recreatingreality.com

Maybe now isn’t the time you are thinking about setting lofty goals for your future. But, it should be.

The reality we are faced with is not a pleasant one for most of us. We are up to our eyeballs in credit card debt… even if you are not facing a foreclosure. It is an unfortunate reality. We can blame the banks, but we need to take a look at our habits and our mindsets.

There are a few things we can do. First, we must have the courage to face the truth. We spent money we did not have. It was easy to do. The banks all but forced credit cards on us, luring us to sign up for one after another, each promising a 0% balance for the first year or so, if we transferred our balances from one card to the new one. So, many of us spent as much time trying to figure out what to transfer to where as we did trying to pay down our balances.

It never occurred to us that maybe we should stop spending!  I am reminded of a very old woman I met one time.  She was not an educated woman, but she had decided that on her fixed income she needed to open a checking account.  Her social security check arrived each month and she deposited the whole check, minus $20 into her checking account on the 3rd of each and every month.  It did not take her long to figure out how to write a check. 

Writing a check was easy.  It didn’t look like money, so it didn’t feel as if she were spending her own real money when she wrote the checks.  We have all felt that same way when we have pulled out our credit cards to make a purchase.  Say what you will, there is something about plastic that takes the sting out of buying.  The feeling that there is more where that came from seems to be the mindset.  We still have room on the card to charge more, and as long as we have room to charge/buy something else, we don’t feel the pinch.  But, when we have cash in our pockets it is psychologically harder to part with it. 

The older woman with the checking account wrote her checks.  And, usually by the end of the month she was overdrawn and was faced with fees in addition to the amount of the check.  For some reason, this older woman always felt that if she had a check, she had money.  Okay, so laugh if you will.  But, in today’s world most of us have been no smarter.  As long as we have a plastic card, we feel as if we have buying power and we do buy.

I use the example of the older woman from a few decades ago, only because as we look at her experience we think to ourselves “how stupid could she be?”  Most of us snicker at the situation.  However, before you laugh too much, think about it.  And, think about it carefully.  The only real difference between the old woman with the checkbook and most of us with a plastic card is that the banks set it up so it would be easier for us to spend a lot more than we have, because we don’t have to square up the deal at the end of every month. 

Of course, the older woman had to pay $19 in fees for each check that was over her balance.  (That was a long time ago.)  But, by allowing us to get by at the end of each month without settling up, the banks found ways to get the $19 fee and compound it over time.  The old woman may have written one check for $50 that ended up costing her $69 dollars.  But, when we purchase something with plastic that costs $50 and we don’t pay it off in full at the end of the month over time we end up paying a lot more than $19 for the use of the bank’s $50 for a few days. 

Now, think about “minimum payment.”  I have a friend who has stopped using one of his credit cards.  Each month he paid “minimum payment” thinking that the balance would begin to shrink.  Guess what?  Each month the minimum payment continues to climb by a few cents, even though he pays it on time, isn’t over the limit (yet), and hasn’t charged anything on that card in over two years. 

Before we go any farther down this credit card line, let’s get one thing out in the open.  I don’t think it is right for the balance to climb when he pays the amount suggested.  And, I’m sure you don’t think it is right either.  But, it really doesn’t matter what we think at this point in time.  It is what is.

That brings us to this point.  The old lady finally caught on after a few months and closed her checking account.  She counted her cash and bought what she could afford to buy.  So, you see, the old uneducated woman was much smarter than most of us.  We keep piling on the debt and our minimum payment keeps climbing.  In fact, most of us are comparatively paying more for a $50 dress than we are paying for our homes.  For example, if you have a mortgage that is a 30 year fixed rate, chances are that you will pay three times the price you agreed to pay for the house just because you used the banks money to purchase the house.  (Those numbers are based on figures that were sound before the banks got creative with their financing.)  It has been reported that credit card debt will take 30 years to pay off if you pay the minimum balance each month.  Can you imagine how much that $50 dress really costs?

Whether those numbers are exact or not, you get the idea.  If you had saved your money and paid cash for the dress, it would have cost $50.  With all the interest and extra fees you have paid on your credit card debt you could have purchased a new wardrobe… a less Tums!

We are in dire straits as a credit burdened nation.  Of course, I blame the banks for being so damned greedy.  Of course, I blame Congress for allowing 29.9% interest rates on credit card debt.  And, I blame myself for my credit card debt, as well.  There’s enough blame to go around.  However, there is a reality here.  The banks are greedy.  Congress allowed those rates.  And, we kept telling ourselves that we would pay off the entire balance as soon as we got that next pay raise. 

What can we do today?  We can stop using those credit cards and start using cash.  We can contact our Representatives and Senators and demand stricter regulations and lower interest rates.  We can pay off the debt we owe.  No one wants to hear that.  But, that is the option.

Before the bankruptcy laws of 2005, credit card debt could be wiped out in some cases.  But, the banks lobbied Congress and has made it virtually impossible in file bankruptcy and eliminate all the debt, although you may get a reduction in what is owed, depending on your circumstances.  However, don’t take my word for it because first of all I am not a lawyer and secondly no two situations are alike.  If you feel that there is nothing else you can do, you may want to contact a bankruptcy attorney.

Another thing you can do is contact the credit card companies and try to negotiate a lower interest rate.  I personally have little faith in that possibility today.  Most credit card companies have been doubling and tripling interest rates during the past few months, even on those who are not over their credit limit and have always paid on time.

One other possibility is to try to negotiate with the credit card bank a pay-off.  See what they would take if you paid of the entire balance today.  Of course, there is one hang up there.  You have to be prepared to pay off the balance.

The last possibility is to pay more than the minimum payment each month.  We have all seen that paying the minimum payment extends the time we will be paying on the card.  And, that only gives more money to the banks.