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Unprecedented numbers of Americans are in debt for record amounts
- 50 million credit cards are issued annually
- 70% of credit card holders carry a balance, which averages over $3,000
- Payments on debt now account for 92% of family disposable income
- total consumer debt is over 5 trillion dollars. That's about the same as the government's "national" debt everyone keeps talking about
- Personal bankruptcies are at an all-time high of about a million a year
Banks, finance, and credit card companies have encouraged indebtedness
- Credit card companies are marketing to college students, so the borrowing habit begins in the earliest stages of adulthood
- Credit cards can now be used to pay for essentials such as groceries and rent
- Credit card companies offer low initial interest rates to entice borrowers to transfer balances from other cards. However, the rates then increase considerably, usually after only six months.
- Many companies, like GE Capital Services, are now charging penalty fees to customers who do not carry a balance on their credit card
- Credit card companies normally require minimum payments of only 3% of the outstanding balance. But that means the typical $3,900 balance, at 18% interest, would take nearly 42 years to pay off, and those monthly payments would total $14,530.44. Capital One advertises they'll lower your minimum payment from 3% to 2% for a fee. What they don't tell you is that paying only 2% of your outstanding balance each month could make the bill last longer than you do.
- People commonly borrow against their home equity. United Jersey Bank advertises that you can make minimum payments, only on interest, for up to ten years. Imagine, ten years could pass, you could pay thousands of dollars, and still have made NO progress on reducing your loan.
- Banc One is planning to test Visa and MasterCard accounts that will allow you to borrow up to 40% of your 401K plan before retirement. Nothing like throwing away your future for a little immediate gratification.
Did you know?
- Every dollar you pay above the minimum monthly payment on a debt earns you a gain equivalent to the interest rate the debt charges. In other words, if you pay and extra $100 towards the balance of a credit card that charges 15% interest, you're getting the wealth building effect of earning 15% annually on that $100. That's way better than most investments average over time. So the more you prepay against debt balances (without adding to them at the same time) the more you earn in effective interest.
- Prepaying your mortgage balance earns you more than you could possibly lose, in terms of the mortgage interest tax deduction. Let's say you're in the 28% tax bracket. That means the government gives you a 28-cent tax break for every dollar you spend on mortgage interest. But that means you're LOSING 72 cents out of each of those dollars. If anyone tells you that paying a dollar to get back 28 cents is a good investment, suggest they recheck their math.
Top 10 Consumer Purchase Mistakes
Advice is one of many things we can help you and your family with in order to cut down on expenses.
- Leasing rather than buying a car in the belief that leasing costs less;
- Not searching carefully for a competent, honest, auto mechanic;
- Assuming an insurance agent will "shop the market" to get the best auto and homeowner policy;
- Not holding a cash-value life insurance policy for at least 15 years;
- Not maintaining the minimum balance required to avoid checking fees;
- Holding many credit cards;
- Taking out a 30-year mortgage loan rather than a 15-year loan, just because the monthly payments are lower;
- Paying in full for home improvements before the work has been completed satisfactorily;
- Purchasing new appliances that are not energy efficient; and
- Not comparing unit prices on supermarket shelves.
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