Credit Card Debt

Let’s start with the bottom line for credit card debt: If you cannot pay your credit card balance off in full each month, you shouldn’t be using it.

Sound a little harsh? What is harsh is carrying debt at interest rates of 20% or higher. If you are carrying debt at those levels then your financial affairs and your life are simply not under control. And they probably won’t be in control until you learn the hard way.

Credit cards are wonderful things if used properly. For many people they are essential. You need a credit card to rent a car, to reserve a hotel room, and to purchase many items either on-line or in traditional stores.

For young people having a credit card, making small purchases and paying off the balance in full each month will help him or her establish a good credit rating so that later in life they can borrow money to purchase a car of even a house. That is using a credit card wisely.

More often young people are suckered into getting a credit card without realizing that they are about to amass large amounts of debt at extremely high interest rates. Oftentimes they don’t even have to go looking for those cards, they just show up in the mail with your name on them.

Spending the first $5000 is easy and fun. All of a sudden they can have anything they want. They make a few payments, generally paying the minimum amount due, and then the next thing they know they have hit their credit limit and can’t use the card anymore, even if they really need it. And now their monthly minimum payments are in the $200 per month range, and that doesn’t even pay much principle, it just covers the interest they owe.

For $200 per month a person could purchase a new car, but these students often have nothing at all to show for the money spent. They probably just blew a lot of it in bars and restaurants with their friends. If you asked them what they got for the money, they probably couldn’t say much.

How can I say all this with such certainty? I have two adult children who both did the same thing after college even though their parents tried to teach them to be financially responsible. They both had to feel serious financial pain before they learned what it was like to manage their money properly. And the pain would have been a lot worse if their dad didn’t bail them out so they could crawl out from under those 20% interest payments sooner.

Besides realizing the dangers of using credit cards unwisely, young people who start working and who are beginning to make and manage their own money for the first time can learn another simple but important lesson:

Each month look at your bank and credit card statements and simply record how you spent your money. Put expenditures into categories like food, drink, entertainment, rent, utilities, etc. This should take no more than a half hour per month, but it is the difference in being in control of your life and being totally out of control. Are you surprised to see that you blew $800 in restaurants and bars? That is the easiest way for young people to separate themselves from their hard earned money. When you see in black and white what you are actually spending you are in a position to do something about it if need be.

So get control of your credit card debt and get control of your life. You’re going to have to do it sooner or later, so the sooner the better.