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We Have To Stop Spending What We Don’t Have.

by Mark Singleton


I have been writing this column in the Ellis County Living Magazine for more than a year; a year of financial crisis in America I’d love to package and send back to the greedy Big Boy Bankers and Wall Streeters that got us into this mess.  Thankfully, what has happened is that the grassroot public and the 98% good banks in the U.S. rallied and put their finger in the dyke.  Clearly, America is on the rebound.

To continue the recover we need to stop spending money that we don’t have. Now that we have had some dramatic belt-tightening, we need to stay on the diet.  

One of the best ways we can start living within our means is to stop thinking plastic is gold.  I know that is easier said than done, but possibly the following information will give some perspective on how important it is to spend wisely.

American credit card debt rises every year and now is close to surpassing one trillion dollars.  A trillion dollars is a million million dollars.  Taking one dollar bills and placing them end-to-end, a trillion of those bills would stretch from the earth to the moon 400 times.  That is how much Americans owe in credit card debt.

The average household credit card debt in the U.S. in 2008 was $8,329.  When you consider that the average median household income in the United States in 2009 is $46,326, then we are a nation that, on average, owes more than 18% of our gross yearly income to credit card debt.

But let’s drill down to how credit card debt directly affects us.  For the sake of illustration, we will assume that we owe $4,000 in credit card debt, less than one-half what the average American owes.  Even though the majority of consumers have 13 credit obligations (from credit cards to a mortgage), we will say that our hypothetical $4,000 in debt is all to one single credit card company.  The average credit card monthly interest rate is 14.30%, so for example we will round down to 14%.  

 If you pay the minimum amount due each month (usually 3% of the balance) it will take you almost 15 years to pay off the entire $4,000 owed.  You will have paid $2,425 dollars in interest so that you could “borrow” the $4,000 you charged to your credit card.

Now let’s say that you want to spend $100 on something and charge it to your credit card, the one that already has $4,000 in charges on it.  Your expenditure could range from a family outing at Six Flags to absolute essentials, it doesn’t matter.  Debt is debt and the $100 charged is $100 that begins to assume interest charges.  Now that extra $100 tacked onto what you already owe will cost you over the time it takes to pay it off an extra $63.  Therefore, what you think is costing you $100 when you plunk down the plastic is in reality costing $163!

All of us, including banks, need to be more prudent in how we handle the income we make.  We can not live in a world that spends more than it makes.  We can not do it with our personal credit cards and we can’t do it with a mounting national debt.  The house of cards will eventually topple down.  We have had a hard reality check for the past 18 recessionary months.  Shame on all of us if we allow history to repeat itself.