THE RISE OF THE CREDIT CULTURE

How Did I Get into This Mess?

Answering the question “How did I get into debt trouble?” is murky terrain for most of us. First, we’re often in more trouble with money than we like to admit. We may already know that we have a tendency to overspend or be vague about our finances, and we probably don’t have a realistic grasp on what it costs us to live or the total amounts we owe. That’s all normal stuff when we begin learning to live debt-free.

But the heart of our issues—the real trouble, if we’re honest about it—is that we keep running up debt even after we know we’re in over our heads. We’re still using credit cards to live even after we’ve glimpsed the impending financial disasters ahead. We don’t like to take responsibility for the messy (or even disastrous) state of our finances, and we have a trunk full of reasons that debting has been necessary. We feel compelledto debt even though we know it is causing us harm. And even when we pay off all of our cards and begin debting again with the best of intentions—that is, a promise to pay off all of our cards each month—we end up back in terrible, escalating debt. So how did we get into these nasty debt habits in the first place? We’re going to take a look at that right now.

THE RISE OF THE CREDIT CULTURE

I used to joke in the 1980s—when my debt troubles began—that if I had it, I spent it, and if I didn’t, I spent it anyway. When I was 20 years old, ATM cards were just appearing and only a few businesses took credit cards (you couldn’t buy groceries with credit cards), but there were certainly enough credit options for people to begin getting into debt. And I did.

Now we can buy anything on credit! We can even run up cash advances and pay our mortgages with a card! In other words, those of us from age 20 to 50 are the first generations in our history who have had ready access to credit since we reached adulthood. With that development came the resulting freedom to extend our income beyond its reasonable reach, and that has radically impacted the way we buy.

This is not our parents’ doing. This is not something our teachers neglected to teach us. We did this. This is our part. Our generations invented this system, thought it was incredibly peachy, and we promoted it until the cows came home. Who is “everywhere you are”? Your credit card company. What is “priceless”? Whatever your credit card can buy.

So what have we done with the illustrious spending freedom that’s been bestowed upon us? This is what we’ve done: We’ve created a country full of people of all ages with financial disasters on their hands, with more money pressure than is reasonable for any one human being to handle.

IN WITH STRUCTURE, OUT WITH STRINGENCY

Our misuse of credit freedom reminds me of the disaster in class scheduling that my high school implemented in 1974. I was a freshman, and our progressive superintendent decided to institute what was called “modular scheduling”—an open class-scheduling program in which students had huge blocks of free time to schedule as they wished.

We were to use—at our own leisure—“learning labs,” “resource centers,” and the library. All we had to do was make a list at the beginning of the day of where we were supposed to be at each hour. And—this was the kicker—we had entire mornings, whole afternoons, and sometimes whole days completely free of assigned classes to attend. You can guess what happened. A huge number of teenagers started spending entire days smoking pot in the woods behind the school. Having no structure was okay for a handful of kids who had amazing self-discipline and well-developed skills, but for a lot of my high school peers, it was a debacle that tanked rather quickly.

The same has been true, in my opinion, for our generation regarding credit. Structure-less and free to run up as much debt as we can qualify for, we’ve done just that. We’re the high-schoolers smoking behind the school. Without any limits, we’ve failed to hold ourselves accountable. Having no structure has not been good for us. In fact, it’s been a disaster. We’re clueless about how much we spend, how much we need, what we can afford, and how to spend wisely. We’re not accountable to ourselves or our creditors, and we have no idea how to live in peace with our money.

We need structure. Not stringency, but structure. We need a structure that’s strong, yet flexible enough for real-life money concerns, for the actual items that come up in a week or a month of spending. And we need enough flexibility in our structure for the real-life financial glitches that come from just being human.

AM I A DEBTOR?

Probably one of the hardest things to admit to ourselves is that we’re debtors. What’s a “debtor”? A debtor is someone who uses unsecured debt to fund living expenses, purchases, needs, wants, and even “emergencies.” What’s “unsecured debt”? Credit cards, lines of credit, department store cards, borrowing from friends or family—in short, any purchase, borrowing, or loan that indebts us to another person or institution, with interest or without, in which we owe money that we do not currently have.

A “secured debt,” by contrast, is a house or a car—an item that, if given back to the financial institution that offered the loan, would erase the debt. (That’s a theoretical definition. These days, even a house or a car may not be considered a secured debt. Houses purchased on interest-only loans before the market dropped are no longer “secured” because the house is worth less than the amount owed.) Debtors who refinance and live on their equity are essentially debting against their “secured” loan. Giving back a car may or may not erase the debt, depending on the bank’s or dealer’s default policies. Financed refrigerators, furniture, TVs, computer equipment, and household appliances all qualify as unsecured debt.

So—are we debtors? Do we use credit cards? Do we use department store cards? Do we borrow from parents, siblings, or friends? Then we’re debtors. Do we use credit lines or credit agencies? We’re debtors. Do we spend any money that we currently do not have? We’re debting! It doesn’t matter what it’s for. Is it for a new business? For art? A spiritual quest? “Emergencies”? We’re still debtors. Debt doesn’t care about the reasons; all debt cares about is one thing: Do you owe? Owing is the cause of our financial stress. We owe more than we have, more than we earn, more than we can possibly, reasonably pay back on our current income and still meet our daily needs.

So say it out loud: “I’m a debtor.” Then write it down. Try it in front of the mirror. Have the courage to look yourself in the eye and say, “I’m a debtor. I’m in debt.” If you don’t know how you’re going to pay your debt back, say that, too. “I don’t know how I’m going to pay back the money I owe.”

Saying it out loud may sound daunting, but admitting this is the first step in moving toward a solution. If you have no debt now, but you’ve had to crawl out of debt at least twice in your life, say it: “I’m a debt cycler. I go in and out of debt.” If you’re not in debt but you don’t know where your money goes or you regularly overspend, then say that out loud. It doesn’t matter what the level of your financial distress is. The Debt-Free Spending Plan can help.

Great. Good job. You’ve been honest with yourself. That’s enough. Now, what are we going to do about it?

WE REALLY CAN FUND OUR NEEDS

We all have a right to enough good food, enough decent clothing, enough to pay our bills, enough for entertainment and a vacation (because that’s what makes for a healthy, stress-free life), and of course, enough for a small pleasure or two. Those are the financial components that make for an engaged, productive living experience. Most of us with debt trouble have never learned these skills, so we have to learn them now. Time to get started!

YOUR PSYCHOLOGICAL SPENDING ISSUES WILL NOT STAND IN YOUR WAY

The first thing I realized in creating the Debt-Free Spending Plan was that I had some issues about the way I spent my living-expenses money. A decade ago, I was spending over $800 a month on groceries—not including dining out. Now, I like to cook, but I have a lean body frame and a healthy eating style, and I could clearly see that it was probably not possible for me to eat $800 worth of groceries by myself each month, in addition to dining out. I was having a great time shopping, and a lovely time cooking, and I was giving away a lot of food, as well as letting plenty of good food go bad.

More important, I only had about $950 each month to live on after I paid my bills, so $800 for food was way too much money to be spending on one expense item. I was shopping out of habit, and it made me feel taken care of. I shopped like my mother had shopped— only she had been buying food for a family of six. What I would have rather had, instead of all those groceries, was a travel fund, a paid-for dental visit, a timely car tune-up, or a new dress—things I went into debt for, out of rebellion, because I believed I didn’t have enough money for them. My lack of clarity had me blowing a bunch of cash each month on expenses that weren’t of any particular use to me. That’s money that I could have been using for things that were much more meaningful.

The same thing was true with my household items—stuff like tile cleaners, light bulbs, floor wax. Once, when I was on a rampage about my lack of spending clarity, I collected all of the household items under all my sinks and in all my closets, and I averaged the cost of everything I was buying in a year. I calculated that I was spending over $125 a month on everything from shoe polish to Ajax. And I had no savings. I had no medical expense fund. I had no monthly clothing allotment. The $125 was a significant monthly amount for me on my after-bills money. Yet I bought the most expensive household cleaners and couldn’t pay for a vacation.

You get the picture. There’s a psychology to how and why we spend. And as you’re looking at your spending patterns, you’ll see what you’re doing psychologically. But don’t get stuck there. Your lack of clarity is all you’re interested in noting here. You don’t need to belabor your psychology or go on an archeological dig into your childhood.

The Debt-Free Spending Plan is a neutral tool. It doesn’t care how you got the spending habits you have or who you acquired them from. If your parents were miserly, it won’t stop you from doing the Debt-Free Spending Plan. If your grandmother held money over your head and now you spend more than you earn in rebellion, it’s not going to stop you from getting clarity with the Plan. There is no psychological quest required to ferret out the root of your spending habits. That’s the beauty of the Debt-Free Spending Plan. It’s about getting clarity now.

THE FLIP SIDE OF OVERSPENDING: SELF-DEPRIVATION

When I was introduced to the concept of self-deprivation, my immediate response was, “I’m not a self-depriver—I overspend all the time. I’m in debt for God’s sake!” But looking a little more closely at my spending patterns, I realized I had serious self-deprivation issues.

I had no allotments for medical bills, emergencies, and no savings. I hadn’t seen the dentist regularly in several years. I had a couple of good years when I paid cash for vacations, and then guiltily put subsequent getaways on my credit cards. My car needed a tune-up. The heater had been broken in my apartment for four years. It took me looking straight into the face of a bankruptcy budget form to realize that clothing is a necessity.

I had been treating clothes like luxury items because I love them— believing I had to “steal” from my food, rent, and credit card payments money in order to buy clothes. Truthfully, I had almost always put my clothing expenses on credit cards. It never occurred to me to have a monthly necessity amount set aside. And I never thought to have “fun money” that I could use however I chose.

I suddenly realized what self-deprivation looks like and the role debt plays in it. Without clarity on the amounts we can spend on our needs, we debt to fund them, often overspending. Our cycles of debting put pressure on us, and so we deprive ourselves in areas like medical and dental care, clothing, savings, vacations, and entertainment—all things we can’t quite seem to account for in our monthly spending, but that we know help to make up a healthy and contented life.

And here’s the kicker: A lot of the time we’re charging things that should be a regular part of our monthly spending. In other words, if we weren’t in a cycle of deprivation, debt, and overspending, we’d actually have some cash to fund what we need! More important, we may believe that our “wants” have to be relegated to the “if I win the lottery” category. So instead of having a plan for our wants—depriving ourselves again—we go without, and eventually rebel, and run up more credit card debt. “Extra” cash, we believe, has to be used for debt payments or a financial emergency—like our car breaking down. We never consider that funding our wants is part of a healthy lifestyle. That’s self-deprivation.