3 Excuses That Are Keeping You In A Toxic Relationship With Debt
Remember not too long ago when the economy (and the stock and housing markets) came crashing down, thanks in part to millions of Americans borrowing way more than they could actually afford? Apparently not enough of us do.
According to a recent WalletHub survey, we’re up to our old overspending tricks again. By the end of 2017, Americans are expected to have accumulated a whopping $60 billion in new credit card debt — for a total of $1 trillion owed. On top of that, the national average APR on new credit cards hit a record high of 16.15 percent in September, which makes the potential cost of carrying that debt pretty staggering.
Listen, I get it. As someone who racked up, and paid off, $52,000 of credit card debt — and has counseled hundreds of other families on how to pay theirs off — I understand all the reasons we think we need to rely on credit card debt, like the three below. But it’s about time we took some ownership over this dangerous habit before it really costs us.
Consider this a wake-up call to end your toxic relationship with credit card debt for good.
Excuse #1: I only use my credit cards for emergencies.
Do you know when the absolute worst time to go further into debt is? When you’re broke and in the midst of a personal financial crisis. I know your uncle (and banks) probably told you it’s a good idea to hold onto a credit card for emergencies because you never know when you’re going to need it. But there’s something else that works even better during a crisis: actual money!
When you have an emergency fund, you won’t have to stress about running up more debt or paying interest. Instead, you’ll write a check and move on.
It can be overwhelming to try to save up three to six months’ worth of living expenses all at once — so don’t. Aim to save $1,000 first, which should be enough to cover you the next time you owe a big medical bill or need to get your car repaired.
Excuse #2: I’m a rewards points junkie.
Creditors know we love chasing that dangling carrot, so they’ve cleverly attached rewards points to our everyday purchases — for the low, low price of 16 percent interest and an annual fee! Then we swipe the heck out of those cards to earn rewards. But the reality is that if you’re carrying a balance, you are crushing any value those rewards represent. Actually, even if you don’t carry a balance and simply hoard your free airline miles, the banks are still winning.
That’s because they’ve seen the studies. They know that the less we actually feel money leaving our wallets, the faster we’ll spend it. So be honest with yourself about how susceptible you might be to overspending just to rack up rewards points before you fall into the debt trap.
Excuse #3: Chipping away at debt helps me maintain a good credit score.
But let’s play this scenario out, anyway. If you had the opportunity to raise your score a little, how much would you be willing to pay for it? Is it worth paying $7,996 (or the average credit card debt per American household) plus 16 percent in interest? No way! And yet, that’s exactly what we do when we run up credit card debt in order to justify a misunderstood relationship with credit.
So what now?
Whatever you do, don’t wait for another crisis to remind us how costly overextending ourselves can be.
If you consistently carry a balance on your cards, stop using them. Lock them up in a safe, freeze them in a block of ice — whatever it takes. Next, create a budget and figure out where your money is going. Then identify places to cut back to stop any bleeding. Finally, make a plan to get rid of your credit card debt for good — and really commit to spending less than you earn, so you don’t slip into debt again.
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