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Control Credit Card Debt

10.10.2011 by Miles Williams //

For many Americans paying with credit cards is now commonplace. Once the monthly balance cannot be paid in full credit card debt creeps in like a homewrecker – and this is where many people find themselves today, in credit card debt.  In some cases, people are filing for bankruptcy due to their excessive credit card debt.  With so many different things dependent on a person’s credit score, this can be devastating to young families, leaving them without the means to make big-ticket purchases like replacing a refrigerator or stove.

Credit card debt in America

45% of Americans have credit card debt.  8.3% have a balance of over $9,000 on their card accounts.  The average credit card debt is $2,000.  Surprisingly, 23% of Americans do not even have a credit card.

Matt’s note: Betsy and I belong to that surprising 23%. 🙂

These statistics are compiled in part from the Federal Reserve’s Survey of Consumer Finances taken every three years.  The 2007 survey showed that revolving debt, which includes credit cards was $904 billion out the total consumer debt of $2.6 trillion.  This figure includes student loans, auto loans, mortgages, and other non-revolving debt.

The numbers may not mean much to you, but if you’re part of that 8.3% perhaps you should take notice.

8.3% may seem like a small number, but the average income for those people is only $48,600 per year.  That $9,000 along with other living expenses and non-revolving debt is usually a lot of money.  On top of the large debt amount are the interest rates credit card companies charge each month for the “privilege” of using their money.  The average credit card interest rate is 16.80%, so if you are paying only minimum payments each month a lot of your debt could be interest charges rather than the principle on the account.

So the general idea – and necessity for some people – is to be part of that 32% or even the 23% in some cases rather than the 8.3%.  This may not be easy to accomplish, given the rising cost of food, fuel, and other necessities, but it can be done.  You have to develop a plan and stick to it, resolving to control your credit card debt, or eliminate it altogether.

Build your debt reduction plan

The key to controlling your credit card debt is in controlling your spending overall.  Of course, American society does not make this easy since our economy relies on spending.  However, in this case, you can’t think of the Country’s economy, but rather your personal economy.  If you have the willpower, you can get a grip on your finances rather quickly.

  • Put your credit cards away for one month.  Instead of pulling out the plastic to make purchases, use cold, hard cash.  This does not include a check.  It’s important for you to see where the money goes, and how fast it can disappear from your pocket.  The only exception to this rule is in paying bills that require a check, like your mortgage or the rent.  Write out the checks and deduct them from your bank account before you withdraw any money to spend.  In using cash instead of your credit card or checking account, you will have a better idea of your spending habits.
  • Free up more cash by reducing other expenses.  Take a closer look at some of the amenities you have.  You may consider changing your cell phone plan to a less expensive one, cancelling or changing your cable/satellite plan, and buying less expensive brands for groceries.  Conserving energy will also put a few more dollars in your pocket.  Take that money you are saving, and use it to pay off debt – especially those high interest credit cards.
  • Buy only what you need, not what you want.  Knowing the difference between your needs and your wants is important.  For example, you need food, but you don’t need dinner in an expensive restaurant.  Transportation is a need, but not in a $50,000 BMW.  Clothing for your children is a need, but not the $100 designer jeans for your 10-year-old that is still growing.

Impulse buying is the biggest culprit in creating credit card debt.  Those purchases are usually wants, not needs.  If there is something you need, then buy it.  But if it’s something you can do without, keep your money in your wallet.  If it is something that you really want, only buy it if you can pay cash for it without compromising your ability to save for retirement or pay off debt; but until you have no credit card debt you should avoid those purchases, no matter how much you want them.  If you stick with your plan, you can be a member of that 32% that does not contribute a single penny to the $904 billion in revolving debt, and you’ll have more money in your pocket to boot!

Categories // Debt, Money Management Tags // credit cards, Debt, Finances, frugal, goals, interest, Reduce Expenses

[How To] Be Content With What You Have

10.05.2011 by Guest Author //

How To Be Content With What You HaveJust like Matt, I’m a personal finance blogger (albeit my blog is solely about credit cards, don’t worry though, it’s about using them responsibly). But whether it’s credit cards, budgeting, or investing, all financial bloggers have one thing in common… sharing information about making (or saving) more money. And there’s nothing wrong with that, the more financially savvy we are, the better!

I also think it’s important to take a breather every once in a while. Meaning, instead of being concerned with what we don’t have we need remind ourselves what we do have; because learning how to be content with what we have is a critical component of being successful with our finances. Given the housing market and other economic woes we’ve had over the last few months, now is a great time to dive into the contentment issue.

The $1.6 million bathtub

Part of human nature is the more we get, the more we want (a never-ending cycle of more, more, more). Yesterday on the radio they were talking about some new billionaire heiresses in LA (by way of the UK) who are apparently trying to outspend each other. I didn’t catch the details (nor do I care to hear them) but it goes something like this…

The 22 year-old daughter, Petra, bought the Spelling’s mansion for $85 million this summer. Her 27 year-old sister Tamara is now trying to outdo her. “The house we are looking at will make Petra’s house look like a guest house.” She also claims to have “dispatched” five minions on an expedition “up the Amazon” to find her the perfect crystal for a more expensive bathtub ($1.6 million for a friggin’ bathtub). There’s more of this outrageousness but you get the point.

Are you and I really any different?

So all of us can laugh our heads off at totally crazy rich people right? After all, we’re level headed and far more mature right? But think about it for a moment… are we really any different?

Yes, we’re different in that we’re probably not rich. We’re not spending billions, or even millions, but I guarantee that all of us have spent money to impress people. Put another way: at one time or another we have all spent money to paint ourselves in a certain light.

Here’s an example the men can relate to. In my childhood school it was all about having the latest and greatest pairs of shoes. I couldn’t compete with the rich kids who had new shoes every month or two, but at least once per year I managed to get my hands on a ridiculously overpriced pair of Nikes. In 8th grade I saved up enough to buy a pair that cost $130! Obviously there was no practical reason for this, it was just for image, just to impress.

Now let’s look at that from a different perspective. Almost half the worlds population lives on less than $2 per day. Around half of those people (about 1/5 of the global population) live on less than $1 per day. That means my $130 shoes were at least 130x their daily wage. How do you think they would feel hearing about my shoes, let alone the designer handbags, fancy cars, and over-sized houses that are the norm in our society? I’m guessing they would have many of the same feelings we do when we hear about those two sisters spending frivolously… don’t you agree?

It’s all about perspective!

Why we’re not content

The devil works in clever ways, distracting us with pretty and shiny things. Why? Because the more we pay attention to them, the less attention we pay to what’s really important in life… Jesus, His message, and our mission.

Of course, not everyone falls for the devil’s tricks to the same degree. There are those who have it bad, the total shopaholics. You know the type. The girl who maxes out a Macy’s credit card account buying the latest fashions. The guy who’s always at Best Buy, upgrading his TV (yet again) and buying other gizmos and gadgets he doesn’t need. Perhaps you can relate.

Not everyone has the same weakness, but you can bet we all have at least some worldly thing – or things – we covet, even if we have enough self control to not actually buy.

If you’re trying to find contentment in worldly things, let me assure you, it will never happen. As soon as you get what you want, you want something else. It’s the oldest trick in the book, but it’s the trick that keeps on getting us.

Contentment is a choice

So what’s the secret to being content with what you have? For the answer, turn to the Bible, not your bank account. A decade ago I would have thought advice like that was stupid and probably would’ve wanted to slap someone for saying it. But after reading the Bible cover to cover, I can honestly say that it is the answer. Pick one up, give it a try, you have nothing to lose.

If you would rather not, that’s your choice. But remember that keeping up with the Joneses is a fight you cannot win. If you think you can reach contentment on your own with $10M, $100M, or $1B perhaps you should consider stories like that of Michael Jackson. He used his wealth to heap possessions as numerous as the sands of the sea, yet was never content with the way he looked or the things he had.

Rather than reaching for more and more only to learn it won’t make you content, consider the billionaire sisters and rethink your position.

Matt’s note: Smart people learn from their mistakes. Really smart people learn from others mistakes.

“Not that I speak in respect of want: for I have learned, in whatsoever state I am, therewith to be content. I know both how to be abased, and I know how to abound: every where and in all things I am instructed both to be full and to be hungry, both to abound and to suffer need. I can do all things through Christ which strengtheneth me.” Philippians 4:11-13

At 18 a catastrophic auto accident left Mike with a mountain of medical bills that ended up on credit cards. He started Credit Card Forum in 2008 to help himself and others use credit cards more wisely. Thankfully, he is now debt free and only uses cards for benefits and rewards. Mike strongly advises against using cards if they will lead to overspending.

Categories // Money Management, Spirituality Tags // contentment, credit cards, jesus christ

Understanding Debt [Part I]

09.07.2011 by Mike Young //

Statistically speaking, it’s very likely you’re in debt.  Although the data is all over the place, most people agree that somewhere around 80% of people (excluding minors) have debt.  There are many ways you can borrow money, so I wanted to take a look at the different types of debt and my thoughts on each.  In part I, we’ll discuss credit card debt, student loan debt, payday loans, vehicle loans, and personal loans.

1.) Credit Card Debt

The average credit card debt per household with credit card debt is $15,799.  Considering the average APR on a credit card with a balance is 13.1%, people are wasting way too much money paying interest.  I have yet to meet anyone who has purposely gone into deep credit card debt.  It happens slowly.  A little emergency comes up, you take a vacation you can’t afford, or you just can’t seem to stop buying new clothes.  Either way, it tends to creep up on people.  Credit card debt is a major problem in our country and I suggest staying away from them at all costs.

2.) Student Loan Debt

This one is a major hot topic.   I used to think that student loan debt was a necessary evil.   The more I read, talk with experts, and work with clients who have tons of student loan debt, I am convinced that student loan debt is also a terrible idea.  In fact, delinquency rates on student loans are now higher than mortgages, home equity loans, and auto loans.  Credit cards are the only other debt that has a higher delinquency rate.  Not only that, but you cannot bankrupt student loans.  Contrary to popular belief, it is possible to go to college without debt.  Working hard to get merit scholarships, having a job (or two) while in school and in the summer, and utilizing community and in-state schools are just a few ways to make it happen.

3.) Payday Loans

Payday loans are a terrible way to make poor people poorer.  If you notice, there usually are not millionaires filing in and out of a payday loan store.  It’s a place for desperate people to go to find money and they pay dearly for it.  The APR on most payday loans range from 390% to 780%.  Wow!  How would you like to pay that rate on your mortgage?  You woudln’t and you also shouldn’t get anywhere near a payday loan store!

4.) Vehicle Loans

Vehicle loans are not a terrible thing.  Most people have them and most  people always will.   There are nothing like credit cards or payday loans in terms of interest rate.  There are two problems I do have with vehicle loans, though.  First, when you do not have a vehicle loan and instead, pay yourself a car payment to your savings, then  you have much more flexibility.  There have been quite a few months when things have run tight for Mandy and I and we simply didn’t put our “car payment” into our savings that month.  If we would have had to make a car payment, that would not have been an option.  I am not sure what we would have done other than raid our emergency fund, which we try to avoid if at all possible.  The second problem is that people often buy cars they cannot afford when buying with payments.  By saving and paying cash for a car, it is impossible for Mandy and I to buy something we cannot afford.  We either have the money or we do not.  I have met with way too many people who have a  $25,000 with a $40,000 a year income.  That is just crazy and I have only seen it happen when someone buys with a vehicle loan.

5.) Personal Loans

To be clear, by personal loans, I mean borrowing from a friend or family member.  Not a good idea.  It really changes the dynamics of the relationship.  For example, instead of just Dad/Daughter, it is now Lender/Borrower.  It often leads to an inappropriate amount of control in the life of the borrower by the lender.  Personal loans are certainly better than payday loans, but I suggest avoiding them as well if at all possible.

In part two, I discuss medical debt, home equity loans, unsecured bank loans, and mortgages.  Stay tuned and let me know what you think so far!

Categories // Debt Tags // auto loan, credit cards, student loan

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