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Photo Credit: aussiegall
Browsing across the web, you stumble upon interesting things, some of which are quite informative. Dave Ramsey and others point out that early in the 20th century buying on credit was frowned upon:
History also teaches us that debt wasn’t always a way of life. In fact, three of the biggest lenders today were founded by people who hated debt. Sears now makes more money on credit than on the sale of merchandise. They are not a store; they are a lender with some stuff out front. However, in 1910 the Sears catalog stated, “Buying on Credit is Folly.” J. C. Penney department stores make millions annually on their plastic, but their founder was nicknamed James “Cash” Penney because he detested the use of debt.
Henry Ford thought debt was a lazy man’s method to purchase items, and his philosophy was so ingrained in Ford Motor Company that Ford didn’t offer financing until 10 years after General Motors did. Now, of course, Ford Motor credit is one of the most profitable of Ford Motor’s operations. The old school saw the folly of debt; the new school saw the opportunity to take advantage of the consumer with debt.
Now it seems as many people have debt in their lives and unfortunately it’s the high interest kind. Car payments, credit card debts, 2nd mortgages, and regular mortgages take a chunk of, if not your whole paycheck. Its a struggle that many deal with, but few are willing to change.
Does that mean that having debt is ok? Not necessarily. Having a mortgage is debt, but it is a way for
USA Today points out the average credit card debt for an American household is $8,565. How does translate to monthly payments?
Using a typical interest rate and the standard minimum payment, here’s how it breaks down:
If you paid the minimum payment every month, it would take you 249 months to pay off your debt and you would pay $7,486.48 in interest.
It will take you 46 months to be rid of your debt if you pay $256/month. In that time, you will pay $3,108.88 in interest.
Source: Bankrate.com
Can you imagine having credit card debt that can take longer than many student loans?! What do you have to show after 249 payments (20 years)? Most likely, nothing that you originally purchased will be around. We live in a consumer society, which can include disposing of things on a regular basis.
Don’t let the ‘normalcy’ of debt convince you to keep the cycle going. Make it your goal to get rid of your high interest debt as soon as possible.
How do you do get rid of debt?
- Stop using credit cards. Hide them or perform a plasticomy.
- Discover the exact amount of debt you’re in. You can’t come up with a plan until you know what you owe.
- Work to see if you can lower your interest rates. If you can’t, you may consider choosing a 0% card to transfer your balance. Balance transfers are a temporary fix and do not address the root problem.
- Control your spending and write a simple budget.
- Automate your bills and put aside some money for savings.
It’s not easy, but the steps are simple. Here are some articles that can help you plan your escape from debt.
- When it Comes to Emergency Funds, Size Does Matter from Frugal Dad
- Looking at Debt Repayment as an Investment from The Simple Dollar
- Online Bill Pay - Cheaper, Faster, Greener, More Secure from Cash Money Life
- 15 Tips for Saving Money While You Still Have a Job from My Dollar Plan
- How to Live More Simply, and Why It Is So Important from Frugal Dad
- Living In A Down Economy - Determining Your Bare Bones Budget from Paid Twice
- How Credit Card Companies Apply Your Payments from Mrs Micah
This post was included in the Carnival of Personal Finance #170 @ The Personal Financier.
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Debt is not something you want to get in, especially credit card debt which not only financially can hurt you but can affect other aspects of your life (signing a lease, car, etc). I disagree with you that using a credit card is bad. You just have to be balanced with when you use it and to monitor your own expenses and to be accountable for it when you do. Your priority at the end of the month should be to pay the credit card bill in full every single time. Although I do agree with you that paying things in cash is better. I actually like to pay with my debit card over credit card a lot because I use online banking and can immediately see my deductions right away and no if I am getting out of control. It mentally helps me budget better.
Craig
http://www.budgetpulse.com
If you are way over your head in credit card debt, then using a credit card can be bad.
I absolutely agree. If someone is not in debt, or not in debt anymore, using a credit card and paying in full will help improve your credit rating which is huge in today’s world.
Thank Craig for helping me to clarify the point. Credit cards are a tool. Try to use it wisely.
Great post. I enjoyed learning about Ford and Sears.
Check out PTs last blog post..Where to Stash Your Cash
@ PT: Sears is a sore spot for me. My family had to deal with the outrageous interest. To see how they started, surprised me.