We Need to Talk About Credit Card Debt
In a national survey, 42.4 percent of Americans reported having credit card debt, and the average balance is a staggering $10,902. According to a survey by the National Foundation for Consumer Counseling, 37 percent of Americans would be more embarrassed to admit the balance on their credit cards than their age or weight.
Why are so many of us afraid to talk about the problem that is haunting so many of us? And does our inability to talk publicly about debt cause bigger problems in the long run?
I Am a Failure
Credit card debt is viewed as a failure and weakness of character. People who spend too much are accused of living beyond their means, shopping too much and indulging in a life they can't afford.
And to a large extent, this is true. Credit cards make it easy to shop without thinking. If you don't have a budget, it is incredibly easy to spend just a bit more than you should. Countless studies show that spending with plastic means that we spend more. And we don't just spend more money in absolute terms. We will actually pay more for the same item. One of the more famous studies showed that, in some cases, people were willing to pay double for an item when they used a credit card. When we pull plastic out of our wallet, we are no longer savvy shoppers. Instead, we give into the temptation of the moment and build up a debt over time as a result. Spending $50 that we can't afford every week can easily turn into $10,000 of debt within four years.
But there are other reasons for credit card debt. Two of the biggest causes of debt are job loss and medical expenses. Fifteen percent of the population still does not have health care, and a big emergency expense can generate massive medical bills. If you are not prepared financially for a job loss, debt can start to accumulate quickly.
Having credit card debt is never a reason to celebrate. So, people with credit card debt are embarrassed and remain silent.
Silence Is Costly
Credit card debt is expensive. Most store cards charge above 20 percent, regardless of your credit score. And more than 75 percent of people with credit card debt are paying an interest rate higher than 15 percent. By refusing to talk openly about our debt, we make three big mistakes:
- We become collectively delusional about the lifestyle that we can afford to live. We continue to buy clothes and eat in restaurants that we can't afford and slowly go into debt together. We end up borrowing to keep up the appearance of success, even though 40 percent of us can't afford our lifestyle.
- We end up paying too much on the debt that we have. Because mortgage debt is acceptable debt, people will speak openly about finding the lowest rates from the best providers. But for some reason, refinancing credit card debt is considered a sin. And we are expected to pay high interest rates as punishment for our bad decisions. Banks profit from our fear of finding a better deal.
- We lose the chance to help other people learn from our mistakes, especially our children. Because society judges purchasing power as success, we are afraid to admit to our children, our family and our friends that we can't afford something. So we pretend, slowly digging ourselves into deeper debt.
Start the Conversation
We need to start talking more openly about our debt. And we need to be more supportive of people trying to get out of debt, in the same way that we support our friends who are training for a marathon or on a mission to lose weight. Becoming debt-free and staying debt-free is a lifestyle choice, and it would be a lot easier if we all get in on it together.
But someone needs to be brave and speak up first.
A startup in California is trying to help people refinance their high interest rate credit card debt into a lower interest rate installment loan. Its name, Payoff, also reflects its mission. Payoff has faced similar challenges as MagnifyMoney: people just do not like to talk about paying off their debt. So, they started getting members of their team to talk about their own debt stories. And they are encouraging their employees to share those stories publicly. For example, Tanya talks about getting into credit card debt because of her marriage, and then finding a way out of debt on its website. We need more people to share their stories.
You Can Get Out Of Debt
Getting out of debt is possible. And it is even more likely if friends and family offer support. If you know your friend is training for the marathon, you would not be pressuring that person to skip training and join you at the bar. Equally, if we know about a friend's commitment to live debt-free, we can stop tempting them with shopping trips or nights our in bars and restaurants.
The mechanics of getting out of debt are relatively straightforward. You can cut expenses, refinance your debt to a lower interest rate and accelerate debt repayment. But creating a community of support is harder -- and more effective.
If you don't know where to begin on your journey towards becoming debt-free, you should consider downloaded my free guide, which helps you put together a plan. And please consider sharing your story with your friends and family. Once we start talking about it, we can start solving it.
Nick Clements is the co-founder of MagnifyMoney.com, a price comparison website that helps you find the cheapest bank accounts, and the best interest rates on your savings and your debt. He spent nearly 15 years in consumer banking, and most recently he ran the largest credit card business in the U.K. You can follow him on Twitter @npclements.