How much credit card debt do you have? More important, would you be ashamed to answer that question? If so, you aren't alone. Various surveys over the years have shown the degree of shame we attach to misuse of that plastic money--more than a third of us think it's the most shameful debt of all, according to a recent survey. More than 40 percent believe that others would look down on them if they knew how much credit card debt they have. They appear to be right: Nearly half say they'd be less interested in dating someone who had lots of credit card debt.
So let me grit my teeth and answer that embarrassing question: I have $28,710 of credit card debt. That's bad--nearly twice the American average--but it's slightly less bad than it was a month ago. Although I have a long way to go, I've finally started reversing the trend. And I'm determined to keep paying these cards down till the damned debt is gone.
What makes this especially cringeworthy is that I have every reason to know better. Not only am I a business writer, I actually spent years writing for a credit cards website, handing out information aimed at keeping other people from making the mistakes I've made. It's mortifying and depressing, but it also makes me think that if I can get caught in this trap, almost anyone can.
Here are a few of the things I did very wrong. Avoid these errors and you'll be way ahead of the game:
1. Making minimum payments.
I think everyone in the world, myself included, knows better than to make this goof. Just in case, the federal government now requires credit card companies to put information right on the bill that tells you how many decades it will take you to pay off your debt if you just make minimum payments.
Nonetheless, when cash is tight it's oh-so-tempting to just make that minimum payment and plan to pay more next month. To make this error even easier, some credit card companies, including one I use, offer to automatically deduct the minimum payment from your bank account every month. I signed up for that service, which was great in that I never had to worry about late payment fees. But it made it even easier to fall into this trap.
2. Setting up automatic payments from my credit cards.
It began with my mobile phone. My husband and I have a pay-as-you-go plan, which saves us a lot compared to the standard two-year contract many carriers offer. But I was eternally missing the renewal notice and having my service turned off for a day because I was too busy to pay the bill on the carrier's counterintuitive website. So at some point I set up automatic payments on my credit card. Other automatic payments followed: dental insurance, Netflix, Spotify, website hosting, and on and on.
None of these were especially big charges. But for a long time I failed to notice that the minimum payment every month was not covering the new charges plus interest. Even though I was paying the monthly minimum and not using my credit cards for purchases, my balances kept getting bigger. There's a straightforward solution, which I was too slow to implement: Switching over all those automatic charges to a debit card that draws directly on my checking account.
3. Not comparing the month's charges to my minimum payment.
I can't believe how long it took me to notice that the monthly minimum payment wasn't covering new charges, even though they were right there on the statement. But now I make sure that I pay at the very least enough to cover any new charges each month. That at least stopped the insanity of constantly rising balances, even if I haven't yet managed to eradicate them.
4. Putting "paying down credit cards" at the bottom of my priorities list.
No matter how much money you have or make, there will always be more things you need to pay for or want to buy than you can quite afford. I lacked (and still sometimes lack) the self-discipline to put "paying down credit cards" at the top of my financial priorities. But doing the math about how long it will take me to pay off $28,710 in debt helps me remember why paying down these cards should take precedence over another new gadget or restaurant meal.
5. Putting travel on credit cards.
One reason the debt got out of control is that I did a huge amount of traveling last year, after moving from Woodstock, New York, to Snohomish, Washington, the year before. There are good reasons to put travel on credit cards. You get travel insurance, and if you're renting a car, you generally have no choice. But I did have the choice to pay down my credit cards, thus pre-paying for my travel expenses so they wouldn't drive up the balances. Most of the time, I didn't.
6. Using credit cards to manage cash flow.
Like a lot of solopreneurs, instead of getting a steady stream of income, it comes in lumps. Nothing for several weeks, then several thousand dollars all at once. And those lump payments don't always arrive when I expect them to.
With that kind of income, I sometimes do need to use revolving credit to cover expenses while awaiting a big check. But when I ran up my credit cards for this purpose, I didn't turn around and pay them down when the money finally arrived. There always seemed to be too many other things that I needed to pay for.
7. Feeling rich.
This was the biggest mistake of all. Things have been going well for me for the past couple of years, and my income took a substantial step upward about two years ago. I made the mistake of thinking that meant all financial troubles were over.
But much of this added income was eaten up by our move, and some of it, of course, belonged to the government in the form of higher tax payments because of my increased income. I also felt I could afford to lend a large sum to a friend to help save a struggling business that ultimately failed anyway. And then there was all that travel.
We weren't being extravagant, but we were spending just a little more than we could afford. And while I wasn't paying enough attention, the credit card debt bloomed out of control. It would be easy to blame the credit card companies. They do have a variety of practices that encourage people to run up endless debt, which of course makes more profit for them.
But the responsibility for creating the debt is mine alone. And I'm the one who's going to fix it.