This thread got me wondering how people wind up in debt. My mother is quite poor and I didn’t receive any financial education but it seemed quite obvious to me to never spend beyond my means. I have never carried a credit card balance in my life and when I was a poor student I lived as a poor student.
There seems to be a tremendous number of Americans/Canadians in debt (not sure how it is elsewhere) and I have trouble believing it’s because they’re all spending more than they make on non-necessities. Are there any statistics out there for how many people are in debt and how they got there? Unexpected medical bills is the only thing I can think of off the top of my head.
I’m trying to fix a prejudice I have. When I hear someone has credit card or other debt I don’t feel any sympathy for them and think it’s simply their money mismangement. Help me understand that there are more people legitamately running into debt than I think.
I think it’s something that people just gradually get themselves into, busy with their day to day lives and not keeping track of their finances. Then one day they realize they’re thousands (or tens of thousands) of dollars in debt. Many people seem to spend money for status and for the quest to have more “stuff.” The US economy seems to be all about spending.
Unexpected medical bills can be huge, but losing a job, health problems, caring for a sick relative, a string of bad luck, any of that could cause big financial problems.
I would imagine there are two main ways. 1. as you mentioned unexpected and unprepared for expenses. Medical, Car issues, emergency house repairs(furnace, water heater etc.)
2. Getting hooked a little bit at a time. So many people I know swore to never carry a balance, but kept the card for emergencies. But then for some stupid little thing ,ended up with a little balance, Loaned money to a friend, forgot to deposit a check on time whatever. But that 50 dollars sitting there costing 75 cents a month didn’t seem too bad. Then it just got easier to use the crutch again, and again until it got out of control.
I can save up for big purchases if I know ahead of time.
Generally when I have to carry a balance on a credit card, it’s due to an unexpected big expense: travel for a funeral, vet bills, or when my computer died (I sometimes work from home so saving for two months to replace it is not an option).
But I don’t usually carry a balance and it’s rarely anything that I couldn’t take care of within a month or two.
However, I did run up some credit card debt as a irresponsible college student. I fell under the “getting hooked a little at a time” category, and looked the other way until the problem got too big to ignore. I wish I could go back to my 18-year-old self, slap her and cut that credit card in two!
I took full responsibility for my debt and paid it all myself. But there is no way credit card companies should be allowed to give college students with no income such obscenely high credit limits.
The main cause for me was from loaning money to a friend who assured me he would be able to pay me back. He’s been through a couple of layoffs, he’s had other, apparently more important financial obligations come up that took precedence over what he’s owed me, and he recently filed for bankrupcy. Thanks!
The rest of it was caused by getting laid off in late 2004 and then getting fired in 2005 and being unemployed for the next three months. Things have since gotten back on track, but it’s going to take some time to get out from under my credit card debt.
Student loan debt. After three years of nickle and diming our way through school, we found we could no longer do that to finish up. Our last two years really put us pretty far in debt. Once you have those kind of numbers behind you, whipping out the card for a Christmas present doesn’t seem like that big of deal. Then you add in car(s) and you are in over your head without even realizing it.
We do have a handle on the debt now, but it got really rocky there before we managed to pull ourselves out.
I lost my job and my car broke. The combination made it hard to find new work, so I went on unemployment but the councellors kept finding me McJobs, which just made things worse as I could not pay my rent, could not afford to move, and could no longer interview for decent jobs. It was a while before I was even again.
I went from zero to over $20K in about four years. Our income went down but we didn’t cut back. But there wasn’t much to cut back on. We’ve never been big spenders. We don’t eat out or buy $3 coffee drinks. Hell, I don’t even “shop” and I’m wearing shoes I bought five years ago.
But we kept the satellite TV service ($100 a month), the cell phones, the high-speed internet, the Harley, and we kept helping out the kids and spent too much at Christmas. Then the house needed a roof, the pickup needed repairs, lots of basic necessities went up – propane, gas, property taxes, food, insurance.
Our income is better now so we got a home equity loan and paid off the cards (and cut them up). We don’t have a mortgage or car payments, so we’ll be okay. Except we don’t have any savings. Sigh.
First time was in college, when I stupidly abused credit cards. That took me around 4 years to dig out from.
Second time was when I started a business and needed to support myself on credit cards when the business was getting going. That took over 5 years to dig out from.
This time, it’s inherited debt by way of marriage. I’m trying to dig out as fast as I can.
Sears - I was young and stupid and newly out on my own with a shiny new Sears card with a $2200 limit. I spent it on clothes and crap that was equivalent to me wiping my ass with $100 bills.
MasterCard/AmSouth - Same time frame, I bought enough beer to float a fraternity house and paid for a medical procedure I didn’t want my parents knowing about.
Capital One - Used it to buy groceries when I was on maternity leave with two kids and no paycheck and a husband that made hardly any money. By the time the bills came due my credit was so bad that I didn’t bother to pay them because I figured what the hell.
Evenually I got sued. It was the best thing that could have happened to me. I quit thinking like someone that wasn’t going to pay because my credit was shot anyway to thinking like someone that might actually have a shot at owning things. I figured out when I (rightfully so) lost the lawsuit that I actually could live on $300 less a month and make huge chunks of payments on overdue money and get it done and over with.
I am now down to one outstanding bill for $158 and finally, hopefully away from living hand to mouth.
I am now very outspoken in front of not only my friends, but also younger coworkers and 20 somethings to make sure they know - those bills will catch up with you!!
We were just fine until my wife’s grandmother became unable to take care of herself a couple of years ago. We dropped from two incomes to one, since it’s impossible for her to hold a job when emergencies happen to her grandmother every other hour that need solving.
It happened very gradually, but we’re at the point where accumulating debt is passing our ability to make ends meet. Sucks. The worst part is the demon in the shadows called “deferred student loans” that we hear scraping its nails at the door…
I am now very outspoken in front of not only my friends, but also younger coworkers and 20 somethings to make sure they know - those bills will catch up with you!! Part of the mindset of (not all, but some) of the people with bad debt is “don’t talk about it and it will go away.” Acknowledging that my credit is screwed because I fucked up and taking responsibility for it really changed the way I thought about it, and helped with dealing with people that I owed money to.
Yeah, I’m rambling, but this is a topic that’s near and dear to me. One thing I have noticed is that several people that I know who have bad debt got into it because they were poor or living paycheck to paycheck and when the one bad thing hit, it waylayed them financially. The difference between some of the bad debt vs. just people in debt types is that the bad debt people have an attitude of “oh well, screw it. I ain’t paying” and believe me, you will. I thought that too until Capital One garnished my wages!! Like I said - it was a huge wakeup call for me and I am better for it so I’m glad it happened. I used to be one of the “screw it” people.
Yes, those recurring bills like $60 a month cell phone and $100 a month cable/satellite bills really get you over time. They eat up money that you should be paying other bills with, like credit card bills.
I have no debt except my house, but stay out of debt by thinking about every purchase I make. For example, I don’t buy a 20 ounce bottle of soda at 7-11 for 1.40, I buy a 2-liter for .99 and use a cup and ice. I scrimp on nickels and dimes and keep the monthly expenses low. I even save the extra napkins Subway gives me to use at home.
But I still live well and still buy myself stuff if I know I can pay the credit card bill off. Last month I bought a new digital camera, a new Roomba, and other odds and ends. All that will get paid off next time I make a credit card payment because all my cash isn’t going to monthly expenses like cell phones and convenience store stuff.
I have a friend who struggles with consumer debt frustrations by failing to adequately impress upon the spouse the following principles:
Credit card debt is a Bad Thing;
The spouse incurring the debt can really live without the nice ___________ to add to the home decor and/or wardrobe;
Buying something on sale, especially with a credit card, does not result in “saving money”;
It makes little sense to go broke adding this and that to real property because it “adds value” to the house, especially when the couple has no intention of selling the house for a very long time. Of course this intent assumes the house won’t need to be sold in an effort to meet the demands of creditors; and
It’s almost all student loans. I have over 50k right now, and if I decide to finish my master’s, or transfer somewhere else, it will only go up from there.
Compared to that, a 5k car loan and 1k in credit card debt is nothing.
