For decades our society has spent money we don’t have. Conspicuous consumerism was a term that was fashioned in the 1980’s and continued until the Great Recession hit in 2008. If we didn’t have the money for it, we simply put it on our credit cards. Some households carried credit card balances that would rival the mortgage of a nice home. Who cares about the balance when all we really have to do is make the $153.67 minimum payment?
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An August, 2011 TransUnion report stated that in the second quarter of 2011, average credit card debt fell to a 10-year low of $4,699 per borrower, which is a year-over-year decline of 5%. Additionally, the number of 90-day delinquencies fell to a 17-year low. You may think this is due to banks writing a lot of this debt off. In July, TransUnion released a report showing that credit card holders made $72 billion more in payments than purchases between the first quarters of 2009 and 2010, which compares to write-offs of $86.6 billion during the same period. So, only 55% of the decline was due to write-offs; the consumer gets credit (no pun intended) for the rest of the decline.
So, You Want To Be Just Like Those Folks? Follow these tips and watch your credit card balance shrink:
THINK about everything you spend your money on. Here are some questions to ask yourself:
No, it’s written correctly. Part of spending consciously is realizing how much something really costs; that’s why this strategy receives it’s own category. You trade your time for money, so money really is the physical manifestation of time. The next time you buy that latte, think of it in terms of how long you had to work in order to earn the dollars to buy it. This might keep you from buying it and charging it on your credit card; especially if you don’t pay off your credit card, that latte will cost you even more hours of work in terms of interest charges.
Are you kidding me? Do I have to keep track of everything I spend? YES. You will be astonished at where you money goes. Legend has it that 21 days makes a habit. After that, you’ll be doing it naturally on your own. However, at the 21-day mark, multiply everything you’ve spent (and written down) by 17 — 17 times 21 days is 51 weeks. Okay, it’s not quite a year, but pretty close. You’ll be annualizing all your spending and further amazed at how much you’re spending on soft drinks every year.
Research shows you’ll spend 20% less when you spend with cash. Why? Because you’re actually giving something up. It’s like someone is stabbing you in the gut with an ice pick every time you shell out a dollar. Think of it another way: when you hand the sales clerk your credit card, what do they do? Yes, they swipe it and ask for your signature. What do they do after that? Yes, they hand you your merchandise, but they also hand you your credit card. You get it back. Psychologically, you haven’t given up anything.
Try using a debit card. Make sure the checking account your debit card debits is not tied to your savings account if you overdraw your checking account; otherwise, you defeat the purpose of having your checking account balance act as a governor on your spending.
This should be done parallel to paying down your debt. If you don’t have an adequate emergency fund then as soon as you pay off your debt, the car is going to need new tires. Guess how that purchase will be made? (Hint: the credit card.)