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|
* 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.