The “economy” now looks good and consumer confidence is up. Young people are taking on more debt and
older people are “retiring” with mortgage debt, credit card debt, and even student
loan debt.
Add in the mindboggling (and daily increasing) level of our
nation’s debt, and it certainly seems that Americans are far more experienced
with crisis intervention than with crisis prevention. We haven’t yet mastered long-term thinking.
For anyone in credit card debt the first step is simply stop
the bleeding. Hide the cards from
yourself or freeze them in a block of ice – whatever it takes to stop using
them.
In my counseling office I kept a big pair of scissors that I
offered to clients to cut up their cards, and I displayed a plastic milk jug
filled with them. I wish that I had
snapped a picture of that jug before I destroyed the remnants!
Some clients decided that they weren’t quite ready to cut
them up. After all, what about emergencies,
or car rentals, or airline or hotel reservations? What about my credit score, and what’s wrong
with using a credit card if I pay it off every month?
Some enthusiastically cut them into itsy-bitsy pieces. The sigh of relief and the satisfaction that
I saw in them afterwards is priceless. Others believe that they cannot live without credit cards, but it’s an
illusion.
If you’re a counselor at heart, here’s an assignment for you.
Your two very best friends, a newly married couple with no children,
have credit card debt, and they know that high-interest debt is no good, but
cannot yet “feel” it.
They have a card that charges 18% interest and has a
minimum payment of 2% per month. If they
have a $6,500 balance and they pay only the minimum payment each month, how
long will it take them to pay it off?
Be aware: Even people
who should know better get this one wrong.
They might tell you that the minimum payment = $6,500 x 2% = $130.00.
But to arrive at the correct answer - which is decades (and many thousands of dollars) away from that one, you will need a calculator that allows input of how the minimum payment is calculated, like the one at BankRate.com.
But to arrive at the correct answer - which is decades (and many thousands of dollars) away from that one, you will need a calculator that allows input of how the minimum payment is calculated, like the one at BankRate.com.
Have fun with this one – it can be quite an eye-opener! For example, you can click on “Show payment
schedule” and scroll down to see what the balance will be at the end of five
years, 10 years, and so on. You can also
try various scenarios, such as if they would pay a steady $130 every month
rather than the 2% minimum.
The student loans are a federal government mess that needs a
solution – perhaps many.
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