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The Credit Card Trap

In addition to the financial burdens of a heavy mortgage, auto payments, etc., the issue of credit cards is a frequent source of financial stress for many Americans. With the average American household possessing 10 credit cards, each with an average balance of $4,000 and most at an interest rate of 19%, it’s no wonder many people are in desperate straits. To pay off each card at the minimum monthly payment would take decades!

Add to that the fact that, due to over-saturation of the market, many credit card companies nowadays are looking for ways to make more money. And when one tries to skate along on minimum payments, they abruptly raise interest rates to 24-29%, even though the account has no late payments. And if one cancels the account, they make the balance payable in full. And to add to a bad scenario, your FICO score (based on your handling of credit) now can affect whether you get a job, insurance, etc.

The price for financial stress is often taken not only from one’s pocketbook, but also from one’s physical and mental health. Researchers, like Patricia Drentea, assistant professor of sociology at the University of Alabama-Birmingham, now acknowledge that the stress of owing money, and the grim awareness of the high interest attached to that debt, leads to higher levels of stress and deteriorating damage to one’s health.  

So what’s the answer for these people? How do they dig themselves out of the hole they’re in? First, one must admit to the reality that they have severely mismanaged their finances and need to adopt a new approach forever. Being in debt for $30,000-40,000 is similar to being 50 pounds overweight. It’s a result of irresponsible cravings – “spendaholic” behavior. And credit cards are the easiest to abuse, because instead of seeing yourself put down cash, you only see plastic.  

While you benefit from going to a credit counselor and have them negotiate a reduced interest rate for you, you’re still going to have to change your lifestyle to acquire more money. Perhaps you have something you can sell on EBay or the like. You might be able to cook for parties, or tutor students, etc. Let’s face it; any debt reduction plan requires both discipline and sacrifice.

It’s similar to facing a large weight gain. You didn’t get it overnight, so losing it will take time also. The good thing about credit counseling is they not only save you money, they usually can help you survive the ordeal without a bad credit history.

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Sources: The Neural Basis of Financial Risk Taking Neuron 2005 Sep 1;47(5):763-70 Neural Predictors of Purchases Neuron 2007 Jan 4;53(1):147-56 Shopping Centers in the Brain Neuron 2007 Jan 4;53(1):7-8 Relationship between Financial Stress and Workplace Absenteeism of Credit Counseling Clients Journal of Family and Economic Issues Volume 27, Number 3 1058-0476  September, 2006 Financially Distressed Credit Counseling Clients and the InCharge Financial Distress Scale (www.personalfinancefoundation.org)

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