Bridging the Gap
It’s time to think about recycling the plastic card in your wallet.
We all know that budgeting requires recognizing the difference between our wants and needs but for many American families the gap between needs and wants is growing. More and more families are not able to worry about wants, as the needs are demanding a greater and greater portion of their hard earned dollars. Everyday, credit cards are increasingly chosen as the bridge to make ends meet or a plastic safety net for emergencies.
Ultimately this spending trend has caused “The Country Has Racked Up $1 Trillion In Credit Card Debt” according to a released batch of Federal Reserve data in April of 2017.
Let’s face it. You would have to be living under a rock not to realize that American families have been facing increasingly burdensome financial hardships. Wages for the American worker have remained stagnant, with annual raises barely keeping up, if at all, with increases in the cost of living (think health care, food, insurance, gasoline, home heating to name a few).
Maybe credit cards should change the tag line from “accepted everywhere you want to be” to “accepted everywhere you need to be”.
Still, by winning the day-to-day battle are American families losing the survival debt war? Maybe.
Let’s Cut the Debt
According to BuzzFeed News, “While debt is at a historic high, people don’t yet seem to be struggling to repay their cards. The rate of deliquencies, meaning people late on payments, fell to historic lows in the final months of 2016, according to the American Bankers Association. Just 2.69% of all accounts were delinquent, well below the 15-year average of 3.66%.”
“I think it’s a good sign,” Chris Low, chief economist with FTN Financial, told BuzzFeed News. “You need a little credit growth or you don’t have economic growth. As long as it’s not excessive, you’re fine. At the moment there are no indications that it’s excessive.”
Low said the nation’s rise in credit card debt is a result of changing consumer behavior after the 2008 recession. Before the recession, home equity loans were a cheap and popular method of borrowing. That changed after the housing crisis made them much more difficult to get — and people became much more cautious about borrowing against the value of their homes.
Consumers are also in a more stable financial position than they were even before 2008, said Low. Their debt-to-income ratio is three percentage points lower than it was even before the recession, according to the Federal Reserve.
Tips and Tricks to Control your Spending
- Work hard to focus on setting aside and saving money as your emergency fund.
- Recognize that creditors grant credit based on the likelihood you will repay them – not whether you can realistically afford it. (Exercise good judgment when considering credit use.)
- Don’t fall for the lure of ‘free & easy’ money. Purchase no more than you would if you were paying cash. Examine ‘upgrades’ rigorously compared to needs.
- Most obvious – avoid putting day-to-day expenses on plastic.
- Pay off credit card account monthly, but if that is not possible at least pay more than the minimum payment due.
- Finally, if you find you’re on a roller coaster of plastic survival debt, contact a certified credit counselor for help immediately
