Spending More Than You Have Is Always Bad
By now, everyone knows what’s going on in Greece. In another day we’ll find out if the government, which means the country, goes bankrupt and destroys their financial status around the world. They’ve been extended an olive branch that none of us would ever get and turned it down. If they have a miracle coming, it’ll happen after this post has been written.
Actually, this type of thing is nothing new. Even the United States does this; that’s what a deficit is after all. It’s been coming down over the last few years, but we’re not going to hit the surplus we achieved under President Clinton.
Still, even when this country, or any country, has a surplus, it doesn’t mean it’s not spending a lot of money, or borrowing against its assets. Truthfully, I don’t fully understand all of that so I’m not going there. Instead, I’m going to bring this issue closer to home.
The reason I spend a lot of time talking about the need to set up a budget is because overwhelmingly people have no real idea whether they’re spending more than they have. With credit cards so easily available, most people would be shocked if they had to sit down and figure out just how much they owe.
It’s estimated that the average household has at least $7,300 worth of credit card debt, but that’s for households that can handle it and could probably pay it off. Households that are living paycheck to paycheck yet using their credit cards to help pay their bills jumps up to over $15,700. How many people have more credit than they can pay off by writing a check?
If we run into problems that get us into this type of predicament, then it’s understandable; one has to do what one has to do. But if the spending is because you want that new 65″ flat screen TV with the curve or the latest designer shoes, and you don’t know how much you owe on your credit card… shame on you.
Want to know a reality? If you can pay your minimum balance due you’re actually putting yourself into greater debt every month. In 2009 the Credit Card Act was passed and one of the new rules was that credit card issuers had to tell you not only what your minimum amount was each month but how much you needed to pay if you wanted to get out of debt with that card in 3 years.
How many of you have looked at that? If you haven’t, you need to because you’ll be shocked. Depending on your interest rate you’ll see that if you stopped using that card and only paid the minimum amount you’ll be paying on that card anywhere from 9 to 20 years; as I said, that’s only if you stop using it.
Isn’t that shocking? In some cases you could end up paying 100% or more than the balance owed. That’s how it is when you buy a home but that’s a lifetime purchase and a steady place to live, not something that you could run into problems with. Owning a home doesn’t hurt your credit score like credit card balances do.
It’s important for you to keep an eye on your debt. It’s important to know how you spend your money, and how to find ways to either pay down the debt quicker or put money away into some kind of savings or investment. Always protect your financial life; it can save you from multiple problems later on.