Monday, September 15, 2008

Put Down the Credit Card

“I was just supposed to just pass by the Gap, maybe sneak a glance at the window display,” you think to yourself. “What happened?” you wonder as you patiently wait in the line you never intended to wait in holding sweater you never intended to buy. As the line shortens and the sales associate signals for you to approach the register, you panic. You can’t just leave the sweater now, you need it, but you don’t have an extra $50 lying around in your wallet. “No problem,” you think to yourself as you reach into your bag and pull out your shiny gold credit card. “I’ll just charge it.”

It’s the oldest story in the book. Buy now pay later, but at what price? Well, the youth of Generation Y are finding out. Plagued with credit card debt, Generation Yers, on average, owe about $8,200 in credit card debt according to an article by Emma Johnson of MSN Money. The same article estimates that the average college debt is $20,000 and this number is increasing. So why are Gen Yers in so much debt? For starters, there’s Gen Y’s growing reliance on credit cards.

In this fast-paced age where one’s entire life can fit on a microchip the size of a thumbnail, convenience is not an option, it is a necessity. The impatient Gen Yer wants what he wants now, end of story. Credit cards undoubtedly appeal to this immediate urge to have. With a single swipe, any transaction is completed. There’s no messy change to be returned or awkward small talk to be made with the cashier. Yet, as is their habit with most of life's conveniences, like mommy and daddy's money, Gen Yers cannot seem to let go of their plastic enablers.

But what are Gen Yers spending all of their money on? According to a 2006 consumer expenditure survey by the Bureau of Labor statistics, Gen Yers made an average of $29,057 a year before taxes and spent a whopping $28, 131, the largest percentage of any other age group polled. The survey also showed that Gen Y tended to spend more money on apparel and entertainment for themselves and less on things like healthcare and gifts for others. Additionally, of all the age groups polled, Gen Y spent the highest percentage of their income on education (

Perhaps a reason behind the generation’s debt problem is that Gen Yers do not see themselves as financially established at their young age. More often than not, Gen Yers figure that they have their whole lives ahead of them and have plenty of time to pay off their debts. What they tend to neglect, however, are the high interest rates that accumulate over time with most credit cards.

Yet even with high interest rates and mountains of debt, many Gen years continue to assume that if they can’t pay their credit card bills, their parents will bail them out. It is this dependent attitude that is damaging. When Gen Yers take this easy way out, no lesson is learned and the vicious cycle of debt will repeat itself over and over again and eventually they’ll have to pay it back themselves. There is, however, a way to stop the cycle before it gets out of hand. The first step: put down the credit card.

ABC News’ Consumer Correspondent Elisabeth Leamy proposes an
unusual option for those who want to keep at least one extra card around for emergencies but don’t want to be tempted to use it. Her recommendation: freeze your credit card, literally. “Cut up all but one credit card,” she writes. “Then take the lone survivor and drop it in a Tupperware container full of water. Pop the container in the freezer and put your credit card spending on ice! That way you'll have to think about it for several hours if you want to use the card” (

Another option is to use good old-fashioned cash. The limited supply of money forces one to spend only what he has and not a cent more. For emergencies, a debit card may be used. It works just like a credit card, only the money spent is not borrowed, it’s yours. Generally, impulse purchases are not dire enough or large enough to warrant using credit cards, so they can be left at home.

Credit card debt can be overwhelming, but it cannot be left alone. It would be nice to pay off an $8,000 debt at once, but that, of course, is an unrealistic solution. Instead, simply step away from the credit card and examine your spending habits. Instead of racking up debt, pay it off. Once you take responsibility for your spending, you can find your way back to financial freedom.

Currently in credit card debt and want to get out? Check out these
Washington Post

How do you spend? How about your parents? BLS Survey

She paid off her college loans. Find out how she did it:
Fabulously Broke in the City

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