Everyone likes a little recognition – a sense of being known and appreciated. Perhaps that’s why I must admit I get a little rush when I’m shopping online, choose PayPal to pay, and I instantly get a message that says: “We recognize you on this device, Terry. You don’t have to sign in!” That always makes me smile.
It’s as if I’ve gained approval for the purchase. The blank spaces are filled in with my credit card number, and the screen even knows where I likely want my package sent. And so it goes, with my purchases piling up on my credit card balance. And that is the easy trap.
Yes, I pay in full every month. But evidence is mounting that consumers are building balances that will take them years to repay, even as interest on revolving balances is averaging near 20%– and far higher once the lender knows they have you trapped.
The Credit Card Debt Mountain
Total consumer debt climbed by $351 billion in the July-September 2022 period – the largest quarterly increase since 2007. Total household debt jumped to a record $16.5 trillion – up more than 8% from a year ago.
That huge total includes mortgage debt, which has climbed as rising home prices require larger mortgages, as well as auto loans. But it doesn’t include the “buy now – pay later” debt which is typically not reported to credit bureaus. So, be very careful about clicking on that box that offers “four easy payments” with immediate approval.
Consumer credit card debt now totals $930 billion – and is likely to surpass $1 trillion after this holiday season. That’s up 15% from a year ago – the largest percentage jump in more than 20 years.
Economists call those “MEGO” numbers. That stands for “My Eyes Glaze Over!” But don’t let your eyes be fooled by the last-minute, post-pandemic urge to live (and shop) for today — and pay tomorrow.
One Way or Another – You Pay for Credit
When the bills come in January, you’ll be astounded at the total if you aren’t following your balances online. With a sign of relief, you’ll realize that you can barely afford the “minimum required payment.” So your credit score won’t be dinged. But that doesn’t tell the whole story, as the mountain of debt is still accruing interest charges.
As a matter of fact, the way some card companies calculate the minimum monthly payment, it could take as long as 31 years to pay down the initial balance. AND, by the time you finish paying it off, your total interest bill will be FOUR times the amount you original charged!
Long after those concert tickets have faded from memory, and the clothes have been given away, you’ll still be paying. Is it worth it? Ask yourself – before you click to order with “free shipping”!
The Only Way Out
Perhaps I shouldn’t wait for January to help you deal with your own debt mountain. There is one relatively quick way out:
When you get your credit card bill, find the minimum required payment. Then double that amount. That’s your new monthly payment. Write it down. If you pay that exact same amount every month – and don’t charge another penny on your card, the balance will be paid off in less than 3 years!
If you know you can’t afford that “double” payment, then you can’t afford the current purchase. It will bury you in debt.
The credit trap is set. And consumers are munching on the bait. Clearly, not all purchases are discretionary. People are already losing their jobs and spending down their savings. For some, spending on cards has already become a necessity. For others, this holiday season spending will become a way to affirm your well-being. And, sadly, for some people credit is an addiction.
If you can’t face up to it alone, contact the National Foundation for Credit Counseling at 800-388-2227. You’ll be connected to the nearest member agency, where you can have a personal meeting or discuss your situation over the phone.
Do it now – to get ahead of your last-minute holiday spending binge, and to get help before the January rush. You’ll be glad you stopped buying on credit now. And that’s the Savage Truth.