Have you heard about the phantom debt collection scheme uncovered by ABC News? An overseas call center made over 2.5 million calls and fraudulently collected over 5 million dollars. The group called families who had signed up for online loans. They impersonated police officers and told their victims they were going to spend the night behind bars and “Not receive a single drop of water until they paid the debt!” The victims who had children were told not worry. The collection agency would provide child care while they were in jail!
This is a unique situation where debt went very wrong, but it’s not the only one. Unchecked debt led to the worst stock market crash and recession since the Great Depression. The best way for your family to enjoy true financial security is to avoid debt. Build your wealth through savings and investments instead of relying on debt to finance your wants and needs.
Beware the card
But, can you live debt free in today’s culture? Let’s take a look at one of the biggest contributors of consumer debt: credit cards. Most people are falling prey to one of the most widely advertised products in America. The credit card industry spent over 83 million last year in marketing just to college students!
Here are some facts not divulged in these ads.
- The average person spends 18% more with a credit card than with cash.
- Credit card interest adds to your consumer debt – average credit card debt per household is $7,100.
- Debit cards provide the same fraud protection as credit cards.
- Credit cards support impulse buying.
- 33% of credit card “rewards” go unused.
Most people think they can beat credit card companies by using their “free money.” You plan to pay off your credit card balance each month, but we know 40% of the households in America have a credit card balance.
The real cost of free rewards
Let’s look at a few common household expenses and the cost of paying for them with cash compared to carrying the balance on your credit card and making the minimum payment.
| Item | Cash price | Credit Card price* | Difference |
| Restaurant meal for family of 4 | $50 | $80 | $30 |
| Tank of gas | $85 | $136 | $51 |
| Kindle Fire | $199 | $318 | $119 |
| Family vacation | $4000 | $6400 | $2400 |
* 18% APR, Minimum payment 4% of balance
If you have an outstanding credit card balance, make it a priority to pay it off. Here is an alternative to break the cycle of debt.
Buy stuff the old-fashioned way
I have one guaranteed way to never accumulate credit card debt – don’t use credit cards.
The goal is to have a budget for your monthly expenses such as entertainment and gas. For larger expenses, save monthly until you have enough for your new electronic gadget or family vacation. Here is a great tool to help you develop, track and share savings goals – it’s called Smarty Pig!
Make a commitment to becoming debt-free. But, if phantom debt collectors call you, tell them the United States abolished debtors’ prisons back in 1833.
We are a save-and-pay-cash household for most everything, and have just one credit card with a low limit for emergencies such as unexpected car repairs and the like.
Recently, health problems caused us to fall behind on our payments, as well as rack up a huge amount of medical bills. When 9 out of 10 phone calls were collections, we did a little research and discovered the FDCPA, the Fair Debt Consumer Protection Act.
http://www.consumerfinance.gov/guidance/supervision/manual/fdcpa-narrative/
These are the laws all debt collectors must follow. Being familiar with the FDCPA has saved us from harassment and stress when the phone started ringing. More than one caller was surprised when we stated, “No, you cannot do that according to the FDCPA.”
With all the debt we were dealing with, we worked to pay the credit card off first. That’s the one with the highest interest.
“Unchecked debt lead to the worst stock market crash and recession since the great depression…”
Steve, I’m not quite sure you realize what happened that lead to the financial crisis of 2008 and the giant role large financial institutions played in that crisis. Read up on CDOs traunches and mezzanines.
The people that took out mortgage loans that were more than they could afford weren’t using common sense. Common sense can protect you from a sales pitch. But many people weren’t educated enough to know the difference. They took exotic loans on big mortgages because Why Would a Bank give them a Loan they Couldn’t Afford? They bank is the expert.
Banks were being fueled by greed, short term profits and investor dollars. Everyone was tricked but the 5 people that bet short on the mortgage bubble. Financial institutions crashed due to their own greed and excess leverage without property underwriting guidelines or standards.
Not having a credit card is probably a bad choice. Establishing credit is good… and it must be used periodically to do this. Absolutely pay it off monthly or ASAP to avoid interest. Also keep the limit low enough to keep you out of trouble in an emergency. If you don’t think you can do that…then don’t get a credit card. Perhaps, use a debit card instead something that could offer purchase protection and electronic tracking of where your money goes. If you’re paying cash for things you should keep all of your receipts and log them.
I find that people know themselves better than anyone else. If they know they have a bad-habit tendency to spend or not save… forced discipline is always a great way to go…such as cash only, strict budget… 15yr mtg vs 30yr. As long as they stick to their plan they should be in good shape. Just what I’ve seen and witnessed.