Digging Out of Debt

updated 02/17/1997 AT 01:00 AM EST

originally published 02/17/1997 AT 01:00 AM EST

The December holidays are long gone, but for many of us the bills remain. "Most Americans never really pay off holiday debt," says Dave Ramsey, a Nashville financial counselor and the author of Financial Peace: Restoring Financial Hope to You and Your Family. According to Ramsey, the typical American carries five to seven credit cards with an average per-card balance of $1,670. Credit-card abuse, he says, is "a culturalized disease."

Ramsey himself has been a victim. Three years after graduating from the University of Tennessee-Knoxville with a degree in business administration in 1982, he had amassed $4 million in property holdings by renovating and reselling Nashville real estate. But his reliance on short-term bank loans left him financially overextended, and in 1988 he and his wife, Sharon, were forced into bankruptcy.

In the years since, Ramsey has bounced back. Now 36 and one mortgage payment away from being debt-free, he says, he hosts a nationally syndicated radio show, The Money Game, has counseled nearly 3,000 financially strapped couples, and is the country's leading critic of credit. Recently he shared a few of his money management tips with PEOPLE correspondent Lorna Grisby.

Why are we all in so much debt?

I call it the Kellogg's kid down inside of you that likes the frosting. When it comes to finances, he or she rules: "If I want something I'm going to get it, and I'm going to get it now!" I tell folks, if they're ever going to get control, they have to manage that kid. The adult has to make the decisions. It's called growing up.

But aren't we often encouraged to buy now, pay later?

That's the problem. The most actively marketed product in our society is the credit card, and nobody looks at it as a product except the people doing it. I hate those things. It's never a good idea to use them. I don't even want you to have one.

What's so terrible about credit cards?

When you use plastic instead of cash, you spend more because you don't emotionally register the pain. If you lay down $50 at lunch, you'll notice if it's a $50 bill. With a credit card, you don't even realize what you paid.

But how do you avoid charging—during the holidays, say—when you're short on cash?

Someone has to draw a line in the sand. Anyone who's ever going to change his life has to say, "That's enough! This year I'm going to bake you a pie, honey. That's it. No ugly ties. No silk scarf that you never wear. I'm going to make you a quilt."

Even so, isn't eliminating debt a long-term process?

The fun thing is, it turns around pretty quick for some people if they get dramatic. If they're willing even to sell a car. If they're willing to do things like that, we see a lot of people pay off all their debt, except their homes, in one year.

What about something less dramatic?

Try the cash-in-the-envelope system. On certain ongoing expenses, Sharon and I put the amount of monthly cash for that category into an envelope instead of writing checks. For instance, with food, we put all of our food-money cash in an envelope at the beginning of the month. Then we buy all our food out of that envelope—no cheating. So if we go out to eat then, and there's money in that envelope, we don't feel a tinge of guilt.

What if you see something you can afford, but just don't have the cash on you?

Well, we use the bank debit card. But when you use it, it comes directly out of your checking account.

Are there cases when a loan is acceptable? When buying a car, for instance, or a home?

Cars, no. Ride a bicycle before you get a car payment. The only thing I lighten up on a little bit is the mortgage. But I still want you to have the mind-set of "I'm going to get this paid off as quick as I can." You have to get mad to get out of debt. Because if you don't, the next time somebody shoves a credit card in your face—and if you're not mad about it—you go, "Oh, good, thanks. God blessed me again."

Can you ever just have fun and splurge—without guilt?

Absolutely. We're not beyond-belief tightwads. We blow money. But you know when you blow money? When you have enough that you don't notice. Live on less than you make, regardless of what you make, and then you'll be able to do anything you want a few years later.

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