The meaning of the word debt varies from person to person, as there are many different ways to find you at its doorstep. Whether it's a car or student loan, a mortgage or a mess of maxed out credit cards it's all the same in the end. You owing someone else a hell of a lot of money, with interest.
But for this post let us examine credit card debt, as it is the easiest and most prevalent variety. It is also the most preventable, if you know a little about what you're doing before you jump into the deep end of the pool.
But it's very easy to be young, naive and a little materialistic. It's okay. We all have our flaws. It's your responsibility, but it's only your fault if you refuse to learn from your experience.
Simply put, when you make a purchase, however small or insignificant your credit card corporation is raking in the dough. Not only are they charging you monthly fees for their services, but interest as well. And hey, if you don't pay it off? Wham. Late fees galore.
On top of that they're also charging the establishment you used your card at.
This is why many businesses (small and large) have a credit policy, wherein you cannot make a purchase on a credit card without spending at least a minimum dollar value of say, $10 to $15. This is simply because the sale would not be profitable for them, as they also owe their dues to American Express, Discover and Mastercard.
So why do we use them? Because they are easy and they are forced upon us at a young age. A lot of people are going to laugh, but in my opinion they are worse than pusher men, peddling drugs and booze to kids.
We have government funded officers to keep that off our streets. But we have little to nothing protecting us from these morally gray dirt bags. There really isn't a big to do about it in schools.
Before my serious financial situation my household would typically receive prequalification letters through the mail on a daily basis. Hell, I still receive them from time to time. And my credit has been shot to hell, on top of being completely frozen (by my own free will.) Not one person in my household is above 24 or has anything at all that could be even remotely imagined as "luxury card status."
I'm sure you've seen it, shiny congratulation letters from major creditors informing you that you've somehow been approved for a super deluxe, platinum Mastercard complete with airline miles, bonus points, a free subscription to Spendit Weekly and your own personal Baltic Hooker, complete with card swiper.
Kind of interesting, isn't it? We protect our children from gang influences, drugs and alcohol but not financial slavery.
So what do you do to protect yourself before you get in serious trouble?
- Cancel all your cards: I'm dead serious. If you're in dire straits with credit card issues, it's likely because of (a) you having a personal fault and (b) your creditor exploiting that personal fault.
It sounds cheesy, but it all boils down to responsibility. If you have problems with credit cards, you did not handle them responsibly. But that's okay. Removing them from your life entirely will force you to live responsibly. There is nothing wrong with admitting a fault. It allows you to become a better person.
Yes, you can live without them.
- Reimagine credit cards: Using a credit card is quick, easy and above all painless.
Therein lies the problem, it being painless. Credit cards break down your personal connection with your money. You're not fully conscious of what's going on.
You don't need to keep track of your spending. Hell, you're not even technically spending any of your own money until the end of the month anyway.
But what if you're paying for everything with cold, hard cash? You have to physically see yourself dishing out twenties, fifties and hundreds. It forces you to become aware of your habits. Becoming aware of them is the first step in changing them.
- Debit is okay, sometimes: Debit cards act precisely like credit cards with a major difference. When you use them you are spending your own money. It's impossible to miss a payment, or pay only minimums with a debit card. If you don't have the money, well, you ain't getting it.
While it still creates a disconnection with your finances, it is less prevalent. You still have to log your spending in your checkbook and make sure you deposit the appropriate funds. But it does allow a lot of flexibility that cash otherwise cannot provide.
You can't pay cash for things over the internet. But you can use a debit card. It's also a lot easier (and safer) carrying around a single debit card to purchase that new HD monitor instead of the equivalent amount of cash.
So use the debit card for responsible online shopping and large purchases. Use cash for everything else.
- Shred offers: Do you not have any outstanding business with American Express? That's good. So why are you receiving mail from them?
That's right. They want you to make them some money.
Don't give them a penny. Shred the offer. Even if you are considering getting a credit card (for whatever reason you may have), do it on your own terms and conditions. Shop around. NEVER apply for a credit card on impulse.
Have some information you'd like to share? Post in the comments! If your suggestions have merit I'll link back to your blog in my next post.