Saturday, January 08, 2011

Credit card borrowing down for 27th month is news our budgets can live with

The Federal Reserve reported on Friday that consumer borrowing rose in November for things like cars and college loans. However, the Fed also reported that people are actually saving more and spending less on unsecured credit, meaning credit cards.

We, the people, borrowed 6.3 percent less in November on our credit cards. It's the 27th straight month that consumer borrowing declined.

An economist the the Bank of Tokyo-Mitsubish said consumer borrowing was down 2.2 percent in November, from November 2009.

"Household attitudes toward the use of credit cards soured during the Great Recession and it's going to take time before many people get comfortable with using them again," Ellen Beeson Zentner told the Associated Press in a story release Friday.

"We have a long way to go before credit normalizes," she said.

For me, putting the brakes on consumer credit IS the new normal. For one thing, the credit card issuing banks have not returned the interest rates they charge to "normal" either. Whether it's their intention or not, they taught me that I had far too much credit and had tapped far too deeply into it, and when the banks increased interest rates, it wiped out any discretionary income. So, when I get out of this mess, I don't ever want to get back into it again.

So, don't count on me, and people like me, to do more to fuel the economy. The available funds I have are not increasing.

Sure, some of us will undoubtedly start using credit cards again. But not all of us. For those of us committed to paying only for things we can afford now, this is the new normal, and the banks better get used to it.

Monday, January 03, 2011

Celebrated a credit-free holiday

I got through the holidays without tapping into any credit cards. It's the first time since I've had credit cards that that has happened. It was an all-cash holiday.

I am proud of myself for that.

I wish I could just accept that and move on, but I can't resist the urge to beat myself up a bit.

I didn't go a very good job of planning for the holiday spending in advance. I didn't budget for it in advance at all actually. So that meant I ended up tapping into my savings account -- my emergency fund if you will -- to cover some of my holiday and monthly expenses. So far I've depleted the account by about $150, which isn't too bad. But there are still a few more days until pay day, and I've run out of supplies. The cupboards are getting pretty empty and there may not be enough meals left to take me through to pay day. The menus have already got pretty unbalanced.

So, it appears my effort to tackle my debt may have to get set aside for a month or so until I can rebuild my savings account. It may only be the delay of a month or two, but it's still a disappointment.

I've learned a lot about budgeting in recent months, but I still have to learn about how to budget for things outside the regular monthly bills like holidays, birthdays, car insurance, etc.

I should be paying off one small debt this month. I'm tempted to just pay it off anyway and work on rebuilding the savings account next month. But as I am also learning, the Dave Ramsey plan works quite well for me if I stick to it. Even parts of the plan I was skeptical about, like using cash envelopes for things like groceries, car expenses, entertainments, have helped keep me focused on my goals. Although, I'm sure Mr. Ramsey would not consider Christmas an emergency, I also know I should rebuild that fund before I tackle the debt again. I'm just so close to paying one more debt off. I want to be done with that one and move on.

Back to the plan. If I can get aggressive enough this year and can get a few months ahead of schedule, I may be able to pay off a credit card debt this year too in addition to the small debt I'm close to finishing off.

The next two years are going to be a long, hard slog before I can really start knocking these debts down -- and out -- in the two years after that. I would either need to up my income, reduce expenses even more -- or both -- to get on a faster track.

There's still much to do and much to learn and a whole lot of work to do. But maybe the corner was turned in 2010. Here's to continuing progress in 2011.

The End Debt Daily