and deductions, you take home about $1,750 a month. Assuming you pay $700 cash towards your housing and $350 towards a car payment, student loans, or other fixed loans, you have $700 left.

Let’s look at your credit cards. Perhaps you have three cards with balances of $5,000, $2,000, and $8,000 for a grand total of $15,000 in credit card debt. (Yeah, that’s a lot of debt, but I can assure you, I’ve seen worse). Let’s assume, for simplicity’s sake, that all the cards have a 15% APR and require a 2% minimum payment.

That means you’ll owe the credit cards, at a minimum, $300 a month. Of that $300, you’re paying $188 in interest, meaning you’re only paying $112 towards your $15,000 debt!

Now, you have $400 left over. If you were really frugal, you could stick to that $400 budget every month. But, since you’re only paying $112 towards your credit card principal, you’re going to be poor for a very, very long time. Not wanting to feel poor, you put that $400 towards your credit card balances and keep up your carefree spending ways with the plastic (after all, you still need to eat). So you use those same credit cards to charge your monthly expenses.

Even if you only charge, say $500 back onto your cards, you’ve gone a month and you’ve only reduced your credit card debt by $12. That’s right. $12!!! What happens if you charge more than $500? What happens if you lose your income? You are one step away from total financial disaster.

How to Get Out from Living Credit Card-to-Credit Card

This is the time to cut up those credit cards! Some people can get out of debt and hang onto your credit cards; but not you. You have to stop using them 100%. Forget about your precious credit score. It’s probably not that great anyway, and you’re one step away from missing your payments and having your credit really bottom out. You can rebuild your credit later. Right now, it’s time to wage war on debt.

Next, you need to figure out a way to either up the amount of your credit card payments (and get by on the cash you have left) or increase your income. Preferably both.

Yes, it’s time to get a second job.

Since you already don’t have much to spend on little things every month, you need to find away to trim the big fat: Your car and your housing payments. Find a roommate, move to a smaller place, or better yet, swallow your pride and move in with mom and dad.

Driving too much car? Sell it. In a lease? Get out of it.

Forget about all the other get out of debt tips you might read until you have done these big things. Because if you’re living credit card-to-credit card like the example above, you are in crisis mode!

Have you ever lived credit card-to-credit card? What was it like? And how did you get out?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

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