There’s a new hero in town ready to tackle your credit card debt. (hint: it’s you.)
Credit Card Debt Sucks
Literally. Credit card debt sucks freedom from our daily and future opportunities. If you have credit card debt, you already know this. You also probably know that:
- Most Americans have credit card debt.
- Credit card debt affects your credit score.
- Making only minimum payments will cost you tons of money over the long term.
Credit card debt is such a common issue that if you google “get out of debt,” you’ll get daily editions of new articles from well-meaning personal finance sites with steps to take action. Don’t get me wrong, there’s usually nothing wrong with the advice given. But many of us can’t use it for 2 reasons:
- We believe we can’t come up with the extra cash necessary to take action.
- We believe that refinancing our debt is impossible, dangerous or will damage our credit score.
And Sometimes We Get Stuck
If we believe there are no actionable steps we can take, we freeze. We may think that the minimum payment is all our budgets can handle, or that paying off credit card debt with a personal loan is risky. So we do nothing. We feel trapped. This is where most of us give up.
Our biggest problem is that we are convinced that we can’t do anything about our credit card debt.
That’s When Financial Predators come out to “help”
In many cases, we just continue making minimum payments, hoping for some day in the future when a windfall might come along and get us out of the situation. Or, we throw up our hands and pay for credit card counseling or debt repair services. Be careful here. There is a huge difference between honest credit card counseling and sketchy debt repair services that could impact your credit score for years.
Even if you erased your debt with a credit card “repair” service or a bankruptcy, your FICO credit report sticks with you your entire life. A few mistakes and you’re stuck with that crap for years until it drops off your report. Today, our credit scores also impact us in ways that have nothing to do with banking. Even potential employers are pulling credit scores.
Why Fixing Things Yourself is the Best Approach
You’re always better off sticking with a Do It Yourself (DIY) method to manage your credit debt. Not only is it cheaper, but through the process you will learn how to avoid debt in the future, so you can avoid falling back into the same trap. And while that might seem overwhelming, you need to believe that you have the power to change things, because you do.
Don’t give up before really giving DIY a chance
We really have to bite the bullet by overcoming our own fears of facing exactly what we owe and what it’s costing us over time. This can be hard. We don’t want to see it. It’s depressing and makes us feel like giving up. The more we look at it, the worse we feel. I know. But if you bear with me for a moment, I want to explain why you shouldn’t feel like a loser if you are in a credit card debt spiral.
How Banks Take Advantage
The banking system is not broken. It’s actually designed to work exactly as it does: not in your best interest. So stop feeling like a loser. You aren’t at all and you need to wrap your mind around that.
If you are stuck in minimum payment Groundhog Day, you are exactly the kind of customer a bank wants.
If we talk a bit about what banking and debt really are, you’ll realize that, far from being worse off than everybody else, you’re actually very much like most people. You will realize that this is all one big game, and you simply need to learn how to play it. It may take some effort and creativity on your part, but it’s so worth it. We have to change the way we think about banking. Check it out…
1. Banks Like to Double Dip
Banks don’t create their rules to benefit us, they create their rules to benefit them.
When you deposit your paycheck in a basic checking account, the bank gets to use your money however it wants to, and you get paid nothing for providing this service to the bank. Conversely, if you want to use some of the bank’s money, the bank charges you interest. A bank makes money from the difference in what it earns in interest by providing loans, and what it pays in interest to depositors. With the minuscule rates banks pay in interest on savings deposits, if you are paying interest on a credit card, you are getting shafted. And if you are paying monthly banking fees, well, you can see where this is going.
The bank is making money off of the money you “loan” it and off of the money it “loans” you. Think about it that for a minute.
2. Your Deposits are a Loan to the Bank
“But wait,” you say. “I don’t have any savings in the bank, I just use it to pay my bills.” Doesn’t matter. When we deposit our paychecks in a bank, that money sits in our bank for around 2-3 weeks or so until our bills start coming out of it. What is happening to your money while it’s sitting there waiting for your bills? The bank loans your money out to someone else and collects interest on your money. So, even if you only deposit your paycheck until your bills clear, the bank gets to use your money for around 50-75% of your life for free. But if you want to borrow the bank’s money, even for a short while, you have to pay the bank interest. The banks are double-dipping.
3. Banks Even Lend out Money they Don’t Have
And if that pisses you off, as it should. Did you know that banks can loan money they don’t have? Banks only have to keep in reserve 10% of your deposits, and they can loan the rest out without your permission. What this means is that for every $1,000 you deposit in the bank, the bank can loan out $900 of your money and make money off of your money. This is called Fractional Reserve Lending and it’s completely legal and normal in our country. So you could say that, in effect, we do not have money system at all. What we have is a complicated system of IOUs.
Banks can create money by extending credit and loans to customers from money that it doesn’t technically own.
So, when you think about your debts, try not to look at yourself as some sort of failure. You aren’t. You are simply caught up in a game designed by the banks for the benefit of the banks. And it’s not your fault because we weren’t taught this. As depositors and borrowers, we are in a losing game until we learn the rules, learn how to play to our advantage, and flip the script on the banks.
How can we flip the script on the banks?
First, understand that you are no more in debt than the US government, the banks themselves or anyone else. Our entire economy is leveraged. It’s how the game works. You are just in a more vulnerable position because credit card consumer debt is usually for goods and services which are “consumed.” For example, compare credit card debt to a business loan used to start a business, or a mortgage to buy property. These types of debt, though still debt and still incurring interest, are doing something for you. This is why credit card debt is the worst debt to have. It does nothing for you but does wonders for the banks. They love it. This should make you angry enough to want to do something about it.
Forgive yourself and start small
If we want to get ahead in this game, we have to get interested in it. We have to get involved. The problem is, “money” is emotional. It’s hard to deal with. But you have to get out of your own way and stop taking it personally. So, stop with the debt-shame. It’s pointless, and it’s the primary reason that people remain stuck. If you get anything from this post, understand that changing your mindset and even taking one small action can begin to destroy your feelings of powerlessness and shame, and set you on a path to change your thinking and behavior so that you can change your relationship with money and the banking system.
If you don’t like the way you feel when you think about your credit card debt, you can change it!
While there is no quick fix for the credit card debt itself, you will be surprised at how taking action, no matter how small, can begin to empower you and temper feelings of shame and angst. Once you start, you will build momentum over time. The most important thing is to start.
Where do I start?
Ignore your feelings of overwhelm and let’s walk through some simple steps. First, you are going to want to grab your most recent credit card statements so that you can see all of your balances and the interest you are being charged for each account. Armed with this knowledge, you can get a picture of the options available to you.
Here is a resource to help get you started:
Download: Well Wallet – DIY Cedit Card Debt