Good article about excess credit card debt: http://www.bankrate.com/nltrack/news/debt/20071109_credit_debt_a1.asp
For the most part, a good article. Only one thing I really disagree with. One guy has two accounts, one at 2.99% and the other at 3.99%. The advice was that even if they weren't teaser rates, pay them off "in case" you get hit with universal default somewhere down the road. The way to build wealth is to make more than you spend. If they are rates for the life of the loan or something, I would pay only the minimum on those accounts. I'd take that extra money that I was going to pay on them and put it in a high-interest account (you can get over 5% at an online bank, FDIC insured). Get the higher interest. IF universal default or some other reason that raises the rates kicks in, then take the money (plus the interest you've made) and pay if off. Otherwise, pay off the low interest slowly and get more interest on the money. Of course, if the person also had higher-rate debt, that should be paid off first.
The financial guy in me agrees with your point. If that were the case on the interest rate(s). However, the rationale behind the advice to pay it off adresses the "root cause" of the issue, spending more than you should. The reason I posted this article was that we have seen many questions like this on the forum lately. It appears that everyone is looking for a "magical answer" to make the debt lessen or go away. The important thing is the "mindset" you first mentioned, spend less than you make. I think that is the reason the advisor stated to pay them off. We also don't know if the inquirer has the full means to pay off the debt, and worse, even if they did, would they continue on these types of spending habits. One of the main reasons for having availabel credit is also for emergency purposes; if you "spend the credit away", you are not fully prepared for one of life's emergencies. My attraction to the article was the recurring theme of "change your habits, and get the mindset of no debt".
I fully agree with the mindset of changing habits. I was just making the point that debt is not always bad. I got an offer on one of my cards about five years ago. Balance transfer (can be payable to you) at .99% for life of the transfer. Yes, you read it right. Less than 1%. I immediately paid off the card, transferred limit from another card with the same creditor to this card, and maxed it with a BT to myself. The money went on interest at about 4% at the time. I pay only the minimum every month. Why would I pay more, since I can obviously get at least 1% elsewhere and have the money available if I need it for something. If I pay it off, the 1% money might not be around when I need it. In fact, we had some problems in our house a year or so later that caused about $12K of repairs. Instead of having to borrow money at the prevailing rate (I think you could get 5.99% at the time), I could put the repairs on a rewards card, get my miles, and pay off the card when it came with the 1% money I had borrowed. In the meantime, I had been getting more interest. You do need to have the discipline to put the money away and leave it alone except for the emergencies, though.
I completely agree that debt used wisely and prudently is a great financial tool. Your point about discipline cannot be stressed enough though, obviously you have it, but the majority don't. To go a bit off topic here, the reason I posted this article was the many similar questions recently posted. There seems to be an increase in this "excess debt" issue. Many people are looking for some way out that is truly not there, and even if there were one, if they do not attack the root cause, the issue will happen again. I am trying to stress "true" credit repair, in hoping everyone looks at the real causes that got them into these situations, and make the proper corrections. You obviously have done that, and vowed never to return, hence the more sophistcated apply to, and work for you. I just want everyone to get to this point as well.
Well, I still have a few hard times, and sometimes it gets out of control. But then I have to reign it in. I'm rapidly approaching retirement age with nowhere nearly enough in my retirement funds. I'll have a pension, my husband has a retirement, but it won't be enough. Right now I'm putting away over 20% of my income, so when I have some major issues like home or auto repairs it gets rough. That's why I try to have some reserve funds like the BT I mentioned. Once I get it put away, I'm reluctant to use it, though. I agree with you that many people are looking for a way out that isn't there. I think we're going to see even more "excess debt" issues in the coming years. In my opinion, it goes to the same root that the mortgage "crisis" does. Many people today want instant gratification. The concept of saving for something you need in the future is unheard of. It's the "I want it now, I need it now, so I must have it now" mentality. The first thing people need to learn is the difference between wants and needs. While you may WANT a new car, in most cases you don't NEED a new car. If you need different transportation, a cheap used car will get you where you need to go. OK, enough ranting. I'll get off my soapbox now, but I do believe that we're only seeing the beginning of what will become the next "crisis" in the country.
