“Debit, please” not “credit fees”

📖 Note: This post is from the archives. It may reflect outdated views or a previous name. This blog post explores sensitive topics and has been altered to remove direct mentions of people due to safety concerns.

I started working full-time at sixteen as a junior software developer. I made a tech salary but had no guidance or trusted adults to learn from. I made stupid decisions and spent years avoiding my money habits instead of working on changing them. A year ago I met the bottom of a rock. Hello! Nice to meet you. I was stressed, feeling trapped, because of the pandemic and my partner and I managed maxed out my credit cards on a bunch of pointless purchases. Spending provided me with such a big dopamine boost even though it was followed by an even larger hit of guilt and regret. In the last twelve months, I’ve worked on my money habits, consolidated and reduced my debt load and am actively working towards financial independence. I want to share what I’ve learned.

I used to believe that credit cards were a must because of the points and insurance they offer but they are also a slippery slope. Credit cards’ importance also dipped for me when I discovered KOHO and similar products. Pre-paid debit cards with competitive cash back, insurance, and other benefits. Why buy on credit when I could have the same features and pay no interest? I took out all of the cards from my wallet and carefully considered what each one was for, both what I intended to use it for, and what I actually used it for. I simplified my wallet from five credit cards to one pre-paid debit card. I use KOHO for all of my disposable income purchases. I have setup KOHO to load $400 every month. This money can be spent without guilt but not without consideration. Since its a fixed amount per month, I am more careful about what I buy. For example, now that I’m vaccinated, I’ll walk to the nearest convenience store instead of ordering on Uber Eats ($5.99 for delivery? 😔).

Now that I have KOHO, I don’t need credit cards but sometimes I need to buy something before I have the money in hand, such as a work computer or a flight to a work event (remember those?). This is where a line of credit could be beneficial instead of a credit card. They generally have lower interest rates and are more inconvenient compared to credit cards because funds have to be manually transferred to a checking account. This makes them AWESOME! I want to wait six to twelve months until my next credit application but when I can, I want to close all of my credit cards and get an equivalent line of credit. With that said, most banks allow you to put cash down as collateral for lines of credit. Let’s say you have $5k. You could open a line of credit with a limit of $5k and use that money as collateral so it’s no risk but still improves your credit score. If you make a mistake, you can close the account and get back the difference. This takes having the money in the first place but is a stretch goal. I would like to eventually have a line of credit that’s “pre-paid” providing me with an asset and financial safety.

Something I learned from the FIRE (financial independence, retire early) community is the idea of the “runway fund”. I am working towards having three months in the bank, eventually six, twelve, twenty-four, and thirty-six months. This is going to take a long time to build but the idea is to have enough money to be able to pay for normal life expenses for that time without worry. The book Your Money or Your Life by Vicki Robin and subreddits r/personalfinance, r/FIREyFemmes are awesome resources. Have you been in a situation where your CEO said something morally incomprehensible or your company endorsed a cause you disagreed with? I have but I was always met with panic because speaking up could mean losing my livelihood (and I’m not the only mouth I feed). A runway provides you with the flexibility to choose who you work with and worry less about where your next paycheque is coming from. Hopefully one day I won’t panic if I get laid off or need to part jobs for ethical reasons. An emergency fund, on the other hand, is something that only exists for emergencies (things like vet bills, your bike got stolen, or voiding a lease on an unsafe apartment). The tricky thing about these accounts is that you need to replace them when you use them. I had $10k in an account but after emergency after emergency during 2020, I went into debt when the account ran dry. I am working on refilling this account but savings goals take time. This can be very discouraging but $100 here and there counts. It may take five years to get there but I will get there.

The best thing you can do is consolidate your debt into lower interest products, use pre-paid debit and save. The less money to predatory corporations, the better.