Cash challenge and paying off debt

8 July 2013
I thought it would be fun to do a cash challenge. I want to challenge everyone to use cash for the rest of the month to see if it helps you get a better perspective on your spending. I have no doubt some of you have already done this and some others might not get anything out of it, but overall, it will open a lot of eyes. The challenge is to use only cash, no cards, not even a debit card until 31 July for ALL your spending - that includes groceries, petrol, paying bills (if it's possible) etc. Handing over a $50 note makes you think about what you're spending in a different way than paying the same amount with a card. Cash seems more real and you tend to think more about making the purchase. Let me know if you're joining the challenge and go here if you're a forum member for the discussion at the forum about it. There is an older post here about organising your money in envelopes.

In addition to the challenge, I'd like to talk about paying off debt today. If you have more than one debt - maybe a couple of credit cards, a car loan and a mortgage, or something similar to that, I think using the snowball method will help you pay that debt off. Dave Ramsey is credited with coming up with the snowball method but there is a very good example of it on Wikipedia here.

I know, because I've done it myself, how difficult it is to pay off debt. It goes on for years. I think the trick is to keep looking for different ways to pays it off so you feel like you've got control of it and you're doing something. So all these little bits and pieces take your mind off the length of time it takes and focuses you on all the small ways there are to pay it back.

Don't forget it's always a good thing to start a change jar and collect your change at the end of the day. I have about $100 in my change jar at the moment but one of my sons outdid that. He deposited $500 from his change jar last week. He's been collecting it in a big tin for about six months. The good thing about this way of saving is that you don't really miss it and unless you break into it and spend it, it's a great way of saving a few tidy amounts that can either go into your savings account or to make an debt payment.

Go back to your tracking records too and see what non-essential spending you're willing to give up. That can be added to your debt payments. It's really satisfying to see the amounts you owe go down every month. The banks don't want you to do it, because it means much less interest for them, but you can do this, it will make a real difference to your life, so stick with it.

As you're paying off your credit cards, the bank might write you a lovely letter saying you're such a good customer they're raising your credit limit. RESIST! Write back and thank them, but ask that the limit is reduced instead. That will make a difference too - you'll feel in control of your money. When the cards are paid off, I think it's a good management strategy to keep one card - the one with with smallest interest rate and get rid of the rest. Interest rates and how they're applied vary in each country so it's a good thing to google your local interest rates and see how much they are.  Here is an extra payment calculator which vividly shows how much difference extra payments make. Here are a number of different calculators set to Australian rates. Have a play around with them with different repayments and times and I'm sure you'll be surprised at how much difference some changes can make.

Of course, it is you who has to put in the effort here. I can talk about it till the cows come home but if you're the one with the debt, it is up to you to make that first step towards accelerating your payments. There is only so much time you can sit in front of your computer and think about making a difference  at some point you either have to do it, or decide that you can't and be okay with that.

What have you done with your own loans? If you have some ideas on ways to pay back loans, please share them in the comments section.


  1. We paid off our mortgage well before it was due in the early nineties. Our friends thought we were mad.We grew all our own veggies either in our garden or on an allotment again everyone thought we were crazy. We only ever had two small loans to buy a moped and then a banger of a car. We couldn't get those paid off fast enough.
    I have used the envelop method but preferred to transfer money into separate accounts to pay the bills later. That was in the days when interest was worth having!!
    Now retired we have enough pension and income to do what we please. However frugal habits die hard!!
    Helen in France

  2. The warm fireplaceJuly 08, 2013 5:45 am

    I use cash only already, it is a brilliant way to keep control of your expenses, we are very fortunate not to have any debt, it is so much easier to simplify your life when what you bring in you are able to divide up into envelopes in cash and keeping to a strict budget isnt like wearing a hairt shirt it is liberating.

  3. Thanks Rhonda,

    I'm not in debt now, but had a few 'spendy' months where I ended up borrowing money from my own savings accounts... I'm in my third month of drawing cash out at the beginning and using the envelope system, and it works a treat.

    I mostly have the same budget each month (for food, travel to work, personal spends etc) but I also put envelopes for specific events I have coming up, even if it's just lunch out with a friend. That way I know the money is there for something I'm looking forward to, and I don't have to worry about keeping some of my weekly spending money back.

    Working in cash does make you think harder!

  4. Hi Rhonda,

    I plan to take your cash challenge, but I fear that I will have a hard time getting my husband on board with it. He uses one credit card each time he puts gas in his truck and doesn't see the need to go inside the gas station to pay ahead of time for his gas. His reasoning is that since we pay off the bill each month in its entirety, without any interest or late charges, it's the same thing as paying cash and doesn't cost him the extra time it would take to go inside the station instead of using the pay at the pump feature. It's hard for me to argue with his logic, although I do agree that seeing the actual cash leave your hands makes a bigger impression on a person. I'll stop charging my gas, though, to comply with the cash only challenge and I'll show him the lower credit card bill next month. Maybe that will convince him to give cash a try.

    We have no mortgage/loans/credit card debt other than the gas that we charge each month. It was not always this way. There was a time when we had four charge cards with several thousand dollars owed on each one. Finally one day a light came on in my brain that said that that was stupid, stupid, stupid!! So my husband and I sat down and agreed between the two of us to stop mindlessly increasing the balances owed on our charge cards and to work hard on getting rid of this debt. We allotted a certain amount each month to be divided among the four cards and we scrimped and worked hard on getting rid of our debt. It was my responsibility to implement how we paid down the cards. I pretty much followed Dave Ramsey's teachings, but not completely. I paid the minimum amount owed each month on three of the cards, and the rest of the money I paid toward the card with the highest interest rate. I was very careful to always pay timely on all four cards so as to avoid any late fees. Dave Ramsey would probably advise allocating the most money toward paying off the card with the smallest balance first, but I opted to pay the most money toward the highest interest rate card. I kept seeing in my mind that higher interest rate climbing and I didn't like that idea. I am also a very visual person, so I also devised a chart to help me see the balances go down each month. I made a chart with four columns, one for each credit card, and I used a red pencil to color in each column with its balance - no computer spreadsheet here - just an old fashioned hand made chart. Then each time I made a payment against a credit card, I erased the amount of the principal reduction shortening the height of the column. Finally after many months of working hard to control our spending and pay down the balances, all the columns were erased to the bottom of the chart. What a wonderful feeling it was to finally get to the bottom of the chart!! I've kept the chart and I can see the faint red marks in each column. Any time that my husband or I am tempted to go into debt again, I get out that chart and it's a real strong incentive to stay out of debt!

    I will try the envelope method for the rest of the money, too. I have to say that I haven't had the courage to have a spare change jar, as I fear that seeing the extra money sitting there would be too tempting to raid and spend recklessly. So I have always used whatever money I have to pay for something and put any extra toward another bill or in the bank. The change never sits around for me to see. Kinda like the old adage: "Out of sight - out of mind". So it will be interesting to see how I do with the envelope method. I may take whatever extra is left in one envelope and move it to another envelope until the last envelope only needs a little bit. I hope that what I'm saying makes sense to you! I can see how the envelope method forces one to really think about budgeting...that will be a good thing. I need to review our budget.

    I can't wait to see how your readers do this month. I'm excited (and a little nervous, too) about this challenge.

    Diane in North Carolina

    1. It makes perfect sense to me, Diane. Thank you for taking the time to give us all an insight into what works for you and your husband. It's obviously worked. I think working on the highest interest rate first makes a lot of sense. We're all different. Some like to work on the smallest amount balance and like to see the debt vanish, then start on the next. I'm in favour of whatever works. :- )

  5. hi.
    yes,i do that!
    the money taht is "over" after bills and food and savings are done,i take out in the ATM to cash. i then wrote down on a paper EVERY purchace i do...
    i`m happy with that and its works for me!
    both me and my partner ar debtfree and have LOW expenses!

  6. We have accumulated a large amount of credit card debt over the past few years, most due to paying for an overseas holiday thinking we could quickly pay it off when we returned but then my husband lost his job unexpectedly. He has only been able to find part time work since then & i had our first baby last year & took 6 months paid leave & have returned to work part time. With both of us on very limited incomes we cannot afford to pay more than the minimum payments so our debt has increased & we aren't getting anywhere. We sold our 2nd car, it wasn't worth anything but it is saving us on running costs. We have a manageable sized mortgage, we bought a small house that was one of the cheapest in our area. I feel like we're drowning & i can't see a way out of this mess. I know it was the worst possible time to start a family but as i'm in my 30's & hubby is in his 40's i didn't want to wait any longer & it never occurred to us that he wouldn't be able to find any work, we even spent all our savings on him getting his truck license thinking it would be easier to find work but that hasn't happened. I bought your book (cheap off eBay!) & am trying to follow as much of your advice as possible, hopefully things will turn around for us soon.

    1. I hope things pick up for you soon, Freckles. xx

    2. Hey Freckles, don't despair.
      Things might seem a bit shitty now, but like everything in life,
      nothing lasts too long.
      In a couple of years you will look back and realize it was just a bump in the road.
      Hang in there and good luck.

    3. I don't know if you will see this 'Freckles', but I really feel for you, as we were in a similar situation about 14 years ago. We were working, no kids, but a big mortgage, when my husband lost his job and was out of work for a year. As he was over 50 without any qualifications, he despaired of ever working again, and as I couldn't pay the mortgage and living expenses out of my wage, I went to our bank (Westpac). I would never have believed it if I'd been told by someone, but they were so kind and helpful. They renegotiated our mortgage so I could keep making payments,and have enough money for living expenses, and when hubby did get another job, we went back to the bank and they re jigged the mortgage again to accomodate our extra income. I've spoken to other people since then, and the fact is that banks do not want to kick people out of their homes if they are finding it difficult to make payments, so it is in your best interest to go to your bank and lay your cards on the table. You might be very relieved to get advice and help from their financial people.
      Oh, another way to make a bit of pin money - look around your house for anything you don't want - even small things like books or kitchen stuff - you would be amazed at what sells on eBay!!!

  7. Hi Rhonda
    What great timing for the new financial year! I have just redone my budget (I do this in January and July) and will take on your cash challenge. I thought I might give insight into what works for me as it may be helpful to someone else.
    We have 4 accounts with our bank (with online banking) one is our savings account with high interest, we make no withdrawals out of this account and get a higher interest rate.
    The second is our incoming account, our wages and everything that comes by way of pay to us goes to this account. The third is the household account, it is the only one with a keycard, I withdraw cash from this account once a week on monday and divide it into my envelope system ( I believe the envelope system is the best I have used :)) the forth is our utilities account for paying bills etc.
    I have contacted each of my billers ( electricity, phone, child sponsorship, etc) and have requested that they direct debit my utilities account when the balance is due. So I don't have to ever manually pay bills unless I use bpay for car rego.
    I have set up permanent weekly transfers from my income account that go out each Friday into my savings, household and utilities.
    I have used this system for over a year now and have minimised my financial juggling stress, we are a family of 6 living on one income so I have to make our money work for us.
    Blessings, Michelle

    1. Excellent system Michelle. Thanks for sharing it with us.

  8. Hi Rhonday,
    I like the idea of the change and will be raiding my purse after I type this to start that easy one.
    I posted a food/grocery challenge on my blog yesterday if any of your readers would like to have a look at Its how can I save $150 this week title. I'm feeling so in control this start of the week knowing what is on the menu before me, the grocery shopping done, my domestic goddess halo is on straight for once!!
    Thanks again, look forward to your daily posts
    Warm regards

  9. I am 100% for the cash envelope system because cash is real and cards are sometimes someone else's money that sometimes we think we owe but don't have to rush to pay it back. My credit card statement in May had a balance of $1,587.23 which I did pay off in full however on the Statement (by law now) it had a breakdown of how long this would take to pay off if you paid the minimum amount due. Are you ready for it....if you paid the minimum due each month on the $1,587.23 balance it would take you 13 years and 1 month (crazy). Not only that the interest would be $1,166.82. If you paid $75.98 a month for 2 years you would only pay $236.49 in interest and not be charged the extra $930.33. This is why banks love credit cards and why banks love to "automatically" increase your credit limit and offer you to increase it. I think most of us at some time or rather think it would be good in the case of an emergency, car repairs or something to have the extra credit up our selves however I can assure you mostly the credit is not used for an emergency and somehow creeps up into normal spending. If you have a car repair or huge expense just ring the bank on the day and get it increased for the repairs. Pay off the repairs and ring the bank and get the limit reduced again. I unfortunately had to spend $1400 on unexpected car repairs myself recently.
    I have seen the Dave Ramsay method and it is excellent and all his books are great.

    For "Freckles" above....maybe one week try the $21 week grocery challenge or even $50 a week challenge....whereby you go to your pantry, freezer and work out your meals using what you have in your cupboard and use the $21 or $50 to buy bread, milk and fruit and veggies and that's it. You cook for the entire week and the $150-$200 you save can go straight into the debt repayment. You could do this every 10 weeks. You would be surprized how much food is in our pantry and freezers yet we still shop weekly/fortnightly out of habit. Regards Kathy A, Brisbane, Australia

    1. Thanks for the advice Kathy, i'll be checking my freezer & pantry tonight to see what is lurking in there & try to limit our grocery shop to $50 this week, i know i could happily eat whatever is available to us at home but my husband is not as on board with this, he refuses to give up soft drinks, flavoured milk & other treats, he was raised by his grandmother & they had very little money & he doesn't want to feel poor again. I also want to shop more at Aldi but he is so set in his ways about his favourite brands & believes aldi food is inferior. I have a lot of work ahead of me!

    2. Hang in there Freckles, sounds like a pretty solid challenge - its hard when you have different ways of seeing and being, bringing change about. What can seem obvious or easy for one person can be way harder for another.
      Bit by bit hopefully, and maybe finding other people living well on less in your local area over time could shift attitudes and life for you both. If you can find support for yourselves it might help as well - planning and managing as parents on low income too, thru local community centres etc, could be helpful. Good luck with it all!

  10. Thanks for sharing that Kathy. It's good they have to show the interest now. Scary!

  11. Add me to the cash challenge! I am going to the forum to sign up after I post this.

    Years ago, when my son was 16, he wanted to go to England for his birthday. We returned every single thing in the house that still had price tags on them. We paid ourselves when we didn't get something to eat or drink out. We ate less meat. We even found things to sell that we didn't need. And, I worked extra.

    What was amazing to me was finding all the things in the house we had mindlessly purchased and never used! One store even refused to refund more money because we returned so much... so we went to their store in another town and returned there! LOL

    It is so easy to overspend using any card -- debit or cash. I have been tracking my spending this month and have discovered that using my debit makes it very easy for me to stop and get gas AND a coffee... The rest of the month is going to be very interesting!

    Enjoying the series on budget, Rhonda! I have waited all weekend for the "next installment!" :)

  12. A cash challenge doesn't quite work for us, as we have a mortgage offset so we leave money in the bank as long as possible every week to get the most interest saving benefit from it. We also have automatic transfers set up every week for our loan payments, (still at the rates we were paying a year ago) and weekly transfers into our children's accounts, so that we don't have to remember to do this.

    I'm the opposite of the cash system... if I have cash in my purse, i will spend it too easily. However, when the bank tracks our debit card transactions and DH enters every purchase made every week into a spreadsheet, it's much more easy to be accountable. We also have a low limit on our 1 credit card, and haven't paid interest on it in a couple of years at least!

    Speaking of new banking reforms, when we were changing things on our home loan lately, we were required to provide a breakdown of our entire budget, including what we spend weekly/monthly on utilities, transport, (including a breakdown of bus tickets, car registration, fuel and servicing), food, entertainment and so on. The loan manager was blown away that I had all those figures at the top of my head, and even more so when I explained that 10 years ago we were servicing a larger loan than currently - on about 2/3 of our current salary. She wished more people paid such close attention to where their money went.

    All the credit goes to people like you and your readers Rhonda! Even though we do things slightly differently, it's these sorts of ideas that help you get out of debt, stay out of debt, and make sure that you focus on the real parts of life, than the commercial aspects!

  13. I agree, Cassandra. It's so interesting and informative to see how you manage your money. We're not all the same and I'm sure your comment will help show some of the readers here how to successfully manage a budget and loan repayments.

  14. Have you been watching the tv series The Years That Made Us (Chris Masters) - ABC?
    It's about the first couple of decades of last century - the two wars and the depression.
    Last night they spoke of the skill sets of survival being passed down through the
    generations of women and now how that seems to be lost.
    It's interesting.

    1. I have watched it. It's so interesting. It brought back a lot of memories to me. And yes, that skill set that we all had handed on to us then no longer survives in the mainstream. I wonder what will happen to those people who have never bother to learn survival skills. I guess many of them have no idea such a skill set exists.

  15. we always arranged to pay back a little more than we thought we could afford. and then we super-budgeted or fund raised in different ways consistently to make the payments. it's just what work for us and we still do it now saving for things as we don't mind shortish periods of super-frugality to get what we want debt free, we enjoy the challenge!

  16. Another comment to freckles... Buy the cans of soft drink in bulk packs when on sale at the supermarket. Usually one will have it on special and then put it in the fridge at home.

    Also with regards to aldi there is a cookbook at aldi for less than $10 and all recipes are using all Aldi products however the book was written by a mother who quietly decided to shop at aldi for a year and change her normal recipes to aldi products. After she did this she told Aldi and then they produced the book.

    It might be a good idea to invest in the book and make recipes and then see if hubby likes the meal or not. It has lots of pictures in the book too and everyday family meals for a family of 4. You could either make the meals and eat them and let the family know afterwards or get them involved in picking which recipe they would like to try. Shopping at aldi is going to save you money and I like my brands too but at the end of the day it's the packaging we are comfortable with which goes in the bin. My motto with aldi is try one of their tins of baked beans if it's not too your liking try another brand of theirs and decide. We do like comfort and change is hard. Cook a family meal using aldi and then decide. Hope that helps regards Kathy A, Brisbane, Australia

    1. I'm planning a secret mission to aldi first thing tomorrow morning while hubby is still asleep, i'll grab the book while i'm there :)

    2. Freckles, one argument for your husband is that it is actually the same door from the same factory with a different label on it. We have a local cheese factory and they make a Brie and a Camembert, and guess what? Same recipe, same ingredients, same machine. One lot of packaging for woolies, another for aldi! Can't be different quality :)

  17. It makes a massive difference to pay with cash. I should try to do it more becuase the money trickles away with credit card and now also with online buying. Thank God I have never liked getting into debt, it just makes me feel tied down, although sometimes it is truly inevitable. But I would rather do without than get into debt.

  18. I have another challenge for myself...spend NO cash or money of any kind aside from essentials with just one small allowance weekly for fun. I am on a very limited budget and trying to pay off debt while paying monthly bills is a challenge in itself.

    My life has been such that I have always had to scrimp even when I was teaching. But, I have what I need and hopefully, in 3 years will be almost debt free.

    Thanks for all the encouragement.

  19. We pretty much do the opposite at our house. We each get a small monthly cash allowance to cover incidentals (the occasional coffee, parking money etc) but the rest goes on our credit card as it has a very good rewards scheme with no fees. We pay it off in full each month, so never pay interest on it and we hold each other accountable with our transactions. It helps that finances is my husband's bread and butter :-)


  20. Hi Rhonda,
    This series came at just the right time for me. At this point in our lives we taking care of my elderly parents and their health is declining. We need to rid ourselves of 2,000 on a credit card and start an emergency fund before I can even consider quitting my part-time job to take care of them. We decided this week to only live off my husbands check and put mine in the bank to save up to pay the card off easier. He makes just enough to cover the monthly expenses with nothing left over for savings, gifts, or entertainment. Since more hours became available at my office, I hope to pick those up to possibly start an emergency fund as well.
    I've been reading and listening to Dave Ramsey and he is great motivation. I even purchased a cash envelope wallet from a shop on etsy and love it. Thanks for the motivation to use cash for everything again as I've gotten out of the habit this summer. Good luck to all your readers, I know we can all do this and it will make our lives much less worrisome. Thanks for a wonderful blog.

  21. Dear Rhonda,
    I am loving your budget posts just now. Lots of excellent reading and very good information in your comments section too. i must do a change jar what a great idea.
    thanks again for all your hard work that goes into making your blog what it is.

  22. Helen in the StatesJuly 08, 2013 11:25 pm

    Dear Rhonda,
    Thank you for another inspiring and practical post. Although this is not strictly on topic, I would love to learn from you and your readers what purchases/acquisitions you have made that could be considered "snowball savings." This is Amy Dacyczyn's (The Tightwad Gazette) term for money spent on items, etc. which will then save you money. For example, buying a sewing machine to make items and Christmas presents at a lower cost or buying a clothesline to eliminate using a gas or electric dryer or buying seeds to grow your own vegetables, or buying canning supplies or a freezer to store those vegetables ( and also other food purchased on sale). Those are common "snowball savings" but I'm hoping others can add to the list and share their creative ideas. I think it relates to the topic of your post because the savings are another way to pay down debt.
    ps many thanks for your good wishes on our Fourth of July Independence Day :)

  23. The last loan we had was for a car a few years back - it was when we'd just started paying that back (30 month term) that I "saw the light" and by saving like mad and overhauling our finances we paid it off in 13 months instead, saving a decent sum in interest. i know a number of folk using your envelope system and it works well for them - we prefer to use a cashback credit card for day to day spending, it's set to pay off in full each month and we just go through the account transferring money in for our personal spends to cover it. works well for us and we usually earn around £100 cashback across the year on our modest spending.

  24. hi Rhonda

    Thank god for you - what a great focus this week! You've turned my morning round already...
    I've been worrying about money and can feel quite paralysed just thinking and freaking out about it, and how to turn things around. No major credit cards, but bills coming in and rego due shortly and so on, and no extra income in sight just now. I can go into a bit of a spin mentally!
    If youve been on a low income for a while as it is, you can feel less motivated to 'go even harder' at things as well.
    Having someone offer a firm hand and pointing us in a positive direction of using money is a lifesaver - reading how you and others have come out the other side of debt.
    Its hard in winter, as well, with the need to stay warm and a tendency to eat more with it. I dont have kids at home to worry about just now, but its still fairly expensive to live, and not as motivating without others around sometimes.
    However, the idea of looking carefully and clearly at what I do have - in the fridge, in my cupboard, in the garden sounds helpful. Even a bit of silverbeet, some herbs, a bit of lettuce and other greens make a difference, I know this.
    When I use what I have, what is here already, rather than heading out the door to buy more things, I feel a bit calmer and a bit more in control of it. Having Woolies ten minutes down the road is a bit of a trap: I can nip out and get more things so easily... Having money in envelopes could be good, micro as those amounts might be just now. Looking the money monster in the face could be empowering - so I can shift from
    Oh god! what a mess - Im going back to bed aaagh!! its never going to get better!
    Ok, what can I work with today, just today, for a start.
    I feel like it may be possible to think and live differently. Sharing the effort with a community of people definitely improves how I feel about getting more balance in my life. Thanks again, and have a great week there everyone! Will let you know how I get on.
    much love to you all

  25. Margaret BlairJuly 09, 2013 4:14 pm

    Hi Rhonda , I took on board your idea to write everything down that I spent in the last week . I started last Tuesday morning and finished on Monday night. I spent a total of $87. at the Supermarket. 2 meals out (one was my birthday)where all the girls paid for their own lunch,mine came to $15. with Seniors Discount. The second was for local fish and chips for 2 and the total was $15. I spent $20. at the craft shop and $11. for a gift for a friend .I spent another $15. at the Post Office. A total of $163. Now I wouldn't normally have lunch out or fish and chips but we had been to Chocolatefest at Latrobe on Sunday ,didn't even buy anything chocolate and I was so tired after visiting all the venues it was easier to buy something than come home and cook! My 72 year old legs are not what they used to be! I have never used a spread sheet but I'm going to give it a go. We don't actually have any debt and all my bills are in credit as I do B/pay every fortnight, small sums of money to all the Authorities i.e. Phone, Gas, Rates and Water Rates. Electricity ,Insurances are paid monthly by Direct Debit. There are never any nasty surprises. We grow some vegies in the garden (all Garlic and Leeks) for the year, also lettuce most of the year. tomato for summer and the excess we freeze at the moment we have spring onion, cabbage, bok choy parsley broccoli, silverbeet and a few potatoes.. All my fruit for jam i.e. blackcurrant, redcurrant, gooseberries, strawberries and raspberries. We have apples and pears and crab apples too. I have an abundance of lemons. I also get the chance to buy a lamb and a share in a steer which keeps us in meat. All in all I think we do quite well . Love to hear all the stories from all your readers. Of course your book is always close by for me to read or refer to. Another thing I do is make my laundry liquid! Your recipe thankyou! All the best to you and Hanno from Margaret in Tasmania



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