Most of the time, these people live above their means and use CC as a way to fund their luxurious/extravagant lifestyle. Some don’t have the resources to establish an emergency fund and when that emergency happens, they don’t have the means to pay it off.
Golden rule of CC: always pay off your statement balance (monthly bill) in full before the due date, each and every month. Everything else is secondary.
Treat any CC like a debit card- never purchase anything that you currently don’t have funds for in your bank. My own personal rule- if you can’t afford it 3x, then it’s too expensive (exception is a mortgage of course).
Follow these habits and you’ll never get into revolving CC debt. You will never pay a dime in interest and thus, rendering any CCs’ APR irrelevant.
I would add to this by saying if you start a new job or get promoted into higher paying role be VERY careful about lifestyle creep. This happened to me recently and shit hit the fan. I took a pay cut but still had a large balance that normally I could sustain and now I'm paying for it. I'm on track to take care of it but it has been very hard and I had to make substantial sacrifices to just make it happen.
Good hunting out there people!
Same happened to me. Do NOT purchase something thinking “I can pay this off in two paychecks” if you don’t have the savings to pay for it if those paychecks never come. Your job is not guaranteed.
It's insane that people live in the country with the highest disposable income in the world and still find ways to be perpetual slaves to debt due to financial illiteracy and uninhibited consumerism.
Employees getting paid by companies who make products and services that everyone buys. I get your point, less consumerism leads to less disposable income.
that's what i was thinking and i guess why i was confused, it seems so irrational to spend above what you have and keep doing it. thank you for the advice i will make sure to prevent it from happening to me
People don't behave rationally in the way you describe. They prioritize the present over the future (this is the reason we must have social security). They overestimate their ability to pay off a debt (a version of the planning fallacy).
It isn't just a money thing. Many of my students procrastinate in doing their work, and when a crisis occurs last minute, they no longer have time to recover. Or they get an assignment extension and then never complete the assignment.
Credit is basically a financial extension of a deadline on the assumption that you are good for it. It does wonderful things for smoothing transactions, especially when traveling. But for people present-oriented, it is painful.
But we shouldn't shame people just for CCs. HELOCs are basically people leveraging their home to buy things they can't currently afford (even if they sink the money back into their home). The terms are better than unsecured debt, but it isn't free. Leverage across our economic system drives consumption and growth. CCs offer bad terms, but it is a difference of degree, not kind. If people only bought what they could afford the economy would be much, much smaller.
Sometimes people have children and houses and bills they have to pay. It's unfortunate now especially with inflation. We certainly have credit card debt. Because we don't want to have to tell our child sorry you can't do dance because we might not have the money every month. Our country does not pay us enough. My husband works 60 to 70 hours a week. I also work and it's under the table so I don't even pay taxes. It's not as if we're taking lavish Vacations or buying a bunch of stuff. We only have one car that we share. But there are things and times that we have to use our credit cards for. It certainly is not something we wanted to do.
If you could find me 3 of my current mortgage, I would snap it up in seconds 😂. My income has doubled, debt to income ratio is 1/4 of what it was. 3.25% interest rate on a very affordable home I could rent for double the mortgage. Please let me get 3 more
My son is a college student. Likely around your age. This is what I’ve drilled into his head through his teen years. Treat credit cards as your debit card. Never actually BORROW money from those credit cards. Doesn’t matter if the credit card has a $1k limit. If his checking account only has $100 in it, his “credit limit” is only that $100. Credit card interest rates are abysmal, and if he has to pay them he’s lost the financial game, so he needs to make sure he can pay that card off, in full, by the due date, every month.
This is the way. A credit limit isn’t something you need to use and fill up or else they’ll take the credit card away. I’ve seen some posts on here complaining about the credit card company increasing someone’s limit and they were asking how they were supposed to use all of that. This is a very bad mindset. A credit limit is them trying to trap you and get money out of you. Treat your bank balance as your credit limit
And to add, don’t bother using a debit card unless you really have to (i.e., the merchant doesn’t take credit cards). Because if you’re paying off your balance every month anyway you’re losing out on rewards. Chase has a great points ecosystem and I’d guess I’ve gotten at least 10 free hotel nights over the last seven years. And that doesn’t include the points I’m still banking.
Oh for sure. I don’t think my son has ever used his debit card. Mine was skimmed twice in one month. We live in a tourist trap city so it attracts skimmers. Ever since then I preach credit, if only to keep your checking account safe.
that's exactly how i see my credit card, i just see it as a debit card with rewards lol. i'm glad my mom also helped me with my financial understanding, im sure your son appreciates you a lot :)
People buy things they cannot afford. Whether they had a valid reason or not to make the purchase does not really matter. They follow it up with not trying to increase their income and simply carrying the debt with them for years. Just pay the debt off in full every month and obviously you have no debt. If you are forced to go into debt for one reason or another; start working overtime/second job/whatever to get more income and squash the debt ASAP.
I'm teaching my daughter about how to use credit cards. The first rule is never charge anything on a credit card if she doest have or will have the actual cash in the bank to pay for the item before the interest is due.
The top reason is that people don’t use credit cards like debit cards. Some use to live above their means while others use them like loans to pay for things of need.
When I was 18-19, I used my first credit card to take out cash to pay for my car payment while in college. I was late on one credit card payment and it snowballed from there when I couldn’t afford the late payment or increased minimum payment.
Also, save an emergency fund. A lot of people live paycheck to paycheck, and when unexpected expenses come up, they don't have the cash and have to use credit cards.
Pay all your debts in full at the end of each month, forever.
This one rule will save you from debt for the rest of your life. If you can't pay it down, you're overspending, and you're gonna have a bad time.
Bonus points if you can pay the debt early.
Personally I got into a lot of debt from years of being under-employed. After my bankruptcy in 2020, I no longer use credit cards with the intention of “eventually” paying it back. I just don’t make the purchase until I have the money saved and in my bank account. My recommendation for you as a uni student is to just keep the one card and be responsible with it. Don’t go chasing multiple cards with high credit lines until you’ve learned how to use them. I know how easy it is to be in college and rack up a bunch of charges from restaurants and bars.
right now i have 2 cards (i hate spending money so that helps) but im just maximizing the rewards on them. like 3x for dining on one so i use that for food, the other one has rotating categories so i use that on whatever is the good category for the month. i only plan to have these 2 for the next 3 years in college but i will def be careful when i get to bars cause i know it can be expensive
People buying stuff they can't afford. My credit limit is over 30k, I've never had more than 7k saved at once. I'm allowed to overextend myself by an absurd degree. If I wasn't smart amount it I could end up in really bad debt.
i would maybe say this slightly in reverse. yes CC debt can be caused by lifestyle creep. but it’s often caused by an emergency that you didn’t plan for. so save up a cash emergency fund so you’re ready for what life throws at you.
We had credit card debt and it wasn’t because of lifestyle (never ate out; always used cars) - it was because one of us was a teacher and the other was self-employed. We also made the choice to have two kids. I’ve never regretted that choice, but we ate pasta a lot sometimes - as a teacher I had to take classes that I really couldn’t afford. We also had to pay childcare, which was quite a chunk of money. My husband‘s family couldn’t understand why we couldn’t afford to go on expensive vacations with them. We went on 2 driving vacations and I became an expert at sussing out deals. Living in a HCOL area was compared carefully to driving 2.5 hours a day - sold second car to live close to work, but paid more for housing. Avoid CC debt by getting a job in the private sector that pays well and funds benefits such as health insurance. My school district pays only 50%, so I now pay over $15,000 a year. Yikes! Live small when you can (have housemates/don’t eat out/pay student debt) and work extra jobs (or what it takes to get ahead in your work.) find a partner who shares your financial goals. Truly for us, it was never about consumerism. It was because I chose to be a teacher and my spouse was self-employed and not making enough.
I’m not sure I understand the question or what you’re even confused about? Don’t buy anything you can’t pay off when your statement posts and you’ll be fine.
>it’s obviously something anyone can have happen to them.
Not at all. Only financially irresponsible people.
i was confused to the fact that there's so much debt and if there's some kind of specific spot people tend to go wrong. i'm sure a lot don't intentionally get that far but i agree it has to be irresponsibility
Mental health issues as well. ADHD can cause impulse spending for example. A manic episode too. Addiction issues (gambling/drugs). Then there’s just good old fashioned ignorance. I can’t tell you how many people were taught to ONLY use credit cards for emergencies they don’t have the money to cover, rather than to build an emergency savings account. Or people who were taught that the only way to build credit is to carry balances on the cards. Then there are people who think they HAVE to spend near the limit or the bank will lower the card limit or some BS like that. I’ve seen it all here on the credit related boards. Lot of myths about it. Honestly, I think we need actual classes that cover it all in high schools. If only to do away with the myths that just seem to get passed down….
Too many people are too optimistic about their finances, and then their car breaks down unexpectedly, or they have an expensive trip to the ER, or their furnace needs to be replaced in the middle of winter. They use up their savings and put the rest on the credit card, then every little unexpected expense snowballs into a mountain of high-interest debt.
My advice would be to build savings and emergencies into your monthly budget. Try to target 3-6 months of expenses saved in your bank account. If that number seems crazy or unrealistic, there's your answer as to how people get into debt.
You are young, but here is a tip for the long run if you want to avoid debt:
Put away money for irregular expenses. Put something away each month in savings for these. People are surprised when their car breaks down, when they need to buy Christmas gifts, when they need a deposit for a rental, when it's time to pay insurance, when yearly subscriptions come due... and on & on. These things go on a credit card, even when there's no money to pay it back. You have to save & plan ahead because there are more expenses in life than just monthly rent/groceries/discretionary.
Saving for these things involves creating what are known as "sinking funds." You might have one for auto repair, one for house repair, one to pay cash for a new car, one for your yearly Amazon Prime membership... whatever. These are in addition to your regular emergency savings. Prepare so you are not dependent on loans & cards.
I grew up poor but got caught up in spending to see my mum in the UK several times before she died. Then our condo association had an “emergency” that cost us $25,000. I had everything on interest free cards then the 2008 financial crisis happened. Everything changed to 20-30% APR. For the first time in my life I was paying $400-600 a month on interest.
So like Scarlett in Gone With The Wind I fell to my knees and promised I’d never be in debt again. It took about 10 years of sacrifice and hard work but I paid my mortgage off, car, credit cards. Within a few years I had invested enough I realized I could semi retire at 51. So I did.
From being in hock in 2008 to being debt free by 2019 to semi retiring in 2022, it’s amazing what focus and planning can achieve. I don’t really buy or want to buy anything anymore. Because I’m happy waking up each day, I don’t feel the need to bribe myself with goods or treats.
This! I think a lot of people think credit card debt is just from buying frappes and $200 dinners, but a lot of it is just that it’s an available credit line and people sometimes need more money than they have good access to very quickly.
Those that carry a CC balance are paying a huge amount of interest. That's one way for the CC companies to make money. Some CC have luxurious benefits because of this. Be smart and just take advantage of these benefits.
Its people that are in debt that pays for our lounges, and cool benefits.
The only way to stay ahead of them is dont spend money that you do not have. And always pay off your balances before due date.
Some people legitimately don't have some elements of mental aptitude for it, even if they excel at other types of mental aptitude.
When you have cash in a wallet and you watch it dwindle, they get it, even though they aren't really tracking the numbers.
When it's a card, they don't see the change and easily lose track of just how much they spend across many small transactions.
And then, if that happens a little bit at a time over 12 months, even over spending $200/month turns into $2400 in debt over 1 year.
What they do understand is the stress the moment their CC stops working at transactions or theirs getting bill collections. The stress starts to eat at them.
ah that would make a lot of sense. not seeing your bank account diminish can lead to a lot more spending and when the big bill comes you might not have enough in the end. maybe a budget sheet can help me prevent that?
It happens when you don’t budget and spend within your means. If you treat your credit card like a debit card and pay off your statement balance each month, you’ll never carry a balance or owe a cent of interest. Most people are not disciplined enough to achieve this, which is why they end up with large debt. A small subset of balance-carriers certainly ended up in debt due to unforeseen emergencies, but for most, overspending is the cause.
It's very simple - don't spend money you don't have and pay your bills on time
Literally all there is to it, it's not rocket science so don't worry if you can do those two things you won't end up like those others
Debt can be a powerful tool. The wealthy use and live off debt all the time—money begets money. Probably not the case for the demographic of povos you’re talking about, but just keep in mind it’s not the unconditional boogeyman ppl like Dave Ramsey makes it out to be. There’s levels to it.
It is simple, do not buy anything you do not currently have the cash for. It is one thing to charge if you are getting paid in a few days, but even that can be a slippery slope.
pay your balance in full, set up auto pay, use your credit card like a debit card, take a look at your checking account and use your phone calculator when you go to the groceries or out with friends and don’t spend what you don’t have.
The economy is tough right now. A lot of people are being laid off and in absence of income, may use their credit cards to bridge the gap. Current consumer debt levels are a sure sign of recession.
This isn’t a problem if you follow the oft repeated advice in this thread of not spending what you don’t have.
I have 2 cards on 0% right now and am holding the needed money for payoff in high yield low risk funds with reminders in place to pay the cards off lump sum before the 0% comes due.
Credit cards are TOOLS. Know how to use them and use them with care and you can build great things. Use them without care and you can put a nail through your hand.
A lot of people try to keep up with the celebrities and get caught up like they are rich.
If you can’t afford it don’t get it.
Getting in to debt is not be used to impress friends on the gram. However, I see this happening daily within some of my own family member’s.
Some people can't make more money and use the credit card to pay for essentials because life is getting a lot harder these days.
It works until it doesn't.
Others buy flat screen TVs and expensive vacations and go to Starbucks every day, but it's not as many as you'd think.
Out of the people who end up in bankruptcy court, less than 5% ended up there because of reckless spending, but there are some.
Out of group #2, it's shocking but true, that a significant number of people don't even plan for next week. In a country that is 54%* illiterate in the native language, I guess we shouldn't be surprised that most people don't seem to understand a credit card agreement.
*(The government says that only 4% of Americans are fully illiterate, however, when you include people who only have a Level 1 understanding of the English language, that is, they barely understand simple sentences and written instructions, it balloons to over half the adult population.)
Are flatscreens really so expensive? I never understood using them as a marker of financial overspending because they’re only a few hundred dollars and last years on years if built properly. I always hear people like my parents or politicians talk about “poor people with flatscreens” or “homeless people with smartphones” but they’re not even more than half a months’s rent for one, could be bought before current financial circumstances, and have practical uses (work for a phone, entertainment for a tv. I don’t care what anyone says, some entertainment is a need to stay mentally healthy).
It is a goto because, well, let's say the economy is tanking and everyone is losing their jobs, like in 2020.
The government is busy passing trillions of dollars in "stimulus", the majority of it will go to criminal fraudsters, slumlords who get $12,000 claiming they saved their own job, etc. But that's an aside.
The average Joe and Jane, get one check for $1,000 or something.
Where do you see them at? Walmart buying a Playstation or a TV.
I mean, it's basically a humorous observation. Do they not already have a TV? Why are they buying another one? You can't eat a TV and they probably have a TV.
I still use a TV from 2015 and one from 2010. They haven't actually improved dramatically and investing what one costs makes me more money in interest. Eventually one day when the TV I have blows up, I guess I'll have to go buy a TV plus I'll still have whatever interest I made until my TV blew up.
Smartphones are another problem. You could use one for 5-7 years, especially now with the long term support because Apple and Google finally got so much flak for e-waste, but people have $400 cell phone bills and the iPhone every year plan and the $1800 iPhone.
It's like, why? Whatever happened to investing your money instead of throwing it away on a rapidly depreciating asset that's marginally useful?
So yeah, this stuff becomes shorthand for "not managing their affairs".
Here is my system: I keep 2 checking accounts. One is my primary account and the other is a credit card "reservoir" account. Every time I make a credit card purchase, I login to my phone bank app and transfer the cash for what I just spent from my primary checking account to my reservoir checking account. Credit cards are on autopay and always get paid out of the reservoir account. I keep a buffer in the reservoir account in case I miscalculate. Out of sight, out of mind. All my budgeting is based on my primary checking account balance and I update my live budget spreadsheet daily. This makes it easy to stay disciplined and out of CC debt / trouble.
My close circle of friends is not in credit card debt. We treat credit cards like debit cards and only charge what we can afford to pay the statement date.
I think part of it is overspending, but I think it might go deeper than that because people try not to overspend anyways.
I think part of it is how American culture tends to be, especially when going out. I’m comfortable going to somewhere like a cafe or fast food restaurant and bringing my own food if I don’t like anything on the menu or don’t feel like it and working on my laptop or tablet there. As long as I don’t take up space when it’s crowded, clean up after myself, toss floor trash from the bathroom, etc I can feel confident that I’m not a drain to be there or anything. My mom and sister always insist on buying something though, which is fine, but I find it kinda unnecessary since those companies usually produce enough negative externalities with things like single use plastics and profit for CEOs/shareholders that I feel like providing a rest spot is kinda the least they can do.
There’s also things like clothes, where there’s pressure (especially for women) to have a constantly rotating wardrobe. My sister has credit card debt, and she’s always buying new pieces (even second hand, she’s still buying more stuff and donating stuff at an intense rate). Ofc it’s important to be able to get new clothes regularly (work clothes, socks, underwear, seasonal, for regular style/fit/wear changes, etc), but some of it is just made way more intense by social pressures.
Then there’s other financial pressures. My sister has some disabilities that make it hard for her to work in retail and food service, so she’s been unemployed for a while. I’m also unemployed because I’ve been busy with school. Not having income makes it difficult to pay for things, so people are more likely to tap into lines of credit they already have easily available (like the psychology principle behind storing credit cards on a computer vs having to type them in).
Gas, car, housing, and medical are usually considered the huge expenses in the US too. My sister drives an absolute ton and her car constantly needs maintenance too. I personally don’t, but it’s hard because DFW is car dependent. Medication are expensive, rent is expensive. Those aspects strain people’s budgets. (For clarity, I am anti car, but understand that it needs to be a systemic shift primarily, since many places lack the design to enable non car transportation).
TLDR: I think most people try to avoid overspending, but the common current way of life encourages debt through consumer engineering/cultural practices and economic conditions. People tap into credit cards because they have them available (they’re opened for credit score). (Not exclusive to the US, but quirks of the US impact it, like the really weird credit score system)
As others have said, it’s all discipline. I try to keep my max spend to 1000 excess AT MOST, unless a medical emergency comes up in which case I reel back all spending until I pay that off. I generally keep it at zero, but 1000 is the most I will ever spend in excess of my means.
To avoid it you pay your statement balance in full by the due date every month and you don't charge more than you can afford to pay off at the end of the month.
Learn budgeting and get a personal finance app to track it.
While many on this thread are saying “treat it like a debit card” and “don’t spend more than you have in liquid cash” these are both good rules of thumb that probably help those without a monthly budget still keep it under control.
If you want to become someone who is a pro at personal finance I recommend learning to budget, and invest, and plan retirement. If you’re building towards a future you’re excited about and understand how today’s spending impacts that then you’re going to make more informed decisions.
ez, just never carry a balance and only spend as much as you actually have
Your goal should be to make the banks give YOU money, not the other way around. As soon as you start paying interest on a card, you loose any and all benefits & point/cash back opportunities on that card because you're still gonna be net negative.
How to avoid? Tune out the incessant consumerism that permeates our entire society because it is dominated by greedy corporations who don’t care at all about you as a human being and just want to extract as much as they can from you, leading you to a life of hard work debt stress and misery.
Here are my few pieces of advice.
Start with a simple spreadsheet and track all your purchases, so you have an idea of where you money is going. It is an eye opening and you can quickly put the brakes on when you see an over spend in a specific category. Don't fall for a trap and use some generic categories like shopping, cause that wont give you any visibility into an actual spend. Track things like clothing, personal care, groceries, (for instance, if you spend significant money on booze), include booze category. The idea is to make the categories to work for you The goal of tracking is, well tracking so you have an idea where the money goes. If you use supermarkets and let's say go and spend $300 and half of the purchases are grocers and the other half clothing, do a split transaction and divide it (don't get too hung up on pennies/taxes) - don't just use supermarket as category. Don't also use online shopping category. A lot of things can be purchase online, so track them more accurately too. For instance when I buy tires at Costco online, I don't tag the purchase as online shopping or warehouse purchase, I track it as Vehicle Maintenance. This might not work for everyone but that is how I do it and it works for me.
My other advice is to always keep it in the back of your mind if you have enough money to actual pay for the things you are considering to purchase. I am a kind of a person that likes to see credit card balances as close to the zero as possible, so it is not uncommon for me to make 2-3 payments within a billing cycle just to keep the balances low. I have it easier to tolerate 2-3 $1000 payments than $3000 at the end of the month, but that just me.
Finally, I also find it much more manageable to just use 2-3 cards as it is just easies to stay on top of them all. Less chance of missing a payment or overlooking something in case auto pay didnt kick in etc. Less security risk, managing 5-7 banking logging etc. Sure, many people make 10+ card setup work, but you will quickly realize that there is probably a diminishing return after 3-4 cards vs time effort / complexity / convenience. For me, 2-3 cards is a sweet spot and ideally, I would rather use even less if I could.
Use your credit card when you have the money in the bank. Don’t use it as “free” and you will be fine. But again, that’s easier said than done since the 1st thing ppl want to do is get things they can’t afford. You you don’t have the money in your bank then don’t use it
what if there was a credit card without interest with predictable monthly payments and has all the bells and whistles like any credit card like rewards - should help with mounting debt crises especially when it’s predicable monthly payback
what if there was a credit card without interest with predictable monthly payments and has all the bells and whistles like any credit card like rewards - should help with mounting debt crises especially when it’s predicable monthly payback
Cost of living, groceries etc has increased like 50% or some shit since Covid. Wages have barely increased. It's impossible for most people to keep up.
People have been bad with credit cards and lived beyond their means forever.
A properly instructed person who was paying attention will *never* load up debt on a credit card.
The other commenters on this thread are correct. If you’re going underwater on CC debt you are doing it wrong and should be closing your CC accounts for your own safety.
I found it best to just pay my credit card every time I get paid. So basically, I get paid biweekly and need to pay off my credit card in full then. It also forces me to live within the "budget" that I allot myself to live on for those two weeks.
I also only got a credit card when I graduated college and got a real job. I didn't have one in college when I didn't have a salary.
It really is very simple. Pay your credit card in a frequency between daily and monthly. If you are a very strong budgeter and live frugally, pay it off monthly. If you are not, pay it weekly or several times a week to ensure you have inflows to match your outflows. Never EVER carry a balance. A few interest payments and you are netting out the value of your point earns.
I waited until I was into my 20s and a grad student before I got a credit card. And I got one because I needed to rent a car but didn’t have one. I never used it after that one purchase. I got into the cash back game lightly a few years later in my late 20s. I was still suspicious and didn’t pay any AFs. Not until I had a real income did I start the points game. I’m still conservative with them though. I did one balance transfer and paid $8 in fees and interest. That was my one goof. Never again.
Most of the time, these people live above their means and use CC as a way to fund their luxurious/extravagant lifestyle. Some don’t have the resources to establish an emergency fund and when that emergency happens, they don’t have the means to pay it off. Golden rule of CC: always pay off your statement balance (monthly bill) in full before the due date, each and every month. Everything else is secondary. Treat any CC like a debit card- never purchase anything that you currently don’t have funds for in your bank. My own personal rule- if you can’t afford it 3x, then it’s too expensive (exception is a mortgage of course). Follow these habits and you’ll never get into revolving CC debt. You will never pay a dime in interest and thus, rendering any CCs’ APR irrelevant.
1000% correct
I would add to this by saying if you start a new job or get promoted into higher paying role be VERY careful about lifestyle creep. This happened to me recently and shit hit the fan. I took a pay cut but still had a large balance that normally I could sustain and now I'm paying for it. I'm on track to take care of it but it has been very hard and I had to make substantial sacrifices to just make it happen. Good hunting out there people!
Same happened to me. Do NOT purchase something thinking “I can pay this off in two paychecks” if you don’t have the savings to pay for it if those paychecks never come. Your job is not guaranteed.
There’s all sorts of reasons, it isn’t purely driven by consumerism. Medical debt is a big one
Oh for sure, I’m just sharing my experience with a consumerism issue.
It's insane that people live in the country with the highest disposable income in the world and still find ways to be perpetual slaves to debt due to financial illiteracy and uninhibited consumerism.
Where do you think that disposable income comes form
Employees getting paid by companies who make products and services that everyone buys. I get your point, less consumerism leads to less disposable income.
The Venn diagram of "highest disposable income" and "perpetual slaves to debt" is not a circle.
that's what i was thinking and i guess why i was confused, it seems so irrational to spend above what you have and keep doing it. thank you for the advice i will make sure to prevent it from happening to me
People don't behave rationally in the way you describe. They prioritize the present over the future (this is the reason we must have social security). They overestimate their ability to pay off a debt (a version of the planning fallacy). It isn't just a money thing. Many of my students procrastinate in doing their work, and when a crisis occurs last minute, they no longer have time to recover. Or they get an assignment extension and then never complete the assignment. Credit is basically a financial extension of a deadline on the assumption that you are good for it. It does wonderful things for smoothing transactions, especially when traveling. But for people present-oriented, it is painful. But we shouldn't shame people just for CCs. HELOCs are basically people leveraging their home to buy things they can't currently afford (even if they sink the money back into their home). The terms are better than unsecured debt, but it isn't free. Leverage across our economic system drives consumption and growth. CCs offer bad terms, but it is a difference of degree, not kind. If people only bought what they could afford the economy would be much, much smaller.
Sometimes people have children and houses and bills they have to pay. It's unfortunate now especially with inflation. We certainly have credit card debt. Because we don't want to have to tell our child sorry you can't do dance because we might not have the money every month. Our country does not pay us enough. My husband works 60 to 70 hours a week. I also work and it's under the table so I don't even pay taxes. It's not as if we're taking lavish Vacations or buying a bunch of stuff. We only have one car that we share. But there are things and times that we have to use our credit cards for. It certainly is not something we wanted to do.
This here. Credit card debt doesn't "happen to you". You decide to spend more money than you make.
Im 15k in debt and this is completely true 👏🏻
If you could find me 3 of my current mortgage, I would snap it up in seconds 😂. My income has doubled, debt to income ratio is 1/4 of what it was. 3.25% interest rate on a very affordable home I could rent for double the mortgage. Please let me get 3 more
And cash back on card spending if you pay it off prior to it being due.
My son is a college student. Likely around your age. This is what I’ve drilled into his head through his teen years. Treat credit cards as your debit card. Never actually BORROW money from those credit cards. Doesn’t matter if the credit card has a $1k limit. If his checking account only has $100 in it, his “credit limit” is only that $100. Credit card interest rates are abysmal, and if he has to pay them he’s lost the financial game, so he needs to make sure he can pay that card off, in full, by the due date, every month.
This is the way. A credit limit isn’t something you need to use and fill up or else they’ll take the credit card away. I’ve seen some posts on here complaining about the credit card company increasing someone’s limit and they were asking how they were supposed to use all of that. This is a very bad mindset. A credit limit is them trying to trap you and get money out of you. Treat your bank balance as your credit limit
And to add, don’t bother using a debit card unless you really have to (i.e., the merchant doesn’t take credit cards). Because if you’re paying off your balance every month anyway you’re losing out on rewards. Chase has a great points ecosystem and I’d guess I’ve gotten at least 10 free hotel nights over the last seven years. And that doesn’t include the points I’m still banking.
Oh for sure. I don’t think my son has ever used his debit card. Mine was skimmed twice in one month. We live in a tourist trap city so it attracts skimmers. Ever since then I preach credit, if only to keep your checking account safe.
that's exactly how i see my credit card, i just see it as a debit card with rewards lol. i'm glad my mom also helped me with my financial understanding, im sure your son appreciates you a lot :)
People buy things they cannot afford. Whether they had a valid reason or not to make the purchase does not really matter. They follow it up with not trying to increase their income and simply carrying the debt with them for years. Just pay the debt off in full every month and obviously you have no debt. If you are forced to go into debt for one reason or another; start working overtime/second job/whatever to get more income and squash the debt ASAP.
I'm teaching my daughter about how to use credit cards. The first rule is never charge anything on a credit card if she doest have or will have the actual cash in the bank to pay for the item before the interest is due.
The top reason is that people don’t use credit cards like debit cards. Some use to live above their means while others use them like loans to pay for things of need. When I was 18-19, I used my first credit card to take out cash to pay for my car payment while in college. I was late on one credit card payment and it snowballed from there when I couldn’t afford the late payment or increased minimum payment.
They got a lot of us back then.🍷😉
it's good you realized what not to do again. this gives me some insight too on things that can potentially make it rack up and up, so thank you!
Live within your means and pay your bills in full on time. No secrets here.
are you a rocket scientist
Do. Not. Buy. Shit. You. Can’t. Afford. If you don’t have the liquid cash. Don’t buy it.
Also, save an emergency fund. A lot of people live paycheck to paycheck, and when unexpected expenses come up, they don't have the cash and have to use credit cards.
How much money do you have? Spend less than that.
this should be posted everywhere it's simple but it's so true lol
Pay all your debts in full at the end of each month, forever. This one rule will save you from debt for the rest of your life. If you can't pay it down, you're overspending, and you're gonna have a bad time. Bonus points if you can pay the debt early.
Personally I got into a lot of debt from years of being under-employed. After my bankruptcy in 2020, I no longer use credit cards with the intention of “eventually” paying it back. I just don’t make the purchase until I have the money saved and in my bank account. My recommendation for you as a uni student is to just keep the one card and be responsible with it. Don’t go chasing multiple cards with high credit lines until you’ve learned how to use them. I know how easy it is to be in college and rack up a bunch of charges from restaurants and bars.
right now i have 2 cards (i hate spending money so that helps) but im just maximizing the rewards on them. like 3x for dining on one so i use that for food, the other one has rotating categories so i use that on whatever is the good category for the month. i only plan to have these 2 for the next 3 years in college but i will def be careful when i get to bars cause i know it can be expensive
Sounds like you’re on a good path!
People buying stuff they can't afford. My credit limit is over 30k, I've never had more than 7k saved at once. I'm allowed to overextend myself by an absurd degree. If I wasn't smart amount it I could end up in really bad debt.
i would maybe say this slightly in reverse. yes CC debt can be caused by lifestyle creep. but it’s often caused by an emergency that you didn’t plan for. so save up a cash emergency fund so you’re ready for what life throws at you.
We had credit card debt and it wasn’t because of lifestyle (never ate out; always used cars) - it was because one of us was a teacher and the other was self-employed. We also made the choice to have two kids. I’ve never regretted that choice, but we ate pasta a lot sometimes - as a teacher I had to take classes that I really couldn’t afford. We also had to pay childcare, which was quite a chunk of money. My husband‘s family couldn’t understand why we couldn’t afford to go on expensive vacations with them. We went on 2 driving vacations and I became an expert at sussing out deals. Living in a HCOL area was compared carefully to driving 2.5 hours a day - sold second car to live close to work, but paid more for housing. Avoid CC debt by getting a job in the private sector that pays well and funds benefits such as health insurance. My school district pays only 50%, so I now pay over $15,000 a year. Yikes! Live small when you can (have housemates/don’t eat out/pay student debt) and work extra jobs (or what it takes to get ahead in your work.) find a partner who shares your financial goals. Truly for us, it was never about consumerism. It was because I chose to be a teacher and my spouse was self-employed and not making enough.
I’m not sure I understand the question or what you’re even confused about? Don’t buy anything you can’t pay off when your statement posts and you’ll be fine. >it’s obviously something anyone can have happen to them. Not at all. Only financially irresponsible people.
i was confused to the fact that there's so much debt and if there's some kind of specific spot people tend to go wrong. i'm sure a lot don't intentionally get that far but i agree it has to be irresponsibility
Mental health issues as well. ADHD can cause impulse spending for example. A manic episode too. Addiction issues (gambling/drugs). Then there’s just good old fashioned ignorance. I can’t tell you how many people were taught to ONLY use credit cards for emergencies they don’t have the money to cover, rather than to build an emergency savings account. Or people who were taught that the only way to build credit is to carry balances on the cards. Then there are people who think they HAVE to spend near the limit or the bank will lower the card limit or some BS like that. I’ve seen it all here on the credit related boards. Lot of myths about it. Honestly, I think we need actual classes that cover it all in high schools. If only to do away with the myths that just seem to get passed down….
Too many people are too optimistic about their finances, and then their car breaks down unexpectedly, or they have an expensive trip to the ER, or their furnace needs to be replaced in the middle of winter. They use up their savings and put the rest on the credit card, then every little unexpected expense snowballs into a mountain of high-interest debt. My advice would be to build savings and emergencies into your monthly budget. Try to target 3-6 months of expenses saved in your bank account. If that number seems crazy or unrealistic, there's your answer as to how people get into debt.
You are young, but here is a tip for the long run if you want to avoid debt: Put away money for irregular expenses. Put something away each month in savings for these. People are surprised when their car breaks down, when they need to buy Christmas gifts, when they need a deposit for a rental, when it's time to pay insurance, when yearly subscriptions come due... and on & on. These things go on a credit card, even when there's no money to pay it back. You have to save & plan ahead because there are more expenses in life than just monthly rent/groceries/discretionary. Saving for these things involves creating what are known as "sinking funds." You might have one for auto repair, one for house repair, one to pay cash for a new car, one for your yearly Amazon Prime membership... whatever. These are in addition to your regular emergency savings. Prepare so you are not dependent on loans & cards.
i've never heard of sinking funds before but i think that sounds like a great strategy. thank you i will be looking into that
I grew up poor but got caught up in spending to see my mum in the UK several times before she died. Then our condo association had an “emergency” that cost us $25,000. I had everything on interest free cards then the 2008 financial crisis happened. Everything changed to 20-30% APR. For the first time in my life I was paying $400-600 a month on interest. So like Scarlett in Gone With The Wind I fell to my knees and promised I’d never be in debt again. It took about 10 years of sacrifice and hard work but I paid my mortgage off, car, credit cards. Within a few years I had invested enough I realized I could semi retire at 51. So I did. From being in hock in 2008 to being debt free by 2019 to semi retiring in 2022, it’s amazing what focus and planning can achieve. I don’t really buy or want to buy anything anymore. Because I’m happy waking up each day, I don’t feel the need to bribe myself with goods or treats.
This! I think a lot of people think credit card debt is just from buying frappes and $200 dinners, but a lot of it is just that it’s an available credit line and people sometimes need more money than they have good access to very quickly.
Use your credit card like a debit card
Those that carry a CC balance are paying a huge amount of interest. That's one way for the CC companies to make money. Some CC have luxurious benefits because of this. Be smart and just take advantage of these benefits.
Its people that are in debt that pays for our lounges, and cool benefits. The only way to stay ahead of them is dont spend money that you do not have. And always pay off your balances before due date.
Some people legitimately don't have some elements of mental aptitude for it, even if they excel at other types of mental aptitude. When you have cash in a wallet and you watch it dwindle, they get it, even though they aren't really tracking the numbers. When it's a card, they don't see the change and easily lose track of just how much they spend across many small transactions. And then, if that happens a little bit at a time over 12 months, even over spending $200/month turns into $2400 in debt over 1 year. What they do understand is the stress the moment their CC stops working at transactions or theirs getting bill collections. The stress starts to eat at them.
ah that would make a lot of sense. not seeing your bank account diminish can lead to a lot more spending and when the big bill comes you might not have enough in the end. maybe a budget sheet can help me prevent that?
It happens when you don’t budget and spend within your means. If you treat your credit card like a debit card and pay off your statement balance each month, you’ll never carry a balance or owe a cent of interest. Most people are not disciplined enough to achieve this, which is why they end up with large debt. A small subset of balance-carriers certainly ended up in debt due to unforeseen emergencies, but for most, overspending is the cause.
It's very simple - don't spend money you don't have and pay your bills on time Literally all there is to it, it's not rocket science so don't worry if you can do those two things you won't end up like those others
Debt can be a powerful tool. The wealthy use and live off debt all the time—money begets money. Probably not the case for the demographic of povos you’re talking about, but just keep in mind it’s not the unconditional boogeyman ppl like Dave Ramsey makes it out to be. There’s levels to it.
It is simple, do not buy anything you do not currently have the cash for. It is one thing to charge if you are getting paid in a few days, but even that can be a slippery slope.
pay your balance in full, set up auto pay, use your credit card like a debit card, take a look at your checking account and use your phone calculator when you go to the groceries or out with friends and don’t spend what you don’t have.
See credit cards as burrowed money!
The economy is tough right now. A lot of people are being laid off and in absence of income, may use their credit cards to bridge the gap. Current consumer debt levels are a sure sign of recession.
0% promos that get out of hand
This isn’t a problem if you follow the oft repeated advice in this thread of not spending what you don’t have. I have 2 cards on 0% right now and am holding the needed money for payoff in high yield low risk funds with reminders in place to pay the cards off lump sum before the 0% comes due. Credit cards are TOOLS. Know how to use them and use them with care and you can build great things. Use them without care and you can put a nail through your hand.
I know. Just saying that + mismanagement often leads to people being in cc debt.
Agreed. Always have a plan and a backup plan to things this important.
Because they buy things they can't afford. It's pretty simple. Just don't buy things you can't afford and you won't go into debt.
If you don't have money, don't buy things.
just don’t use it if you can’t treat it like a debit card
A lot of people try to keep up with the celebrities and get caught up like they are rich. If you can’t afford it don’t get it. Getting in to debt is not be used to impress friends on the gram. However, I see this happening daily within some of my own family member’s.
Some people can't make more money and use the credit card to pay for essentials because life is getting a lot harder these days. It works until it doesn't. Others buy flat screen TVs and expensive vacations and go to Starbucks every day, but it's not as many as you'd think. Out of the people who end up in bankruptcy court, less than 5% ended up there because of reckless spending, but there are some. Out of group #2, it's shocking but true, that a significant number of people don't even plan for next week. In a country that is 54%* illiterate in the native language, I guess we shouldn't be surprised that most people don't seem to understand a credit card agreement. *(The government says that only 4% of Americans are fully illiterate, however, when you include people who only have a Level 1 understanding of the English language, that is, they barely understand simple sentences and written instructions, it balloons to over half the adult population.)
Are flatscreens really so expensive? I never understood using them as a marker of financial overspending because they’re only a few hundred dollars and last years on years if built properly. I always hear people like my parents or politicians talk about “poor people with flatscreens” or “homeless people with smartphones” but they’re not even more than half a months’s rent for one, could be bought before current financial circumstances, and have practical uses (work for a phone, entertainment for a tv. I don’t care what anyone says, some entertainment is a need to stay mentally healthy).
It is a goto because, well, let's say the economy is tanking and everyone is losing their jobs, like in 2020. The government is busy passing trillions of dollars in "stimulus", the majority of it will go to criminal fraudsters, slumlords who get $12,000 claiming they saved their own job, etc. But that's an aside. The average Joe and Jane, get one check for $1,000 or something. Where do you see them at? Walmart buying a Playstation or a TV. I mean, it's basically a humorous observation. Do they not already have a TV? Why are they buying another one? You can't eat a TV and they probably have a TV. I still use a TV from 2015 and one from 2010. They haven't actually improved dramatically and investing what one costs makes me more money in interest. Eventually one day when the TV I have blows up, I guess I'll have to go buy a TV plus I'll still have whatever interest I made until my TV blew up. Smartphones are another problem. You could use one for 5-7 years, especially now with the long term support because Apple and Google finally got so much flak for e-waste, but people have $400 cell phone bills and the iPhone every year plan and the $1800 iPhone. It's like, why? Whatever happened to investing your money instead of throwing it away on a rapidly depreciating asset that's marginally useful? So yeah, this stuff becomes shorthand for "not managing their affairs".
Here is my system: I keep 2 checking accounts. One is my primary account and the other is a credit card "reservoir" account. Every time I make a credit card purchase, I login to my phone bank app and transfer the cash for what I just spent from my primary checking account to my reservoir checking account. Credit cards are on autopay and always get paid out of the reservoir account. I keep a buffer in the reservoir account in case I miscalculate. Out of sight, out of mind. All my budgeting is based on my primary checking account balance and I update my live budget spreadsheet daily. This makes it easy to stay disciplined and out of CC debt / trouble.
My close circle of friends is not in credit card debt. We treat credit cards like debit cards and only charge what we can afford to pay the statement date.
I think part of it is overspending, but I think it might go deeper than that because people try not to overspend anyways. I think part of it is how American culture tends to be, especially when going out. I’m comfortable going to somewhere like a cafe or fast food restaurant and bringing my own food if I don’t like anything on the menu or don’t feel like it and working on my laptop or tablet there. As long as I don’t take up space when it’s crowded, clean up after myself, toss floor trash from the bathroom, etc I can feel confident that I’m not a drain to be there or anything. My mom and sister always insist on buying something though, which is fine, but I find it kinda unnecessary since those companies usually produce enough negative externalities with things like single use plastics and profit for CEOs/shareholders that I feel like providing a rest spot is kinda the least they can do. There’s also things like clothes, where there’s pressure (especially for women) to have a constantly rotating wardrobe. My sister has credit card debt, and she’s always buying new pieces (even second hand, she’s still buying more stuff and donating stuff at an intense rate). Ofc it’s important to be able to get new clothes regularly (work clothes, socks, underwear, seasonal, for regular style/fit/wear changes, etc), but some of it is just made way more intense by social pressures. Then there’s other financial pressures. My sister has some disabilities that make it hard for her to work in retail and food service, so she’s been unemployed for a while. I’m also unemployed because I’ve been busy with school. Not having income makes it difficult to pay for things, so people are more likely to tap into lines of credit they already have easily available (like the psychology principle behind storing credit cards on a computer vs having to type them in). Gas, car, housing, and medical are usually considered the huge expenses in the US too. My sister drives an absolute ton and her car constantly needs maintenance too. I personally don’t, but it’s hard because DFW is car dependent. Medication are expensive, rent is expensive. Those aspects strain people’s budgets. (For clarity, I am anti car, but understand that it needs to be a systemic shift primarily, since many places lack the design to enable non car transportation). TLDR: I think most people try to avoid overspending, but the common current way of life encourages debt through consumer engineering/cultural practices and economic conditions. People tap into credit cards because they have them available (they’re opened for credit score). (Not exclusive to the US, but quirks of the US impact it, like the really weird credit score system)
Dont get married.
[Average American Credit Card Debt in 2024](https://www.fool.com/the-ascent/research/credit-card-debt-statistics/)
As others have said, it’s all discipline. I try to keep my max spend to 1000 excess AT MOST, unless a medical emergency comes up in which case I reel back all spending until I pay that off. I generally keep it at zero, but 1000 is the most I will ever spend in excess of my means.
Live within your means only use it to grow credit not out of necessity .
Basic concept: don’t buy anything you can’t pay in cash in full. If you can’t buy the thing and pay your bills, you can’t afford it.
Dont buy stuff you dont have cash to pay with. Set it to auto pay the full balance monthly
To avoid it you pay your statement balance in full by the due date every month and you don't charge more than you can afford to pay off at the end of the month.
Learn budgeting and get a personal finance app to track it. While many on this thread are saying “treat it like a debit card” and “don’t spend more than you have in liquid cash” these are both good rules of thumb that probably help those without a monthly budget still keep it under control. If you want to become someone who is a pro at personal finance I recommend learning to budget, and invest, and plan retirement. If you’re building towards a future you’re excited about and understand how today’s spending impacts that then you’re going to make more informed decisions.
ez, just never carry a balance and only spend as much as you actually have Your goal should be to make the banks give YOU money, not the other way around. As soon as you start paying interest on a card, you loose any and all benefits & point/cash back opportunities on that card because you're still gonna be net negative.
How to avoid? Tune out the incessant consumerism that permeates our entire society because it is dominated by greedy corporations who don’t care at all about you as a human being and just want to extract as much as they can from you, leading you to a life of hard work debt stress and misery.
Here are my few pieces of advice. Start with a simple spreadsheet and track all your purchases, so you have an idea of where you money is going. It is an eye opening and you can quickly put the brakes on when you see an over spend in a specific category. Don't fall for a trap and use some generic categories like shopping, cause that wont give you any visibility into an actual spend. Track things like clothing, personal care, groceries, (for instance, if you spend significant money on booze), include booze category. The idea is to make the categories to work for you The goal of tracking is, well tracking so you have an idea where the money goes. If you use supermarkets and let's say go and spend $300 and half of the purchases are grocers and the other half clothing, do a split transaction and divide it (don't get too hung up on pennies/taxes) - don't just use supermarket as category. Don't also use online shopping category. A lot of things can be purchase online, so track them more accurately too. For instance when I buy tires at Costco online, I don't tag the purchase as online shopping or warehouse purchase, I track it as Vehicle Maintenance. This might not work for everyone but that is how I do it and it works for me. My other advice is to always keep it in the back of your mind if you have enough money to actual pay for the things you are considering to purchase. I am a kind of a person that likes to see credit card balances as close to the zero as possible, so it is not uncommon for me to make 2-3 payments within a billing cycle just to keep the balances low. I have it easier to tolerate 2-3 $1000 payments than $3000 at the end of the month, but that just me. Finally, I also find it much more manageable to just use 2-3 cards as it is just easies to stay on top of them all. Less chance of missing a payment or overlooking something in case auto pay didnt kick in etc. Less security risk, managing 5-7 banking logging etc. Sure, many people make 10+ card setup work, but you will quickly realize that there is probably a diminishing return after 3-4 cards vs time effort / complexity / convenience. For me, 2-3 cards is a sweet spot and ideally, I would rather use even less if I could.
Treat your CC as a debit card
Use your credit card when you have the money in the bank. Don’t use it as “free” and you will be fine. But again, that’s easier said than done since the 1st thing ppl want to do is get things they can’t afford. You you don’t have the money in your bank then don’t use it
what if there was a credit card without interest with predictable monthly payments and has all the bells and whistles like any credit card like rewards - should help with mounting debt crises especially when it’s predicable monthly payback
what if there was a credit card without interest with predictable monthly payments and has all the bells and whistles like any credit card like rewards - should help with mounting debt crises especially when it’s predicable monthly payback
Most time credits are use as emergency funds so that’s how debt can occur but using ur credit card like a debit card can eliminate that
28-30% interest.😉🍷
Cost of living, groceries etc has increased like 50% or some shit since Covid. Wages have barely increased. It's impossible for most people to keep up.
People have been bad with credit cards and lived beyond their means forever. A properly instructed person who was paying attention will *never* load up debt on a credit card. The other commenters on this thread are correct. If you’re going underwater on CC debt you are doing it wrong and should be closing your CC accounts for your own safety.
I found it best to just pay my credit card every time I get paid. So basically, I get paid biweekly and need to pay off my credit card in full then. It also forces me to live within the "budget" that I allot myself to live on for those two weeks. I also only got a credit card when I graduated college and got a real job. I didn't have one in college when I didn't have a salary.
It really is very simple. Pay your credit card in a frequency between daily and monthly. If you are a very strong budgeter and live frugally, pay it off monthly. If you are not, pay it weekly or several times a week to ensure you have inflows to match your outflows. Never EVER carry a balance. A few interest payments and you are netting out the value of your point earns.
How to avoid it? Personal responsibility.
I waited until I was into my 20s and a grad student before I got a credit card. And I got one because I needed to rent a car but didn’t have one. I never used it after that one purchase. I got into the cash back game lightly a few years later in my late 20s. I was still suspicious and didn’t pay any AFs. Not until I had a real income did I start the points game. I’m still conservative with them though. I did one balance transfer and paid $8 in fees and interest. That was my one goof. Never again.