Making Cash The New Credit

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(CBS) These days, when Mary Ellen McGuire shops, she pays with cash. No credit cards for her, because the pile of bills on her kitchen table is a constant reminder of her crisis.

One of the bills has already gone to a debt collector, CBS News correspondent Randall Pinkston reports. It's a Bank of America card with a balance of $20,011.92.

McGuire says her slide into economic ruin was gradual. What was her biggest mistake?

"Telling myself that I can beat the bank, I can, we'll win and we'll get out of this mess," she said. "After a while, you just know you can't."

Like McGuire, millions of American consumers miscalculated. Now they're turning away from credit cards in droves.

At his Groton, Conn., office, credit counselor Scott Wilson convinces clients that going green - with cash - makes an immediate difference.

"Having to have the cash /will help prevent some of this impulsive purchasing people have grown accustomed to," he said.

The key to reducing the "impulse spending" is knowing where your money goes.

To do that, experts say, create a budget.

One familiar strategy, divide your cash into separate envelopes according to priorities.

Envelope #1 is for mortgage or rent

Envelope #2 is for household expenses, including utility bills and food.

Envelope #3 is for unexpected expenses, such as repairs and illness.

Once you've identified your priorities, stick with your plan - don't rob the rent money to go to the movies.

Use the 24 hour rule: wait a day on potential purchases to determine if it's a need or a want.

"I feel my priority is to pay my mortgage, take care of my children," McGuire said.

How's she paying her credit debt?

"When I can, as little as I can," she said.

While experts say it may seem impossible to pay off big credit card bills, it can be done.

But, using cash is a good first step to getting your financial house in order.

"It was difficult at first;" said Deb Tolliver, cash-only advocate. "I mean the mind-set of making yourself, disciplining."

In Greenwood, Ind., it took the Tollivers four years to pay off their $70, 000 credit card debt and go all cash. One trick that worked for them was paying off small bills first.

"You start getting excited about it because it is only $200 more until you pay off this next one and so let's see if we can cut something and get it paid off this month as opposed to next month," she said.

Mary Ellen McGuire is just beginning.

"I'll pay my debt off and get on with life," she said.

But she's living within her means, no matter how long it takes.

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