Blog: Simplify Your Life
A Few Words About Debt
Matt and I are in the very fortunate position of being debt-free -- we have no mortgage or loans, we pay our credit card bills in full each month, and we never buy anything that we have to finance (I'm allergic to paying interest, it makes me break out in hives!) I tell you this not to brag or say "look how great we are" -- but to point out that you too can live without debt, even in trying economic times. It's just a matter of deciding that financial freedom is your top priority.
Where Debt Comes From
According to the Federal Reserve, Americans currently owe a total of $2.5 trillion in consumer debt -- that's nearly $8,100 for every man, woman and child in the country. In many cases, it's much higher ('cause someone else is clearly carrying both Matt's and my share!) How did we ever get so mired down? Certainly, some forms of debt are unavoidable. An unexpected crisis (unemployment, divorce, illness, an accident) can wipe just about anyone out financially -- especially in a society with no real safety net, like ours. However, the majority of Americans are undone by a force even more insidious -- themselves! Most of our debt in this country comes from speculative consumer spending, buying more than you can afford at the moment with the presumption that you will be able to pay it off later. In fact, 43% of families regularly spend more than they earn each year. You see it in the ballooning credit card bills, mortgages that take 30 years to pay off, and the attraction to "quick-and-easy-no-interest-no-payments-for-a-year" loans. Americans are addicted to credit!
Here are some interesting/terrifying statistics I thought I would share with you from the Georgetown University Credit Research Center:
- in 1968, consumers' total credit debt was $8 billion -- now the total exceeds $880 billion (does this seem like an obscenely ridiculous increase to anyone else???)
- Americans currently owe $917 billion on revolving credit lines and $169 billion of it is past due -- approximately 50% of all card holders carry a balance (in 2007, this resulted in $18.1 billion in interest and penalty fees paid to credit card companies)
- the average household's credit card debt jumped from $2,966 in 1990 to $9,840 in 2007 (a more than 300% increase) -- during that same time period, the average income only rose 15%, from $57,521 to $67,609 (no wonder we can't keep up!)
- Americans own approximately 1.5 billion credit cards, an average of nine cards per holder (again, someone's got Matt's and my extras -- we only have one card each!)
It's clear that we've got a serious problem here -- but please don't think that I'm advocating the return to a cash-only society. I'm very thankful for my credit card. I love how easy it makes bookkeeping, I love the rewards I earn, and I especially love the fact that I'm protected if I have a problem with a purchase. But you have to maintain a sense of perspective when using credit. There's more to fiscal responsibility than simply paying your bill off in full each month.
The Easy-Credit Dilemma
Prior to the recent financial crunch, it was ridiculously easy to obtain credit in this country. Most people received a half-dozen pre-approved charge card offers in the mail each week -- and you could walk into any store and sign up for a no-interest-no-payments in-house credit account with little more than a ball-point pen and a smile. Did you ever stop to think about why vendors seemed so eager to hand out all that plastic? Merchants are charged a fee for accepting credit -- it actually costs them money. So where's the benefit?
Some shops will tell you that they offer easy financing as an extra little bit of customer service -- entirely to make your life easier. Nice sentiment, but not really. These guys always have an ulterior profit motive. They know that not all payment methods are created equal, and you stand at least a 50% chance of spending more than you had originally intended when you shop with credit. There's something about paying with a plastic card or signing a sheet of paper that doesn't feel like REAL money. Charging a $2,500 big-screen TV to your Visa is not the same psychological experience as handing the clerk a fistful of $20 bills. And payment plans are the worst! It's easy to shell out more than you can really afford for a TV or a refrigerator (or even a car or house) when the salesman offers you an easy payment plan. What seemed like a painfully large amount of money before now looks like a very affordable monthly bill. When you don't have to pay the whole balance at once, the sky's the limit! Go ahead and throw in some accessories, a few upgrades, and an extended warranty -- it's not going to raise the payment by that much! But once you've brought your lovely new toy home, it's easy to forget how much of a dent that liability is making in your budget. Every monthly payment is money that's no longer available for you to spend on something else. And every purchase that reduces your disposable income makes it that much more likely that you will need to use credit the next time around. All you're doing is working to pay off things you've already bought. You're constantly in the red. And it becomes so easy to sink financially under the weight of all that credit.
Spending above your means also sets up an unreasonable expectation in your mind about what you SHOULD be able to have and own. You no longer shop with a budget in mind (or if you do, the budget relates more to the monthly payment you can afford, rather than the total selling price of the item.) As long as you can get a loan, why shouldn't you have it? And why shouldn't you have it now, today, rather than 6 months down the road when you might actually have the cash in hand? Not to mention the fact that buying on credit almost always costs more. If you're one of the diligent few who pay off every bill on time, before accruing a finance charge, congratulations! But most people don't function like that. And every time you "charge it" with interest, you're paying more for that product than it's worth. That pool table or motorcycle or boat could be costing you as much as 4 or 5 times its original value, once you tally up all the fees. And mortgages are the worst -- if you finance a $200,000 house for 30 years at 7%, you will have paid $279,000 in interest by the end of the loan. That's more than the cost of the house itself!
You can blame the banks, you can blame big business, you can even blame the government for our economic woes. But if everyone in this country only bought what they could afford to pay for with cash, we wouldn't be experiencing a "recession" -- and on an individual level, people wouldn't be in the financial mess they are these days. And the only way to truly simplify your finances is to commit to a) eliminating your existing debt, and b) avoiding accumulating any more in the future.
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posted on: 2/15/2011 11:30:00 AM by Ramona Creel
category: General Organizing Tips
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Simplify Your Life
by Ramona Creel
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I have been a Professional Organizer for more than 10 years, I am a NAPO Golden Circle member, and I was the original founder of OnlineOrganizing. I have worked one-on-one with scores of clients and have trained dozens of newbie organizers as they got started in the industry. I provide both hands-on and virtual coaching to help clients improve their organizing skills and simplify their lives. I invite you to visit my website at http://www.RamonaCreel.com, and I challenge you to find one new idea that you can put into practice in your life, to help you become better organized, starting TODAY! I am passionate about coaching folks toward a more balanced, productive, and enjoyable life -- and I firmly believe that if I can do it, so can you!
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