I was wondering about how it all got started. How did we as a nation get started in the belief in debt. What happened to the concept of saving up for something when you wanted to buy it, rather than buying it right away on credit and paying for it later.
In this article, to investigate my idea, I asked a friend to recall how she first started using credit…
The day I turned 18, I began receiving two to three credit card offers by mail, daily. As a teenager, I thought this was awesome! If I was receiving these “You’ve been pre – approved!” offers, then that means I must have pretty good credit, right? I thought that the more offers I got, the better my credit must be. I did not see in a need in reading the fine print, because to me, if I had a credit card, I could buy whatever I wanted, whenever I wanted!
I moved away from home and went to college only to find that I was never approved for all of these offers I got in the mail. How was I supposed to change my credit score if I never got approved for credit? Then, my sophomore year of college, my whole life changed.
I received an offer from Household Bank for a credit card for people with no credit history. This was an awesome opportunity! I signed up, got approved, and started spending. There was no stopping me from buying whatever I wanted, until I got my first bill. I opened the bill only to find that my $150 in purchases had turned into a $175 bill. How did this happen?
I did not educate myself with the literature I received from the credit card company. I was unaware of the fees for everything from signing up, to an annual fee, to an APR on all of my purchases, even though the idea of charging fees for borrowing money has been around since the early 1900′s. For me, my credit cards were a way to buy things that I otherwise would not have had the money to buy and trust me, there were a lot of things I wanted to buy.
One credit card turned into two and two quickly turned into five. Why did I have all of these credit cards? I only really needed one that I could use anywhere, but department store cards were so hard to resist. If I had a Target card, and got rewards for using it, Why not get rewards for shopping at Target?
As you can very well imagine, this got me into a lot of trouble. Even after I learned my lesson, paid my cards off and closed some of them, I fell into the same credit card trap. I paid my Victoria’s Secret balance down to zero and closed it, only to go back into the store and re-open it one week later! I just could not resist those awesome rewards for “VIP Angel Card” holders.
Four years later, I’m still paying off my credit card debt, as if I don’t have enough student loan debt to go around. The best advice I have for any young college student looking to build their credit is this: Get one card, put it in a locked safe, throw away the key, and then put that safe in block of ice and in a deep freezer. This way, in order to use that shiny new credit card will be to unfreeze your safe and call a locksmith! Oh, and in case you were wondering, lock smiths aren’t cheap either!
As we see, credit card companies are in the business of getting young people hooked on credit (and the thought of instant gratification of their wants) because they make a lot of money from the practice. I believe in personal responsibility, but it does have an eerie familiarity to a scene of a crack dealer giving out free sample across from the school yard.
Image provided by Koramchad
[This article was featured in the Carnival of Personal Finance at Weakonomi¢s.]
Times are tough right now. There are many families out there who are barely making ends meet. And one of the biggest reasons why people are struggling so badly is because they have so much debt.
America is a nation of debt. With credit cards offering to give us “free” money we are all conditioned to buy now and worry later.
Of course there is no such thing as “free” money. We all pay – and pay dearly – for swiping that plastic credit card.
So why do we bury ourselves in debt?
Well, there are hundreds of answers to that question, and the answers change from person to person. But one answer that applies to everyone is that it’s so easy to swipe a card and it doesn’t even feel like you’re spending any money.
Credit cards are just like the chips at a casino. Casinos give out chips so that it doesn’t even feel like your playing with real money. Therefore gamblers run through their chips without giving it a second thought.
Credit cards accomplish the same thing.
They are just a little plastic square (and with the new key chain cards they’re sometimes even smaller rectangles!). The credit card debt racks up and builds and builds and we’re all pretty much oblivious to it.
Well, if you want to turn things around, and if you want to begin to dig yourself out of debt then you have to pay off those credit cards.
And a great way to do that is to use a visual helper.
Let’s face it: We love visuals.
That’s why the radio is pretty much obsolete and televisions are the source of entertainment for all families. But just a television isn’t good enough. The screen has to be the size of the side of your house. And the it has to be flat. And the transmission has to be in high definition.
And using a cell phone for just texting or making phone calls isn’t enough. There has to be a colorful, high resolution screen on that cell phone.
We love visuals!
So why not use that to your advantage?
Right now figure out how much credit card debt you have. Then for every $50 or $100 take a crayon, or a toothpick, or maybe a straw and place it in a glass jar or a similar container that is see-through (a sandwich bag with crayons works great too). You should have one crayon, toothpick, or whatever for every $50 or $100 (your choice).
So if you have $5000 in credit card debt, and you’re using the $100 mark then you’d have 50 crayons, toothpicks, or whatever in your container. Place that container on your kitchen window sill or some other place where you’ll always see it.
Then every time you drop your credit card debt by $100 you should take out one crayon, toothpick, or whatever your chosen item might be. And every time you increase that debt by $100 you need to add your chosen item.
So the pile will either grow or shrink.
But just taking or putting in items will allow you to realize what you’re doing to your debt. And by seeing that stack of crayons (or whatever your item is) you will see how much debt you truly have. Then you’ll think twice before going deeper in debt.
You will have that visual there until your debt is completely paid off.
And when you have your credit cards paid off, then you can go ahead and place your empty container in your trophy case. If you don’t have one, go ahead and buy one.
Just make sure you pay cash for it.
[this article was featured at The Personal Financier]
According to the National Retail Federation, as reported in today’s USA Today, one third of Americans (32%) are paying for their gifts with credit cards. 40% are using debit cards, which act like an instant check, taking money from their bank account, 6% are using checks, and 22% are using cash. It’s interesting how quickly good old fashioned checks are fading from daily retail use, and how widely used debit cards have become. But the real story here is that 1/3 of all holiday gift purchases are being put on credit cards, to be paid back later. The Holiday season, meant to be a season of peace and good will, has become a precursor to months of gradually paying back holiday debt.
Another interesting statistic: Guess how much money retailers raked in through unclaimed or expired gift cards in 2006? Guess higher. A little higher – 8 billion dollars! In addition, most people who purchase with a gift card spend 10-20% MORE than the card, which is good for retailers. No wonder retailers are working so hard to normalize and promote gift cards! I think there should be a kick back to the giver, where if the gift receiver doesn’t cash in their gift card within a year, YOU get 20% of it’s value. Now that would increase gift card sales!
How are you paying for gifts this year? How long do you expect to pay off your holiday credit card bills? Giving any gift cards?