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I’m hoping you can help me with a question that seems very hard to google for some reason.

I have $20K in debt on 4 cards, and I have set up a plan to pay off the deferred card on time, and the highest interest after that while still paying minimums on everything.

I have roughly $2K a month in expenses. Some come directly from my checking account but about $1200 in my monthly expenses I use credit cards (groceries, cable, gas, etc)

My question is this: can I use my credit cards for the monthly expenses, or should I really be using my debit card for expenses until I have all the credit cards paid off?

Thank you! Forgive me if this is a simple question.

Ben Miller
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Chelsea
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    I would add to ronjohn and Ben Miller's answers: as soon as the cards are paid off, close the accounts and dispose of the cards with extreme prejudice. Life without debt is much more enjoyable. – pojo-guy Jan 23 '18 at 03:17
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    Cut cable, use cash for groceries and possibly gas. No eating out or vacations. Get your expenses lower. Use the found income to pay off the cards. – Pete B. Jan 23 '18 at 11:32
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    One counter-intuitive piece of advice a financial adviser gave me that has helped me a lot is to put a small amount of your income in a savings account every month or paycheck. The reason is so that you are saving up some money in case of an unexpected expense, like car trouble, disease or injury, or whatever. If you can save up a little money in a savings account while you pay off your debt, then when an unexpected expense comes along, you can pay for it with savings instead of adding it on to the credit card debt. – Todd Wilcox Jan 23 '18 at 13:02
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    @pojo That seems like poor advice. Credit cards, when used responsibly (i.e., paid off in full every month) are a good thing for the consumer. If you're not using credit cards, I question your financial reasoning. – user428517 Jan 23 '18 at 18:38
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    @sgroves: Because not everyone has the self-discipline to use credit cards responsibly. If someone is prone to making expensive impulse purchases on the cards (e.g. "retail therapy"), then it's better not to have them readily available. – jamesqf Jan 23 '18 at 18:54
  • @jamesqf Surely. But I think people, in general, are capable of learning how to use a credit card responsibly. Recommending they just give up isn't the way to go. – user428517 Jan 23 '18 at 18:56
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    @sgroves learning and doing are different. There's a reason there is $1T in outstanding US consumer debt right now. – quid Jan 23 '18 at 19:54
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    @quid. I'm well aware of that. Doesn't excuse giving bad advice. Yes, some people will always be bad with money, but not giving them accurate information is even worse. A blanket recommendation to not use credit cards is terrible advice. Credit cards are great for consumers. Using cash for everything is not. – user428517 Jan 23 '18 at 21:14
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    @sgroves the pitfalls of credit cards shouldn't be ignored when addressing someone who is in a debt problem. I'll agree closing the accounts isn't the best advice, but there are definitely people who don't handle easy credit in a way that benefits them. – quid Jan 23 '18 at 21:41
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    @quid Again, I agree. But we don't know OP is one of those people. I just don't see a reason to hide the truth from a rando on the internet. – user428517 Jan 23 '18 at 21:49
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    @sgroves Credit cards are good things for banks. Their promotion by banks is predicated on the statistics that say (a) consumers, on average, will spend 25% more per purchase with credit cards versus cash, and (b) consumer on average keep a running balance which ensures a steady cash flow. Neither is good for consumers. See https://www.creditcards.com/credit-card-news/bank-yields-loans-1276.php , https://www.nytimes.com/2017/10/19/business/credit-cards-debt-banks.html?mtrref=www.google.com&gwh=AB24F5CEFCB939A826227A9BFFC1A36F&gwt=pay . – pojo-guy Jan 24 '18 at 01:42
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    For the record, I have lived without credit cards long enough that I have no credit rating. I have no issues buying anything I want without debt, including cars and houses BECAUSE I gave up the credit card habit. If you need to put something on the credit card, you can't afford it. – pojo-guy Jan 24 '18 at 01:45
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    @sgroves Why are credit cards a good thing for the consumer? Is this specific to the US? – dasdingonesin Jan 24 '18 at 13:25
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    After you cut up the credit cards, melt them. Your only question is, what is the best way to melt them? If you have a powerful, say, cigar lighter - use that. At a pinch, just use some matches. It's important that you melt them to the point where they are totally unrecognizable. – Fattie Jan 24 '18 at 23:38
  • @dasdingonesin Credit cards give you rewards for each dollar you spend. If a consumer uses credit cards responsibly, i.e., pays them off every month and doesn't spend more than they would if they were using cash, credit cards essentially give you free money (paid for by those who can't pay off cards on time). Additionally, US consumers' CC purchases are protected by government regulations, and it's incredibly easy to dispute or remove charges. I try to use a credit card for as much of my spending as possible. It's just smart. There are ZERO downsides if you are responsible and have a budget. – user428517 Jan 25 '18 at 00:58
  • Is everyone in this thread unaware of rewards points...? Yes, credit cards are bad for many consumers. But they don't have to be. It's entirely up to the consumer. You can only spend what you choose to spend, after all. – user428517 Jan 25 '18 at 01:02
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    @sgroves "rewards" when converted to cash value amount to a $0.005 return for every dollar spent (plus or minus depending on the exact rewards program).To earn $1,000 in rewards the consumer needs to spend $200,000. When you consider that the cash payer will, on average, spend $150,000 for the same goods and services that the average credit card user does, the cash payer has gained $49,000 more than the average credit card user by simple virtue of using cash. Rewards are rounding error's worth of cash as a psychological marketing ploy. – pojo-guy Jan 25 '18 at 03:13
  • The idea of suggesting that rewards point scams are a reason for someone with staggering financial problems, and extremely proven credit card addiction .. to have a credit card ... is incredibly unusual. It's exactly like telling a last-ditch, DT'd, street-living alcoholic that "red wine contains phenols that are good for you." This is a case with demonstrated, proven, extreme, card addiction and the horrific results. – Fattie Jan 26 '18 at 11:49
  • Oh My God. If you actually read down to the final comments on the last answer, the OP has in fact now got a new card, they are starting up with. Absolutely amazing. – Fattie Jan 26 '18 at 11:55
  • you misunderstand, I have an old card with nothing on it. I have to pay a couple bills a month and until i have enough cash in my debit account (won’t til a couple paychecks in, because I’ve been just putting everything on cards (dumb I see now) and THEN paying all my paycheck to the cards. But once I have a pad of 1k in my checking account I will just transfer all my automatic debits for heat, light, internet etc to automatic debit. Hope that makes sense – Chelsea Jan 27 '18 at 14:07

5 Answers5

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While you have credit card balances that are accruing interest, you should not be charging anything new to the credit cards. There are a few reasons for this.

  1. When your credit card has a balance that is accruing interest, then any new charges will start accruing additional interest immediately. That means each purchase you make is costing you much more than you think it is, and it will be that much longer before you get it all paid off.

  2. Your goal is to pay off your credit card debt, but if you keep adding to your credit card debt with new purchases, you have now given yourself a moving target. It is much nicer to see that balance drop with each monthly statement as you work toward your goal. Continuing to make purchases on your credit card would be working against yourself.

  3. You’ve got a plan in place to pay off your cards, which is great. Hopefully, as part of your plan you have a personal budget to ensure that you aren’t spending more than you bring in. This is crucial so that you don’t find yourself in debt again. To help yourself with this, you want to only spend money that you currently have. By putting purchases on a credit card, you might be tempted to spend more than your budget allows. Cash, checks, and debit cards require that you have the money before you spend.

Until you are completely debt free, stick with cash, check, or debit card for your new purchases. After you have paid all your credit card balances down to zero and no longer have any credit card payments, ask yourself at that time if you think you have the discipline to use a credit card as if it were a debit card, only charging what you already have in the bank to pay off in full every month. If you aren’t sure, just stick with the debit card and cash.

Ben Miller
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    I don't understand your second point. Apart from the interest issue covered in the first point, this looks zero-sum to me. Is it just about about the psychological effect? – CodesInChaos Jan 23 '18 at 09:52
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    @CodesInChaos Yes, point 2 is psychological. – Ben Miller Jan 23 '18 at 11:21
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    Don't underestimate the importance of psychology. Sticking to a budget is hard. Sticking to a budget while paying off debt at the same time is even harder because it is so easy to convince yourself to pay less towards the debt because you'll catch up later. One method that helps people stick to their budget is to pay off debt based on balance instead of interest rate. As credit cards get paid off entirely, it motivates people to continue, whereas paying down a large debt isn't as gratifying. Lowest balance first isn't the best mathematical choice but it can be the more successful choice. – Dunk Jan 23 '18 at 20:41
  • If we were robots I would disagree with this answer entirely merely because the math says you should use the card for the rewards points and pay it off immediately. As in, daily, pay off whatever you put on it that day so no interest accrues. But because we're humans, and humans are really good for forgetting to do things like that, I fully agree with this answer. – corsiKa Jan 23 '18 at 22:41
  • @corsika why pay twice? Pay once and be done with it. The rewards from using a credit card are much less than the average rate of return over time of a good small cap mutual fund. – pojo-guy Jan 24 '18 at 04:41
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    @pojo-guy Sure, but they're not less than the 0% you get on the debit card. Either way you're putting it on a card but one gives rewards and the other doesn't. I mean, if OP is spending $1200 a month, they could be getting 24 a month in rewards. That's almost 300 dollars a year of free money! But if they aren't disciplined in paying it off as soon as it goes on, then that 300 in rewards will cost you far more in interest. That's why I say robots should get the free rewards dollars, but humans should consider letting it go and just not use the credit card. – corsiKa Jan 24 '18 at 15:47
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    @corsiKa Some banks allow you to setup automatic CC payment at the end of the month, so you can sort of be like robot. But that's only an option once the debt is payed and if you are pretty sure you don't spend more then you have – Maxim Jan 24 '18 at 16:39
  • @corsiKa "rewards" work out to rougly $0.005 per dollar spent, which amounts to a rounding error. In order to realize $1000 you need to spend $200,000. On average, cash users spend 25% less than credit card users, so they get the equivalent purchases for $150,000, leaving them $49,000 ahead of the card user. It's about consumer behavior. Using cash changes how you think and feel about purchases. – pojo-guy Jan 25 '18 at 15:16
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    You must have poor rewards programs. I get 2 cents back for every dollar I spend on most purchases up to a certain amount per month (which I've only reached twice.) But you're absolutely right about the psychological differences between cash and credit - that's literally my entire thesis "if we were robots..." – corsiKa Jan 25 '18 at 15:32
  • I have no rewards plan myself, except the one I create myself. At 2 cents on he collar, you still realize only 4k to my 50K. – pojo-guy Jan 25 '18 at 17:36
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    Hey Ben (and everyone)! thanks for all the help on this. I severely underestimated how much a month I was paying in interest. I have stopped using the cards that have balances, took on some additional work, and also am on a severely cut budget on groceries. I've paid off one full card, am partially through my second highest interest rate card and have gone from 20,100 in debt to 13,500 from when I posted this question to today (January 23-March7th) So I feel pretty proud and optimistic that I'll be out of debt and saving money by november. Thanks everyone! – Chelsea Mar 07 '18 at 18:47
  • @Chelsea That is great to hear! Thanks for the update. If you haven’t seen it already, you may want to check out the answers on Oversimplify it for me: the correct order of investing for some tips on what to do after you are debt free. – Ben Miller Mar 07 '18 at 20:25
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can I use my credit cards for the monthly expenses

Sure you can. But I think you're really asking if it's wise to use the card for monthly expenses.

My answer is NO, especially if you're in so much debt because of overspending.

Advice from someone who paid off a lot more than $20K in CC debt: stick the CCs in the back of your metaphorical sock drawer, and let a debit card and spreadsheet be your friend until you've paid it all off (because you can't spend what you don't have).

RonJohn
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    These make a lot of sense. Thank you both very much I don’t know why I hadnt really considered the new purchases are where the interest is most- I don’t really understand interest at all as it turns out – Chelsea Jan 23 '18 at 04:53
  • and after it's been paid off as well to ensure you don't get back into debt – Aequitas Jan 23 '18 at 05:37
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    @Aequitas we started using a CC again after ensuring ourselves that we'd broken the "spend what you don't have" habit. That was about 2 years ago. Now we view the CC as a tool for getting rewards money and having any fraud happen on it instead of our checking account. – RonJohn Jan 23 '18 at 07:03
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While in my heart, I respect Ben's answer, let me play devil's advocate.

You don't mention the details for each card, the credit line, interest rate current balance. Say you have one card that offers 2% cash or equivalent miles. If you cycle the monthly $1200 thru this card, that's $14400 in charges, and $288 in perks you'll get back. That amount shouldn't prompt you into making bad choices, but it should be a consideration.

Ideally, you stick to your plan, pay the debt, highest rate first, and as part of the math, get one card with the best perk to zero balance, and use that as you suggest.

Your question isn't too simple, the opposite is true. It's part of the fundamental debate, one side believing that "debt is evil" and "there is no responsible use of credit cards", the other side "use cards to maximize your benefits, including rewards, purchase protection, etc, while being careful to pay in full each month." Of course, there are a range of people between these extremes. The key point is that you follow a path that's right for you.

If you are able to come out of this debt having changed the habits that got you into trouble in the first place, you'd be on track to continue to manage your finances including the cards. If not, the other answers kick in, pay the cards off and say goodbye to them.

JTP - Apologise to Monica
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    There are many people that start out innocently trying to chase 1.5-2% rewards and end up in debt paying 15-20% interest. It looks like the OP is included in that group. I do use a cashback rewards card, but before you get back into using credit cards, I would strongly recommend resetting your debt to zero and getting some time in paying cash for things. Think of it as practice before the training wheels come off. And if you decide you don’t have the balance (no pun intended) necessary to remove the training wheels, there is no shame in avoiding credit altogether. – Ben Miller Jan 23 '18 at 13:43
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    We don't have the backstory on what got her into this debt. Other than that, I'd agree with you, Ben – JTP - Apologise to Monica Jan 23 '18 at 13:49
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    This. If OP is ready to deal with credit card responsibly, using a new card (with no balance and paid in full every month) for monthly expenses, while earning 2% back, is better than using debit card with no perks. Catch is, it has to be paid in full every month. If not, it is digging the hole deeper. – Peter M. - stands for Monica Jan 24 '18 at 14:20
  • It's exactly like saying "Cigarettes have a couple wonderful effects - the smell and taste. Of course, be careful not to get lung caner, but used carefully you can enjoy those benefits." – Fattie Jan 26 '18 at 11:52
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    Fattie, thank you for sharing your analogy which helps members understand that you are clearly in the "Debt is evil" camp. It's actually close to my own - I have stated that The David (The entertainer Dave Ramsey follows believe he speaks with infallibility) treats debt use similar to drinking alcohol. I've gone so far as to agree that those who have a long history of misuse need to go cold turkey. I hope you are successful with your non-use. I'll enjoy paying for my kid's last college year in full with the rewards accumulated over the last decades. $43K and growing. – JTP - Apologise to Monica Jan 26 '18 at 12:50
  • @JoeTaxpayer boy wouldn't I have loved to put our kids' tuitions on the CC. Sadly, they charge a 4% "convenience fee" (presumably to counter the 4% fee charged by the banks). – RonJohn Mar 09 '19 at 19:02
  • I hope you did not misread my comment. I am using $45,000 worth of credit card rewards to pay for her college with that cash. The money is sent to them electronically, I don’t pay by credit card – JTP - Apologise to Monica Mar 09 '19 at 19:06
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I think a better method, IF you have the self-discipline to control your spending (and I do realize that may not be the case), would be to get a new card that offers 0% interest for a year or so, and use that for current expenses while you pay off the current cards.

Of course this assumes that you're 1) going to be able to pay off, or at least significantly reduce, the amount on the current cards; and 2) will have enough extra to pay off the 0% card at the end of the period. If you don't, then using cash/debit for current expenses, and cutting those expenses to the bone, is the better solution.

jamesqf
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  • I can't make sense of this. If the OP uses all income to pay down the debt, then where does the money come from to pay down the new card at the end of the intro period? And, if the OP is pushing money to a new budget for that, then how does it increase the amount available to pay down current debt? – jpaugh Jan 24 '18 at 02:14
  • If the new card has a lower (eventual) interest rate than one of the current cards and can be leveraged to pay that card's balance in full (at least by the end of the intro period), then it makes sense. Otherwise... 5 cards is worse than 4, right? – jpaugh Jan 24 '18 at 02:16
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    @jpaugh - James' advice would help OP juggle the debt at the lowest cost. To take it to an extreme, if these zero cards had no limit (e.g. no time limit at 0%, or no end to the new cards/offers) OP would turn high rate debt into zero interest, and either pay it off faster without the burden of interest, or stretch out the payments a bit and build the EF, without worrying that she's saving in a .1% interest account but still owing 18% money. The advice is sound, but not for everyone, I'll grant you that. – JTP - Apologise to Monica Jan 24 '18 at 13:38
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    @jpaugh I've used this method to successfully pay off a sizable amount of debt. I kept a stack of 0% offers laying around and rotated my remaining debt to a new 0% card when the current offer was about to expire. This might seem a little nutty but at 15% (pretty good for a CC), $20,000 in debt will cost you about $250 a month. Being able to apply that to debt (or eat) instead makes a big difference. – JimmyJames Jan 24 '18 at 14:53
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    @jpaugh: My simple assumption is that the OP will have enough income to pay off the interest-bearing cards before the 0% period on the new card runs out. As others have said, a more complicated strategy is to keep doing balance transfers to new 0% cards, which will cost about 3-4% per year, rather than the 15% or more you'd pay on existing balances. Of course if your goal is to get out of debt, it's important to ensure that the total outstanding balance declines over time. – jamesqf Jan 25 '18 at 04:26
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As the other answers say there are good reasons not to use your credit cards but I would add the one time you should use them is if there is anything you have to pay for online. Generally I would assume that online shopping is one of the things that you have cut out in your plan, but something like concert-tickets for someone's birthday or necessary travel may require an online purchase and in that case the extra protections afforded by the credit card are worthwhile. Do not use your debit card online.

Dragonel
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    I agree that from a consumer protection aspect, credit cards are usually better than debit cards. However, if you do choose to use a credit card that is currently accruing interest, that extra protection is coming at a very steep cost. – Ben Miller Jan 23 '18 at 16:19
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    While the legal requirements for debit cards are much more lax than credit cards in terms of cardholder liability, in practice it is not difficult (in the USA, at least) to find a debit card with similar liabilities to credit cards. For example, I have two debit cards. One has zero liability, the other is capped at $25. Assuming, of course, that I report fraudulent activity in a timely manner. I could easily use either for a card-not-present authorization and still protect myself from liability for fraud. –  Jan 23 '18 at 18:18
  • Thank you all so much for these comments. I have a credit card with a zero balance that I just haven’t been using because I paid off a big debt and didn’t want to put anything on it. I will use that card, I guess I really don’t know anything about credit cards (as obvious by my debt) but do I need to pay it off the day I make a purchase to avoid interest or just by the due date in full? – Chelsea Jan 24 '18 at 00:52
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    The only sure way to avoid interest is to close the card and shred it once you have confirmation the account is closed. At this stage, given the history presented and the current status, anything less is begging for trouble. – pojo-guy Jan 24 '18 at 06:49
  • If you have 20 grand in debt, *YOU SHOULD NOT BE BUYING ANYTHING ONLINE*. There is, utterly, nothing you should be buying online if you are 20k in debt. – Fattie Jan 24 '18 at 23:41
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    @Chelsea you don't need to pay it off to avoid interest until the due date of the very next statement that comes after the transaction. Example - I purchase something January 5th. February 1st, I get a statement. It says my due date is February 26th. I need to pay off that balance by February 26th, or I pay interest on the purchase. – schizoid04 Jan 25 '18 at 03:46
  • @Fattie - are you suggesting there are no necessities that are cheaper and better to purchase on line? Or that somehow the online purchase is always gong to cost more or include something not needed? – JTP - Apologise to Monica Jan 26 '18 at 02:41
  • Joe - if your financial position is that disastrous, there is nothing you need to buy. As you imply, only true necessities. (Example, "flour", "eggs".) I really can't think of any necessities you buy online: Online shopping is a frivolity for rich people. – Fattie Jan 26 '18 at 11:43
  • @Fattie - Amazon has changed the dynamics of shopping. My last purchase was underwear. For the same brand, Amazon was cheaper than the store at the mall I'd go to. The mall is 12 miles away. Forget the time involved, 24 car-miles are typically priced at 50cents/mile total cost. $12 for the car alone. Sundries such as soap, shampoo, toilet paper etc, are similar with free shipping. And the non-visit to a store eliminates potential impulse buys. From here on, we can agree to disagree. I doubt we'd agree on anything else. – JTP - Apologise to Monica Jan 26 '18 at 13:01
  • Ah yes sorry- I didn’t mean to use the credit cards for online shopping- just grocery stores, transit, internet (I cut cable) It seems dumb but I just hadn’t thought about how the interest was adding into the mix. I transferred all my auto payments (gas/electric/heat) to the cc with zero balance so I can pay it off when I get a new paycheck on 1/31. – Chelsea Jan 27 '18 at 13:58
  • Yeah- I got into the mess by living with the budget i had when I shared costs- then two medical problems that took me out of work before I had insurance- now I have insurance so my doctors bills are mostly covered (In 2015/2016 I blew through all my savings on doctors and then put everything on credit cards and then things just started to get out of control because I couldn’t work for 5 weeks. But now my income is steady, though it varies I take home about 1750 every two weeks, which covers rent and expenses with about 1k to pay towards cards a pay period – Chelsea Jan 27 '18 at 14:01