Monday, January 09, 2012

Return to 'normal' not a good sign

The Fed reported today that Americans increased their spending in November. Some might see that as good news and a sign of economic recovery, but because that spending increase was on credit cards and through auto loans, that doesn't strike me as a good news.

In fact, that sounds like whatever lessons people learned about cutting debt and increasing savings have been forgotten.

I held out some naive hope that I was part of some new trend, a wave of Americans cutting up their credit cards and getting smart with their money. To further my delusion, I thought that if Americans could get their spending under control, maybe we would be able to expect our government leaders to do they same.

I guess that dream was nothing but a delusional fantasy.

On the positive side, I take some comfort -- pride even -- in the fact that I didn't turn to plastic over the holidays. If you did, and you have been working to get out of debt, I hope the decision to take a big ol' snort of  unsecured credit represents a temporary slip.

Cut up the cards and dedicate yourself to paying off your bills again.

In the Associated Press story linked above (and here), include the following section:
The rise in borrowing comes as many consumers are seeing little to no growth in their paychecks. Inflation-adjusted, after-tax incomes shrank by nearly 2 percent in the July-September period.
I can relate to the stagnant paycheck status. However, I can also tell you that I have much more discretionary money to spend now than I did when I started this process of working to get out of debt. In the beginning I had about $50 each month that wasn't either going to minimum payments, paying housing expenses, covering fuel costs for my car and buying food. Today, I have about $550 per month in my debt snowball, which can go to other costs if necessary. That's how I paid for Christmas without using any credit cards.

I am still paying the same amount each month to credit cards that I was a year and a half ago. The difference is, I am paying that money to fewer accounts and paying down the principal on one account at a must faster rate than I was before.

I still worry what might happen if I joined the ranks of the unemployed. But now, I know if that happens, I can't and won't turn to credit cards to tide me over until I get a new job. Getting deeper into debt at I time I may not be able to pay my bills would be profoundly stupid. But at one time, that was my back-up plan. Of course at one time, I convinced myself it was a good idea to take a cash advance against one credit card to pay the monthly payment on another one. Yea, I did that. Several times. Financial panic did not lead me to make smart decisions.

You don't have to use my plan. But you do need a plan and the willpower to stick to it, whether the holidays are approaching or not.

1 comment:

Gene said...

American "excess" (as viewed by others)fueled the world's economy for decades.
Wasn't the larger part of the recession caused by financial de-regulation, or lack of adequate oversight, than the credit-card debt held by the American public?
Mind you, I am in total agreement with your decision to spend less money on interest charges! :-) (I haven't paid interest on a credit card in years--I look on plastic as a non-interest-short-term-30-day loan.)
We should spend as much as we are able, but be prudent, eh wot?

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