Battling Those Credit Card Blues
By Martin Brown
The answer is simple. The chef raised the temperature of the water just a couple of degrees at a time. By the time the frog realized that the water was getting too hot, she was already cooked. When we get ourselves into credit card problems we’re a lot like that poor little frog. By the time we know we’re in over our heads, the pot is almost at a boil.
If you’re one of the millions of women in America who, like their male counterparts, finds themselves in credit card debt that has gotten out of control, there are practical steps you can take starting today to work yourself out of that bind.
Hey, don’t be the least bit embarrassed or angry with yourself for falling into this trap. The average American education teaches us to structure a sentence, solve a geometric equation, and to recite the Gettysburg Address. But it doesn’t prepare us for the deluge of brightly colored envelopes that hit our mailboxes every week, announcing 0% interest for purchases made on it for the first six months.
Or tells us what happens once the introductory rate disappears.
Very few of us were ever told that there is a difference between good debt and bad debt. So here’s a hint. good debt: home loan, college loan. Bad debt: Tahitian vacations, new entertainment centers, a spring clothing shopping spree.
But with the zero percent interest and those big ads that shout “Our lowest price ever,” its hard not to take the plunge. And the plunges that some of us take are truly amazing. Unfortunately in a system of government regulations that favor the banks and ignores the consequences for consumers, many of us get burned badly by the credit trap. Finding ourselves over our heads, we wind up paying the minimum each month, in effect borrowing money at outrageously high interest rates of 18, 22, even 29 percent.
These are loan rates, once the sole dominion of organized crime, now come from banks and other lending institutions across America, unfortunately with state and federal approval—not to mention, of course, the $39 late fees, the bump in interest rates for a missed payment, and on, and on, and on . . .
If you’re sitting in the soup at this moment, I don’t need to tell you uncomfortable this situation can get. You already know. Opening the mailbox becomes a pulse-quickening experience. In short order, you find yourself working for the credit card companies. And from that point, things spiral downward.
One thing you know for certain: It’s time to turn things around. In future articles I’ll go into greater detail on related issues of managing your money. But here are four steps you can take today.
Step One: Lock up the credit cards, and put yourself on a credit diet.
It can be tougher than any real diet you’ve ever been on. In the time of our parents, and all the generations that came before them, when you were low on cash you didn’t say, I’ll think about that tomorrow and go out to dinner tonight. You figured out how far a few bucks would stretch. In other words the two-buck chuck might not be your favorite bottle of wine but it beats the gritty taste you get every time you open your monthly credit card statement and realize that you’ve dug yourself deeper into a financial hole.
Bottom line: Make it your Tao for the next six months, year, or longer, to live within your means. Our parents didn’t have these problems because “easy” credit wasn’t available to them. If you’re going to keep your financial ship afloat the first thing you have to do is plug the holes and that starts by not putting yourself on a budget.
Step Two: Make a plan.
No degree in microeconomics needed here, just the start of a basic budget that works for the way you live today. Using your bank and charge card statements for the last two or three months as a guide, take a pad and on one side write down a totally honest assessment of your needs. On other side of the sheet put down a list of what you wanted during the past months, but in truth did not need. Now you have the basic ingredients of a spending and savings plan. Begin implementing that plan. What are your actual budgetary needs? How do those needs match-up against your income.
Bottom line: Putting your financial realities down on paper is amazingly cathartic. In most cases the numbers are not nearly as scary as we thought. And as you realize that fact a weight will start to come off your shoulders.
Step Three: Become a smart consumer.
Very few of us are smart consumers, and yet it’s not all that hard to do. It’s amazing how much you can save by spending a few extra minutes in the grocery store and looking objectively at the different brands and different prices. If you race down the aisles and never take a moment to realize that Wishbone dressings are on sale this week, but Kraft dressings are not, you’ll miss a dollar here and many dollars there. You can walk out of the grocery store having spent sixty bucks or forty. That eighty dollars in savings over a four-week month, is money you can place against your overall debt. This same thinking applies to other aspects of our daily lives. That oil and filter change you have to get for $37 is on sale this week at another place down the road for $23. For the price of a $1 newspaper you might score $30 worth of coupons for stuff you actually need.
Bottom line: Transforming yourself from a mindless shopper to a smart consumer is a discipline you’ll be glad you acquired. Like going to the gym to build a better body, it takes creating some new routines. Once you’ve done that, however, it liberates you and just like the gym, you’ll be happy with the results.
Step Four: Start a savings account.
Don’t link this account to your checking account. The banks would like to make it easy for you to spend. That’s the opposite of what you want to do. Go to a separate bank that is in your neighborhood and open a savings only account. This is your out of sight out of mind place to squirrel away the money you are starting to save. After two months of realizing that you cannot only live within a budget but you can put money aside; start the wonderful habit of paying yourself first. You do this, in many cases, by having your employer make an auto deposit into two separate accounts. Taking 10% of your check and putting it into a savings bank account and 90% of your net pay into your checking account will change your financial future in a hurry. Most employers have no problem doing this, but if that’s not the case, you have to train yourself to do it every pay period.
The ultimate defeat of the credit card blues is to pay those card balances off. Most people who follow these four simple steps do just that in a period of 12 to 24 months. You can too. All you need is a little motivation. Here it is: Do you want to be paying 24% credit card interest for the rest of your life? Of course not! Then take out a pencil and pad and get started today. Tell the chef this is one frog that won’t be staying for the soup.
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