Based on what I hear from these commercials, 6 out of 10 Americans are in some sort of debt. There are somewhere around 40 million Americans under the age of 19 (US Census 2000) so if our population is around 300 million, that means 260 million Americans are of legal age to own a credit card and take out a loan. 260,000,000 x 0.6 = 156,000,000 Americans in debt...approximately. If you ask me, this is 100% unacceptable. If you can't afford the new shoes that are $80...DON'T BUY THEM! I know this could weaken our consumer economy, but we can survive it.
What is the point of owning someone money? So you can owe them more money? With the rates on credit cards rising to near extortion levels, why would you want to owe someone money. If you have a 12% credit card (college student cards can rise to near 30%) then using the rule of 72, in 6 years, your debt will double. That sounds like a long time, but so many people are simply sitting on their debt, and allowing this to happen. It's a record boom for the Credit Card industries, the only loan industry that's hurting right now is the Home Mortgage industry (and it is hurting BAD)
American Express made $3.7 Billion last year. Some of that profit comes from charges retailers incur when you make a purchase with your AmEx, but a lot of that is probably finance charges and fees. MasterCard made $3.3 Billion last year for many of the same reasons. Discover is sitting pretty at $561 Million for...you guessed it, the same reason. Do you realize that when you don't pay a credit card in full, you are simply giving up your money for a frivolous purchase?
Now, let's set some things straight, I don't dislike credit cards, I think they're great; they can give you an advance when you don't have your cash yet, and the rewards can be great. The issue people run in to is simply paying the minimum each month. The credit card companies would like you to do no more than simply pay the minimum each month; that is their optimal customer. Why? Because you will rack up finance charges like crazy. For the rewards alone, credit cards are worth it, airline miles, cash back on Discover, hotel rewards, but in order to get these rewards, you will have a higher APY, which means higher finance charges, which means it costs more to buy things than it should. I pay EVERY credit card I have in full every month, and I have NEVER had to pay more than anything is worth.
This takes a little more work than simply buying on a whim and worrying about it later, but it saves a lot of money too. I spend around $400 a month on my credit cards probably. If I simply paid the minimums, that would be $325 a month that gets charged. With an Average Daily balance, and an APR of 12,%, that comes out to 325(1+.033)^30 = 358.76 for the first month. After the second month, with another $325 of purchases, it comes out to $754.80. I am now paying $904.80 total on only $800 worth of stuff. Do you see how much difference paying off your cards in full makes?
The ultimate idea to take away from this is: If you don't have the money to spend...DON'T SPEND IT. Our country spends more money than it makes, which means someone has 6 out of 10 of us by the balls. Don't overspend. Don't go into debt, and don't overindulge. It's simple common sense.
I didn't even get into our national debt, which is ultimately a good thing, just not at it's current levels. I'll talk about that at a later date.
As always, comments are greatly appreciated. If you're reading this on the imported facebook note, you can see my full blog at www.dormroombiz.com
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