You can’t talk about saving money without addressing the question of credit.  Hardly a week goes by when I don’t get at least one credit card solicitation in the mail.

Unfortunately, the prevalence of credit cards can bring problems.  Credit cards are great for emergencies or for people (like me) who hate to carry cash or for people who like to have a monthly accounting of their expenditures.  If you pay your card off every month, there’s no problem.

The dangers come when people forget that credit cards are real money.  Using a card to buy something you can’t afford otherwise can lead to a vicious cycle.  The interest rates are high and you can pay for years for a temporary pleasure.  Even worse is when people do the balance transfer waltz, moving balances from one card to the next to take advantage of introductory offers — all the while continuing to charge.

If you are carrying credit card balances, reducing or eliminating them is a great way of saving money.  There are very few legal investments that let you earn 18% a year — a pretty standard credit card interest rate. It makes more sense to pay off high-interest debt (especially when the interest isn’t deductible) than it does to sock cash away in a 1.5% savings account. 

To start getting rid of your credit card balances, calculate how much extra you can save each month (the earlier blogs in this series will help) and put that amount each month toward the balance on your highest interest card while making your usual payments on any other cards.  Once that balance is paid off, go to the next highest interest, until you are credit card debt-free.

Of course, there’s one very difficult step left.  While you are paying off these balances, you can’t be adding to the balances.  That means no credit cards.  If you can’t pay for it, you can’t buy it.  It’s hard, but you will get used to it.  Having to pay cash will help you decide what you need to buy as opposed to what you want to buy.  And that distinction may be the most important financial skill you ever learn.