Credit Card Debt

When I was a boy in Scotland, many years ago, there were no credit cards, but accumulating debt was just as easy as it is now. Folks could and did buy things on “Hire Purchase” that was nothing more than paying a set amount, usually per week, and that’s still how many retailers operate today. HP was commonly known as the “Never Never Plan” because the incurred debt seemed endless. My father taught us well that if you couldn’t pay for something you just couldn’t get it.

I’ve recently worked with a friend whose debt was completely out of control. She is probably a shopaholic, but she had reached the point where collection agencies were on her case. This lady had virtually every credit card ever printed and was maxed to the hilt on all of them. She only had a part-time job, and her husband did not even earn minimum wage. The magnitude of her problem began to dawn when we laid all of the cards on the kitchen table: she had them stashed all over the house, and she had twenty five in all.

One of the major issues is that credit cards are insidious. Not only do you have the Visa, Master Card, Amex and the other big guns, but every retailer, gas company, home renovator and hundreds more companies encourage customers to sign up for theirs as well. The 10% off offer on that first purchase is a great hook to get someone into the system. After that undisciplined customers debt creeps up right across the board.

There is only one way to recover from debt, and that’s first to looking it straight in the face, and then undergoing a complete lifestyle change about needs and wants. Thereafter it’s about allocating money to pay down the card that cost more every month, and then moving on to the next. Two decisions have to accompany this strategy: first to cancel as many cards as possible, and minimize purchase to essential spending. A brutal review of previous statements will identify frivolous spending that can be stopped and diverting the savings to higher payments on the target cards. The immediate benefit of higher payments is the decrease in interest charges.

Some people may qualify for lines of credit, and diverting the debt to that instrument can accelerate the recovery. Lines of credit are currently in the three to five percent range compared to credit cards charges that can reach twenty to thirty percent. Many other people take second or third jobs until the debt is erased.

The cold face of reality says that recovery is painful and can take many years, but without confronting the underlying issue of buying what you can’t afford, the hardship will continually distress the victim. The person I’ve been helping is having a very difficult time making lifestyle adjustments, but her debt has steadied and she has now cancelled two cards. She is much less antagonistic when I challenge her about what she buys, and she is much more responsible in juggling her financial priorities.

What’s missing in this equation is responsibility by the card issuers to help people who’re in trouble: after all their business is to increase revenue through higher sales. My friend recently got a letter from the credit card she’d started to make progress with telling her that because of her track record they were substantially increasing her credit limit. That’s absolutely the wrong strategy for the client in need, and demonstrates how important personal discipline is in the recovery process.