I was talked into my first credit card by someone on the phone. I was told that it would help me earn points towards computer games I was buying already, so I thought it a good idea, even though I hardly used the card ever, and I always paid the balance.
My first real encounter with debt was when I graduated from college. I had two debts– a college loan (kinda, it was a balance on a credit card my parents wanted me to pay off) and a loan to the school. I also decided to pick up a third loan– this one in my name– for a car. A 1992 Red and Gray Saturn SC2, power everything, moon roof, pop up lights, the works.
My father told me that it would be good for my credit score to pick up a short loan for the car and that way I’d be on record as able to pay a loan back. We opted for a six month loan for the $6,000 simply because I was making good money, staying at home, and I could make the payments.
There was my first problem. What I was taught here was that debt was a reasonable way to get something that I wanted right now and not have to wait and save. Sure, I made the payments, but the pattern is what was established. I was a slave to the “as long as I can make the payments, I can have what I want when I want it, and that’s fine with me.”
This is what’s at the root of today’s debt problem. We have instant access to thousands of dollars, and we don’t realize just how much money we are throwing away because we refuse to wait.
Waiting does four things:
- It makes you wait on God.
- It combats selfishness– having credit encourages the “I have the power, I can get it now” philosophy.
- It saves you money– just think about how much of each payment actually goes toward principal. Add it up over the lifetime of the loan, and just think how much that interest money could be worth now if you’d been putting it in a savings account (or in a sock under your bed for that matter!)
- It gives you time to evaluate the thing and to watch the price come down– it’s no secret, but time devalues many things. If you wait for that thing to come down in price, the same money that you’ve been saving will buy you a bigger/better flat panel LCD monitor than the one that you’ve been having your eye on.
The first thing that we have to come to grips with is that we should not use credit to buy things– cars, televisions, even houses. But more of that as we keep going.
- My War On Debt: A Faulty Premise
- My War on Debt: Sell the Car Yourself
- My War on Debt: Once You’re Down to One Car…
- My War On Debt: Make a Zero-Sum Family Budget
- My War On Debt: Do This Before You Pay Off that Debt
- My War On Debt: Don’t Consolidate Your Debt, Unless…
- My War On Debt: Remember, It’s About Your Behavior
- My War On Debt: Learning a New Way of Life
- My War On Debt: How Long is it Going to Take
- Do You Make These Mistakes in Getting Out Of Debt?
- My War On Debt: I’m Out This Week!
Good points, but the only point where there seems to be a problem is with purchasing a house.
Houses, unlike consumer electronics and many other things, increase in value over time What is more, in the UK at least, they tend to increase in value well ahead of inflation. This is partly because we have less land per capita than in the US, but I suspect something similar holds there. ( As Mark Twain said: “Buy land. They are not making any more of it.” )
The other issue with houses is that they tend to cost more than most people could possibly afford. The only way that most people can buy a house is to take out a long mortgage on the property. In the UK, it is now common for people to take mortgages out at up to five times their salary. (To put this in perspective, our four bedroom family home in Wales is currently worth in the region of £330,000. That is nearly $660,000!)
Now I believe that Christians should be no man’s debtor, and that we should always avoid debt. But how would we avoid housing debt?
Should all Christians without personal means rent a property for instance?
Posted by Stephen Kingston | March 5, 2007, 8:52 amDebt is a very scary thing, especially to women I think. As a wife, it’s probably one of my biggest fears…whereas my dh has confidence and big dreams! Thankfully, we’re usually on the same page concerning debt/bank loans. But I’ve learned to let him talk (he knows it too!) and dream…but having a plan in place to make those dreams happen, is so important.
Also, men’s dreams are so different from women’s. My dh is like the Mark Twain quote in Stephen’s comment…buy land if it’s available. He’d love to be ensconced in a thousand acres with no neighbors, living off the land. Hey, that would be awesome to me too…except for the payments! And what of all the good that that money would do in ministering to others? So our compromise has birthed a mutual dream…to someday have youth camps or similar Christian outreaches right here on our property. Right now, that dream seems extremely out of reach…but if it’s God’s plan…then we better sit up and start saving!
Posted by Mary | March 5, 2007, 9:14 amBuying a house with a mortgage is a different story (as is the whole concept of buying for resale) and is subject to the varying appreciation values of the area in which the purchase was made and housing markets, cost of ownership, etc. I plan to cover this at a different time.
The point of this post was to lay a basic framework for discussion, that a majority of things that we think we must have now we do not need it right now.
Posted by MInTheGap | March 5, 2007, 2:15 pmMIN, your last statement is so true! I think debt is so scary because it creeps up on us very quickly…almost like quick sand. You step up to it carefully, knowing its power and you put one foot in and you’re trapped!!
Posted by Deborah | March 5, 2007, 9:27 pmOh how I wish I could be debt-free…
But lide is the way it is, and not everybody may be in possession of capital for everything he wants to do and needs to have.
House, car, education…
Certainly, one must be very conscious in taking loans, and in evaluating one’s abilities to pay back. Security of steady employment helps a lot, I guess.
Good article, Min.
Posted by ann_in_grace | March 6, 2007, 4:53 amAnn, you hit a big part of why I’m trying to get out of debt– more security. In fact, part of the plan that I’m following started with creating a small emergency fund. That fund grows to 3-6 months expenses once I’m out of debt so that I would be set for any kind of emergency or job loss.
Posted by MInTheGap | March 7, 2007, 9:04 amThis is very hard – to be able to pay the loans and AT THE SAME TIME keep on saving AND try to live every day
Posted by ann_in_grace | March 7, 2007, 9:26 amWell, that’s why you prioritize what you do and how much you do– but we’ll get to that in a later installment. :biggrin:
Posted by MInTheGap | March 7, 2007, 9:43 amI’ll be looking forward to that blog on prioritizing! What ann_in_grace said is probably our biggest problem debt-wise. There is just never enough to do it all it seems!
Posted by Deborah | March 7, 2007, 12:18 pmthats probably true.
you should pay cash for everything. however i do use my credit card a lot, so long
as i know i can pay it off the next month. that way i get free books or cash for using
my credit card.
Posted by Wealth Building Lessons | March 24, 2007, 6:13 pmAs long as you are sure you can make the payments, that’s not too bad. The problem is that usually people with the habit of using credit don’t have an emergency fund and if something unforseen were to happen (loss of income, big expense, etc.) the debt can go unpaid and start to pile up.
The credit card companies know the statistics. They would not be lending you money if they weren’t able to usually make more than the transaction fee.
Posted by MInTheGap | March 26, 2007, 8:30 amHowever, it is becoming increasingly difficult to pay by cheque for things. Debit cards are fine, of course (I think you may call these something else in the U.S. Debit cards are just like credit cards but the money is deducted immediately from your bank account) – but some kind of plastic is increasingly the only way to pay for things.
Posted by Stephen Kingston | March 27, 2007, 4:28 amI have yet to find a problem of people taking cash, though. In fact, because of a certain financial situation that I found myself in regarding someone owing me some money and having a check bounce, I feel a whole lot more comfortable accepting cash than anything else.
Posted by MInTheGap | March 27, 2007, 8:22 amI use cash whenever possible and checks usually just for mailing bills. I do use my debit card occasionally. We have been burned a couple of times taking checks at garage sales, etc. One time was just a year or so ago when selling a 1987 SAAB we had. We almost had no car AND no money! A little scary…but it did work out. So, cash is still fine with me! :biggrin:
Posted by Deborah | March 27, 2007, 4:59 pmBut cash feels so last century
Posted by Stephen Kingston | March 27, 2007, 5:01 pmDh and I never used credit cards…I mean for YEARS we paid cash till we realized we had no credit history except with what our bank loans gave us. We now have three that we’ve only used sparingly on low cost purchases and paid off right away.
We both are scared of debt. Our families learned the hard way while we were kids, and thus the reluctance to even own a credit card.
Posted by Mary | March 27, 2007, 5:43 pmJust don’t keep it in a mayonnaise jar, Stephen. :biggrin:
The amazing thing is that there’s no reason that you have to have a credit history. You can even get a mortgage if you show that you’ve paid your rent on time and that you have good testimony. Not that you couldn’t pay 100% on a house!
So, there’s really no good reason to have a credit card or any kind of debt device around your house.
Posted by MInTheGap | March 27, 2007, 5:51 pmGood point, MIN! But that is the line that all credit companies, etc. give you.
Stephen…so last century…I’m thinking of getting the computer chip imbedded in my forehead…how about you?! :silly:
Posted by Deborah | March 27, 2007, 6:50 pmCash…
When I got my first job, back in 1984 (yeah, I know it was before the Flood), in Poland, we had to stand in line in front of a tiny window in order to get our salaries in cash, in hand. I hated the procedure, it was so disrespectful. Later on they modernized the system and put the money into our accounts, but then I had to either write cheques in the shops, or go to my bank to get my money (no money machines back then in the streets). It was tedious.
So the first thing moneywise I did after moving to Sweden was to get a debit card, just to be able to take my money in the ATM in the street. It was so much easier. And later on, I got Visa to my account, and now I rarely have cash in my pocket anymore.
I am all for living debt-free, but cash-free as well.
Posted by ann_in_grace | March 28, 2007, 3:14 amAnd the good thing about not carrying much cash is that when your 3 year old daughter runs up to you, sticks her hand in your pocket and says “give me your monies”(!) you can make sure that all she gets (and consequently loses) is a few pence rather than 10 pounds.
(Okay, for most of you reading this, I realise you don’t use a nice colourful currency – just read “dollars” for “pounds”, but imagine more interesting colours and pictures to a 3 year old mind!)
Posted by Stephen Kingston | March 28, 2007, 4:45 amTalking about “colors”: there is a commercial on Swedish TV, about money feeling good in one of the banks, and the way it is made is very cute: the portraits of the people on the banknotes becoming alive, and thriving while riding a horse, bathing, walking, eating, etc.
Well, it is cute and scary at the same time: money becomes personified, it is no longer a means, but it becomes a tangible goal, now in an actual human form. I do not know why, but I really felt the message of this commercial like no other.
Posted by ann_in_grace | March 28, 2007, 4:55 amDeborah,
Well the chip is on the card at the moment, but RFID – perhaps on the right hand… that would be so convenient :whistle:
Posted by Stephen Kingston | March 28, 2007, 5:18 amThough I never had to get paid in cash for working ( I got the check, deposited the check… ), I was much like you in card usage, Ann. Believe it or not, I was working before debit cards too, and so I would pay for anything I wanted to buy with a credit card and repay the balance with a check. I rarely had cash.
When I got married, we got debit card technology, and it was nice to have the automatic transaction detail I could use with Quicken, and I had a line of credit on the account so I didn’t bounce.
What I found was that we could justify eating into anything we were saving, or even hitting the line of credit because we knew it was there, didn’t know how close we were to it, and there was no real tangible reminder of what the balance was.
Now that we’ve switched to taking out some cash (groceries, household items, fuel (gas, petrol, whatever), gifts, baby, childcare– things where we have budgeted and want to have a hard limit) we can tell at a glance how much we have spent on how much we have left. It’s like the kid going to summer camp. They know exactly what they have, and spend no more than that.
I can only speak for myself, but if I have a card with imaginary digits that I can’t remember the exact current status I’m tempted to go beyond the budget, but if I have cash in hand and know that “it’s all I have” then I’m forced to live within the budget.
Posted by MInTheGap | March 28, 2007, 8:55 amWhat I was taught here was that debt was a reasonable way to get something that I wanted right now and not have to wait and save.
Never thought of it that way very well put!
My wife and I are doing something we’ve never done before, saving up cash for our flights home this fall. Always worked it in the budget but after the fact never before.
Posted by Rob in Madrid | May 31, 2007, 4:10 amThat’s the message that everyone is given– “Why put off until tomorrow what you could be using today. You can afford it!” And credit is easy to get!
I have the same struggles that you have with budgeting after the fact, though, so you’re not alone. It takes a lot of discipline. It really is a training issue.
Posted by MInTheGap | May 31, 2007, 10:14 am