Let's Break the Chain of Consumer Debt

Charge-card debt and other monthly obligations have turned millions into credit slaves

by James M. Flammang

(Updated: February 22, 2010)

Even when credit terms are enticing,
why can't we learn to "Just Say No"
to buying more goods on time?

Developed decades ago as a convenience, credit cards have turned into monsters that suck the financial life out of millions of Americans. For every person who pays those monthly bills on time, several others come up with only the bare minimum, forking over shocking amounts in interest every single month. Whether they realize it or not, they're stuck in a rut of never-ending debt. Paying the minimum makes it certain that you'll never climb out of that credit hole, but will keep sinking further into the mire.

Credit-card issuers know full well how addictive their products have become. That's why we keep receiving so many offers for additional cards in the mail - even during times of less-available credit. They make plenty of money on all those credit accounts, and crave even more.

But they're not the sole culprits in this economic game. No, the blame has to be shared by shoppers who cannot resist making more and more purchases, without even thinking about coming up with the cash to pay for them. Another share of blame goes to our school systems, which - with some notable exceptions - have failed miserably at teaching young people how to handle money wisely, and keep debt to a minimum.

As the financial crisis grew in late 2008 and into 2009, triggered in large measure by the subprime mortgages that lured millions into signing up for home loans they couldn't possibly afford, lenders reacted by closing the coffers. Finally, the finance industry realized that pushing what came to be called "toxic" loans was dangerous business. Those who sold such loans typically profited handsomely, but their nefarious deeds helped bring down the American - and global - economic system.

Not unlike hard-pressed car owners who gave in to temptation, and then had to endure the attentions of collection agencies and even the "repo man," huge numbers of homeowners in default have faced, or soon will face, foreclosure. In recent years, automobiles had been increasingly sold to subprime customers, eager to slip behind the wheel of a vehicle that was, by any reasonable measure, well beyond their means.

While tightening of credit during 2009 had the beneficial effect of preventing borrowers from acquiring impossible-to-repay burdens, its impact upon responsible shoppers has taken a far different turn. Those who live within their means, and use credit sensibly, may also be shunned in the credit market. Thus, they may be unable - or unwilling - to make purchases that could help stimulate the economy back to life. The "stimulus package" put forth by President Obama, and endorsed by prominent economists, couldn't work unless people began to spend. Yet, at the same time, to avoid intensifying the recent financial debacles, they've had to be discouraged from spending with credit that they wouldn't be able to handle when the monthly payments came due.

It may come as a shock to folks who carry a five-figure balance on their credit cards, paying interest rates of 20 percent and upward, but some of us actually pay our bills in full, when due. Always have. That's because we don't borrow money to purchase things that we don't truly need, and/or cannot afford. Simple, but true.

Note: The complete story, Let's Break the Chain of Consumer Debt, will be posted soon. The text above is intended as a sample.

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Text and photos by James M. Flammang