Finance Foundations: Credit Cards (Part 1) – Paying Down Debt

credit cards, finance foundations

My friend John and I often met for coffee, to work on various collaborations and projects we shared. (A ubiquitous thing in Los Angeles: we work at our jobs, but we work on our projects. Walk into a Starbucks, or any hole-in-the-wall serving Intelligensia coffee to handlebar Mustaches, and you’ll find plenty of the latter going down.)

I always paid with a credit card. John always paid with his debit card.

Being the raging personal finance dork I am, I couldn’t contain myself and finally asked why he didn’t use a credit card.

“I never really thought about it,” John admitted. “I guess because my parents told me not to use credit cards. They really messed up their credit when they were younger. And my sister had a spending problem, and racked up a ton of credit card debt. So I always saw credit cards as this evil thing to avoid.”

From John’s point of view, this made a lot of sense. John’s an extremely smart, college-educated dude. He may have the faint inkling there’s an ambiguous benefit to using credit cards… but the negative phantasms of credit cards are far more material than any mystical benefit he could derive.

So isn’t John better off just choosing the lesser evil?

Afterall, he’s probably already better off than most of our peers.

He’s certainly in better shape than a former Boss of mine, whose idea of a credit card “perk” is carrying over a balance month to month, and not paying down the full amount right away!

Seriously. That’s how he pitched the benefits of our credit card, when I told him we used the same card:

“Yeah, isn’t it great? You can spend money today and not have to pay for it until months later!”

The Road to Easy or Road to Extraordinary?

It’s tempting for John or any of us to say, “Hey, I’m doing better than Joe Schmoe. I’m ahead of the masses, so I’m doing pretty well, right?”


Because the Masses, the Ordinary, the Average… they’re making a fine mess of their financial health. According to an analysis of Federal Reserve statistics, the Average American credit card debt stands at $15,279. The Average weighs himself down with a habit of consumerism, a habit supported by incessant advertising, Saturday morning cartoons, and an education system that encourages us to Do as Others Do.

For those working in Entertainment, the problem is amplified by an atmosphere saturated with glamour and designer. Excess and debt have become the norm.

So when it comes to properly managing our money, we have no one to look towards for guidance.

If you want to be extraordinary, we need to reprogram our minds from this way of thinking.

Old Hollywood Studios Versus Extraordinary New Hollywood

Times change, and those who refuse to adapt, die. This is as true for Hollywood as it is true for how we manage money

Look at the Hollywood movie studios: during the Golden Decade, from 1995 to 2005, the prosperity looked as if it’d last forever. MoWs, Long Form Television, limited means of distribution… it seemed the party would never end.

Then very quickly, the DVD market collapsed.

And everything changed.

Historically, Hollywood studios operated at a ten percent profit. The DVD business represented fifty percent of this profit. With all factors being equal, the moment the DVD market collapsed, the studio’s profit margin was cut in half.

This profit is never coming back.

Consumers have moved to a digital marketplace. While the studios desperately grab at the remaining scraps of profits, other companies (Netflix, Amazon, Hulu, iTunes, etc.) have swooped in and supplied that marketplace. These companies have found ways to prosper in this shift.

That’s where we want to be. We want to be nimble and flexible, skipping down the Road of Extraordinary while everyone else is just satisfied with trudging down the Road of Average

The First Step on the Road of Extraordinary

The first step is a simple one: eliminate any and all credit card debt.

I mean, absolutely crush your debt. Make Harvey Weinstein response to Troy Duffy’s egomania look like a happy ending.

If you have student loans, or you’ve been racking up credit card debt via Cancun spring break, car payments and Louboutins, this may not be easy. But it is simple: pay off your credit card debt.

Do this before starting an emergency fund, before you start investing or opening your small business. It’s not as glam as investing in BitCoins or in start-ups, but that’s all just pure Gyration. The thing about Gyration: even if you do it better than a Tijuana stripper in a booty-shake contest, it won’t take you down the Road of Extraordinary. Here’s why:

  1. You’re forking over tons of cash money over to credit card companies. This is called “interest,” and when interest is working against you, you’re basically pissing away your hard earned paycheck, drip by drip. The bigger the balance you carry over month to month, the more interest the credit card companies take.
    Couple this with one of those store credit cards you sign up for to save yourself 30% on a day’s purchase, and you’re getting double whammied. I did this recently after a big luggage purchase from Macy’s — knowingly full well the massive interest I’d get straddled with, should I not pay off the balance within the first month. Sure enough, the APR is 24.50% — more than 10 points higher than the national average of 14%.
  2. Your credit score suffers. 30 percent of your credit score is determined by how much debt you carry. I’ll get into more of what exactly your credit score is comprised of, and what determines your credit score, but for now, know that a better credit score is going to save you thousands of dollars in the future.
  3. Debt affects you emotionally. It’s a freaking weight on your shoulders. I’ve seen what it does to people, especially people who are used to living a certain lifestyle. It consumes them. It affects their business, because they can no longer play the long game, they’re only interested in the short game. So their business suffers. Their personal life and family life suffers.Debt is the enemy that we must set out to crush – not credit cards.

6 Steps to Pay off Credit Card Debt

Below are the six steps you’ll need to eliminate your debt, and start taking control of your credit cards:

  1. List out all your credit cards, and figure out exactly how much you own on each one. Yup, it’s going to suck worse than the CHARLIE’S ANGELS TV reboot of 2011, but you have to do it. You have to face the dragon. Start by writing down the name of the credit card, the total amount you owe, the APR, and the current monthly minimum payment. You can get all this information from your online banking profile, or by calling the number on the back of your credit card and asking.
  2. Starting paying down those cards. There are two methodologies: pay off the highest APR, or the card with the least amount of debt (dubbed “Snowball method,” by David Ramsey). Mathematically, paying off the highest APR will save you more money, and other personal finance dorks masturbate over which method is better. My thought? Pick one, and do it. The most important thing is step 5, below.
    (If forced to choose one, I pick the Snowball method — any fiduciary lost is regained by the psychological benefit of seeing one of these cards knocked off your list.)
  3. Cut your spending – yup, have to do this too, a task only slightly worse than sitting through three episodes of 2011’s THE PLAYBOY CLUB (jeez, 2011 was a banner year for shitty television). You can’t focus on paying down debt while you continue spending money like a fiend. That’s applying a Bandaid to a bullet hole. Stop the bleeding, then treat the wound, and your financial health will heal.
  4. Pay the minimums on your other cards while you pay down as much as you can on the card of your choice.
  5. On this one card, increase the payment amount as high as possible. Not sure how much you can afford? This month, increase your payment by an extra $50. Then an extra $100. Then double it. Don’t stop until it’s uncomfortable. That’s when you know you’re attacking your debt with enough aggression.
  6. Get started. Now. Don’t wait.


Once you’ve started, you’re firmly on the Road towards Extraordinary — and we’ll keep you moving down that Road, one foot at a time.


Photo Credit: bitzcelt 

2 comments… add one

  • k

    This is f’in weird because I just paid down my credit card this morning (is the universe collapsing or something?), using some of my hard-earned savings to do so. Couldn’t handle that stupid finance charge. It KILLED me. At least I’m not throwing money at my credit card company now.

    • Chris Ming

      Haha congratulations! Dumping $$ on the finance charge is the worst, so good for you. So for you, where do you think you’d redirect the money that’s not going to this credit card? Back into savings, or for things like investments? Or something specific that you’re saving for?

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