Individual debt a major problem, credit cards not helping

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A few years ago, American Express ran a TV commercial that infuriated me. As I recall, the ad showed a young couple buying engagement rings when the man’s Visa card was turned down due to a spending limit. Seeing that his fiancée didn’t want to settle for a cheaper ring, he instead got an American Express card with no spending limit to finance a more expensive ring. That was his solution: rather than living within his means, the answer was to spend more money and go into more debt.

His fiancée may have thought it romantic, but any accountant would find it nauseating. While the commercial didn’t show the rest of the couple’s married lives, the precedent of overspending on jewelry did not paint a pretty picture for their future. I imagine that their marriage was strained and plagued by constant financial desperation. They got off on the wrong foot in the jewelry store, and from there, I bet the debt just piled on.

Debt is a very real problem in America, and not just at the national level. We love to criticize the government for not knowing how to pay its bills and for shifting the burden of debt to future generations, but millions of us have exactly the same problem in our personal lives. As individuals and families, we Americans are very accustomed to debt, and the habit is becoming worse and worse. We owe money for our houses, cars, tractors, education, medical care and, thanks to the dawn of credit cards, nearly anything with a price tag. Since we rely on our future selves to pay the bills, borrowing our money makes it seem all too easy to live outside our means. Debt is essentially financial procrastination, akin to saying, “I’ll pay for it later.”

Credit cards are probably the worst incarnation of the problem, not just because of their steep interest rates, but also because they are so incredibly easy to acquire and use. Anyone can get a credit card fairly easily, and they’re accepted practically everywhere. Credit cards are the perfect tool for impulse buys. You spend a few hundred dollars here or there and swipe the card — it doesn’t even feel like you’re spending money, let alone money you don’t actually have.

Cardhub.com uses Federal Reserve statistics to track consumer credit card information, and as of now, the site reports over $770 billion in American credit card debt. That’s nearly $2,500 owed for every man, woman and newborn baby in the nation. While $770 billion is actually down from $980 billion in 2008, most of that decrease is not from paying off the debt, but from charge-offs, companies removing outstanding debts that are unlikely to ever be collected. The consumers borrowed money, assumed they could pay it back, and learned that they couldn’t. Bankruptcy is often the next step.

Most of us go into our adult lives already in debt from student loans. The instant we have marketable degrees, we’re off to start job hunting. We don’t take some time off to travel if we can work instead, because we have to make sure we aren’t defaulting on our debts. Most economists would call a college degree “good debt” because the degree improves our incomes and gives us some return on the investment, but even so, it strikes me as bizarre that we’re so used to borrowing money on the assumption that we’ll finish our degrees and have solid, steady incomes in the future.

Do you remember all the stories from the housing crisis of people buying houses that were way too expensive for them? Remember when the bubble popped and the homeowners had no way to settle their debts once the bank foreclosed and their houses lost value? These are the sorts of problems we run into when we’re spending other people’s money. We become distanced from the money and forget to take it into account when we make purchases. It’s extremely tempting to buy the nicest house, the one with the hot tub we might use once in a while, and so what if it’s an extra $50,000? That’s just a few more years of mortgage payments, right?

It’s not entirely the homeowners’ fault, either. Countless people were duped into expensive mortgages without even being told what they were paying, thanks to a mess of deliberately incomprehensible fine print. Sure, the mortgage was terrible as a result, but the banks didn’t have to worry about foreclosures. They were just trying to collect as many mortgages as they could so they could bundle the mortgages and sell them to foreign investors.

Obviously, this plan failed miserably, and even the banks, which one would think are run by monetary gurus who would know better, made a misstep in assuming they could go into debt safely. They lived outside their own means by massively leveraging themselves, lending out money they didn’t have (the legal limit was up to 30 times their actual assets), and assuming that they would cover it in the future. When the housing market tanked, the banks went with it.

We spend most of our lives owing money to people or institutions, and I think that’s the basic reason that it feels so easy and natural to borrow more. We end up with houses too big for us, cars we don’t need and impulse buys galore. On our way to the American dream, we end up playing into the bankers’ dreams of lots of people owing them money, and it’s all too easy for us. It’s not our money that we’re using, after all, the money belongs to our future selves, and who cares about them?

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