Simple Secrets

of Living Debt-Free

From those who don’t owe a penny
by Jeff Yeager

Special from Bottom Line/Personal
January 1, 2010

I f you can’t afford to pay for it now, you can’t afford it. When my grandfather told me that 40 years ago, it didn’t sound nearly as radical as it does today. Grandpa borrowed money only once in his life — to buy a house — and even then he paid it off long before the bank required.

Of course, times are different now. Everything costs so much more. There’s no way you can live comfortably these days without borrowing money and going into debt.

Wait a minute! If you believe those last three sentences, then have we got an article for you. Those three sentences are as false as Grandpa’s teeth.

I picked the brains of some leading personal finance experts and my own network of volunteer “Miser Advisers” to get their thoughts on living comfortably without going into debt — or at least without borrowing to the extent that most Americans do today. Here are their secrets…

Be afraid, be very afraid, of credit cards. To paraphrase Jack Nicholson’s character in the movie A Few Good Men, “Credit cards? You can’t handle the credit cards!” Roughly 60% of active credit card accounts are not paid off every month. Many people think that they can game the system — earn lots of bonus points or cash back by frequently using a credit card — and pay it off every month. In reality, most people just end up in debt.

Pay in cash, and you certainly will spend a lot less. According to, the average credit card purchase ends up costing 112% more than the purchase price (that’s right, more than twice as much) because we fail to pay it off right away.

To me, there are only a few wise uses of a credit card. These include establishing your credit history… genuine emergencies… and transactions such as car rentals that require a card.

Practice the art of procrastination. When it comes to debt-free living, procrastination can be a virtue, not a vice. We’ve all had buyer’s remorse. That’s the feeling of regret you get when you buy something that disappoints you. Buyer’s remorse often is compounded by a sense of guilt when you buy something on credit. The purchase has disappointed you, and you haven’t even paid for it yet.

Practice procrastination when it comes to discretionary purchases, particularly if you plan to use a credit card. Wait at least one week between the time you see an item in a store or online and the time you go back to buy it. Chances are good that you will decide that you don’t want it after all. And whenever you do buy, save your receipts so that you can return items you regret for a full refund.

Shine up that used car. When it comes to buying an automobile, the smart money is almost always on buying a used (but not abused) vehicle, so you let the guy who buys the new car pay the 20% or more in value that most new cars lose in their first year of ownership.

Still have that urge-to-splurge on a new car? Anthony Manganiello, author of The Debt-Free Millionaire, has this simple advice that helps him resist the call — keep your car really clean. He says that a sparkling used car feels like a new car and helps him resist the unending barrage of car commercials.

Buy a home, not a castle. Granted, few people can afford to buy a home without taking out a mortgage, but that doesn’t mean that you need to live your entire life with a mortgage hanging over your head, as many Americans do. The secret is to choose a house costing no more than 75% of the maximum amount you can qualify to borrow and then aggressively paying off your mortgage early.

“The priority is to get into something you can afford and then work on trading up or improving the house you have,” says personal finance columnist Gregory Karp in his book Living Rich by Spending Smart.

Once you’re in that affordable home, begin making extra principal payments to pay off the loan early. If in the course of a year you make just one extra monthly payment, you can knock years and many thousands of dollars in interest off your mortgage.

Ask yourself, “When is Christmas next year?” That sounds like a stupid question, but as Heather Wagenhals of the Unlock Your Wealth Foundation points out, many people are financially blindsided every year by holidays, vacations and other “spending events” that can be planned for well in advance.

The same goes for “emergencies.” Certainly it is possible to have a truly unanticipated financial emergency, but for many people, almost everything is an emergency because they’ve failed to plan — and save — for even those things that can be anticipated. A car with 100,000 miles on it needing repairs shouldn’t be an emergency. You know it’s going to need repairs… you just don’t know exactly when.

Figure out what Grandpa would do. If you still aren’t convinced that it’s possible to live debt free, or nearly so, like previous generations of Americans did, keep track of everything you spend money on for a month. Then look at that list, and ask yourself one simple question, “Did my grandparents spend money on that?” A second or third automobile? Unlikely. More than one TV? Doubtful. Meals in restaurants, other than for very special occasions? Rarely. Pet-grooming services? Not a chance. Bottled water? Are you crazy? Tanning salons? Fuggedaboutit.

Bottom Line/Personal interviewed Jeff Yeager, dubbed “The Ultimate Cheapskate.” He honed his cheapskating skills during 25 years of working with under-funded nonprofit agencies. He lives in Accokeek, Maryland, and is author of The Ultimate Cheapskate’s Road Map to True Riches (Broadway).