Don't Do Debt.com : "But, all I know is debt..."

"But, all I know is debt..."

Credit cards are as much a part of our society as change and the instant gratification that drives it. A friend recently said to me, I appreciate what you're doing, Susan, but everyone lives on credit cards. All I know is debt. How do you address that?

It's true that most people are condititioned to use credit cards. Credit cards are a fundamental part of society and spending money on credit cards drives our economy. Credit cards get us through various times in life: emergencies, housing costs, unexpected expenses, travelling, weddings/engagements, holiday spending, groceries, clothes, etc. You name it, credit cards are there for us. Sadly, at great expense to the average cardholder.

The sad state of affairs is this reality: There are 1.2 BILLION bank & retail credit cards in circulation in N. America. VERY FEW cardholders know how to correctly use a credit card. Granted, there is a very small percentage of people who refuse to use credit cards, but of the rest who do, only a small percentage are financially savvy enough to use credit cards and avoid complications of debt. By complications I mean this:

-Too much debt compared to what you owe (high debt to income ratio).
-Difficulty budgeting and saving money after you make minimum payments on credit cards.
-Nearly maxed out limits that (A) prohibit seriously decreasing the balance you pay interest on or (B) don't give you a cushion should a true emergency arise (the reason many give as credit card use to begin with).
-Confusion over which bills to pay first - ie: basics bills vs. car/mortgage vs. credit cards.
-No money saved: The old rule used to be that having a contingency fund, or 3 months of your salary, should be saved in case of an emergency. Few people have a contingency fund in spite of the dramatic number of lay-offs over the past few years.

So what I am, one small person in this huge business, doing about this problem? I am simply advocating to those who haven't started with credit cards to think twice. And if you're going the high interest debt route, be sure to understand how credit cards work BEFORE you get in over your head. It happens to the best of 'em.

Overspending is certainly a problem with credit cards, but many people don't realize how the "little" penalties add up to great expense and perpetuate a person's debt-load. A silly word, but I encourage people to be "debt-ucated". Imagine the state of your financial affairs if your money wasn't obligated to paying down the paper money you charged up years ago.

Posted by Susan Powell on November 09, 2003 at 07:59 PM | Permalink

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February 2004