Pulling in the reins on consumer debt on clarkhoward.com

The Federal Reserve recently released a chart that shows how much debt we carry on loans -- credit cards, car loans and personal loans. As a country, our level of consumer debt has doubled in less than 10 years, adjusted for inflation. The increase began after 9/11 and kept climbing, along with the federal budget deficit.

Today, 70% of us owe balances on credit cards. Not long ago, it was still 60%.

When it comes to cars, some of us could take a cue from Clark's 24-year-old associate producer Joel. He scoured Craigslist and other classifieds for a used car that was in his budget, and he wound up paying $3,200 in cash for a 2000 Nissan Altima. Joel learned early that we don't have to borrow money for transportation. Yet it's anecdotally been said that only 1% of car buyers pay cash!

The truth is we create our debts and obligations. Clark recently saw an illustration in US News and World Report that showed a consumer using a MasterCard shaped like a shark. Next to the consumer was another person walking a dog marked with a dollar sign. The implication is clear: One person has money on a leash, while the other is at the mercy of debt.

We choose to create the debt monster. Nobody held a gun to our head and said, "You must borrow money on a credit card, take a personal loan or buy a car with borrowed money." We choose to do these things with our own free will.

What others are saying

Re: credit card debt by Dave
Dave, I had a similar problem, I took Clark's advice and send in a payment every other week (my payday). I use my banks BillPay to do this; and it works great. Good luck to you!
By Dan @ 10/01/08 10:17:53 PMreport abuse
credit card debt
I pay my credit card by the internet, I would like to pay extra on my card every month but the credit card company won't let me pay any extra, it's pay the minimum payment or pay it off. I believe its a way for the banks to screw the consumer. I need a way to pay more on this card each month, maybe send in a check with the extra amount. There crooks, in my opinion.
By Dave @ 07/31/08 09:30:47 AMreport abuse
Debt
Some debt can't be avoided. I've moved up in income only b/c I took on debt. Otherwise I'd be living under the conditions I grew up in, poor in a 2 bedroom rented house with 6 people living in it, eating PBJ and egg and noodles. I won't go back there, ever and if that means I needed or need to take on debt in the short term for school and stuff I'll do it. It is easy for many to tell others not to incure debt but sometimes it is a nessessary evil. I btw should be debt free with in 12 months sooner if I can. Only took 10 years but I am there.
By GCQ @ 06/11/08 03:25:11 PMreport abuse
Answer to How to Pay Yourself First
Anon, there is a very simple answer to your question. Before paying for anything else each month (or pay day), be sure to put 15-20% of your gross pay into savings (i.e., retirement or an emergency fund if you haven't created one yet).

If you don't trust yourself not to touch it, find the most inconvenient place you could possibly imagine to put the money. When I was first starting out, that was a credit union clear across town (plus I did NOT get an ATM card for the account).

Only after you have paid yourself first do you then pay for the necessities (home, utilities, food, transportation).

If you don't have enought to pay for the necessities after paying yourself first, then you either have an income problem (not making enough) or a spending problem (living in a home that is beyond your means). More often than not, the problem is a spending problem if you are totally honest with yourself.
By Carol @ 06/11/08 02:04:04 PMreport abuse
Debt Control
One sentence: Live within your means. Credit card companies love the people who pay minimum balances, and pay late. We live in a society of buy now pay later. Be consservative and listen to Clark Howard everyday...save, save, save
By Phyllis Rosen @ 06/11/08 10:18:13 AMreport abuse
how do you pay monthly payments to yourself & charge yourself interest?
how do you pay monthly payments to yourself & charge yourself interest? could someone please clarify this for me?
By Anon @ 06/11/08 10:16:16 AMreport abuse
Debt is a tool, not a resource
I am in agreement about means and purchases. However, having purchased used cars with cash or debt, and only one new car with debt - I believe that the entire industry is misunderstood. Don't lose sight of the fact that the vehicle purchased with debt should have a utilitarian purpose, be a used vehicle to minimize the depreciation hit, and kept for the majority of its functional life. If those things are followed - I feel you get your money's worth if financed at a competitive rate and a fair purchase price. Change any of those to the banks favor and you lose. The opportunity cost of a cash purchase is just as bad unless the vehicle is bought for pleasure. Then it is just an expensive hobby.
Our last car was a 3 year old that was purchased for the wholesale price, financed for 48 months at 2.9%, and had a full warranty for the term. If kept for 7 to 10 years, having gotten one with such low mileage, the use of debt is fair because the asset - albiet depreciating - stands good for what is owed. The real issue is stupid consumers getting upside down from the get go and then having it become cyclical or extending the break even point for liquidation. This prevents them from ever being in a position to pay cash or save. You might call our method sacrifice with cheese, but everything is better with cheese rather than settling for just cheese by itself for the sake of paying cash.
By Chris @ 06/11/08 12:16:10 AMreport abuse
Paying cash for Cars
Bluth, I did the same thing you did, but one step better, I charged myself 8% interest, I would have to pay a bank that, so paid it to myself instead
By Guy @ 06/10/08 08:45:45 PMreport abuse
excuses for debts
excuses are like belly buttons...everybody has one. there are people in this country at every income strata. some of them at every income strata live consumer debt free and some don't. for all of those people who say it can't be done..well it can. as i said, there are people at every income level who do. so don't say you can't. living beneath your means in my opinion is a virtue that reaps enormous benefits. hasn't someone ever said to you, when you are in a hole to stop digging?
By brian @ 06/10/08 08:39:10 PMreport abuse
Paying Cash for Cars
The way I bought my last two cars (paid cash) was by making the monthly payments to myself instead of the bank. After saving enough (and drawing interest, to boot) I bought a 1992 Camry in 1991 and a 2000 Camry in 1999. And I'm planning on paying cash for my next car -- in 2009 or 2010. Unless I decide to delay it until 2011.
By Bluth @ 06/10/08 07:49:56 PMreport abuse
No way!
I can't believe only 1% of car buyers pay cash. I've always done it and my parents have always done it. We just buy older cars and make them last forever. It just doesn't make sense to get in debt over an item that will depreciate as much as a car.
By Robin @ 06/10/08 06:43:22 PMreport abuse
Hang in there
shawn, hang in there! short term, you might need to rely on debt. long term, try to put yourself in a position that doesn't rely on debt.
By eats @ 06/10/08 05:23:27 PMreport abuse
Debt
That may be true Shawn, however you don't have to buy new. I have 3 paid for cars the newest being 14 yrs old. All paid for in cash. Budget, save, do without. My wife and I do not make a large income but there is a huge diffrece between wants and needs!
By Matt @ 06/10/08 04:48:11 PMreport abuse
Debt
Well, right now there are alot of us with no freakin choice. you just said last week that its not your place to tell people to go to bed hungry. Unfortunately, not everyone is as well off as yourself to pay cash for everything.
By Shawn @ 06/10/08 03:43:43 PMreport abuse

Re: credit card debt by Dave

Dave, I had a similar problem, I took Clark's advice and send in a payment every other week (my payday). I use my banks BillPay to do this; and it works great. Good luck to you!

By Dan @ 10/01/08 10:17:53 PMreport abuse

credit card debt

I pay my credit card by the internet, I would like to pay extra on my card every month but the credit card company won't let me pay any extra, it's pay the minimum payment or pay it off. I believe its a way for the banks to screw the consumer. I need a way to pay more on this card each month, maybe send in a check with the extra amount. There crooks, in my opinion.

By Dave @ 07/31/08 09:30:47 AMreport abuse

Debt

Some debt can't be avoided. I've moved up in income only b/c I took on debt. Otherwise I'd be living under the conditions I grew up in, poor in a 2 bedroom rented house with 6 people living in it, eating PBJ and egg and noodles. I won't go back there, ever and if that means I needed or need to take on debt in the short term for school and stuff I'll do it. It is easy for many to tell others not to incure debt but sometimes it is a nessessary evil. I btw should be debt free with in 12 months sooner if I can. Only took 10 years but I am there.

By GCQ @ 06/11/08 03:25:11 PMreport abuse

Answer to How to Pay Yourself First

Anon, there is a very simple answer to your question. Before paying for anything else each month (or pay day), be sure to put 15-20% of your gross pay into savings (i.e., retirement or an emergency fund if you haven't created one yet).

If you don't trust yourself not to touch it, find the most inconvenient place you could possibly imagine to put the money. When I was first starting out, that was a credit union clear across town (plus I did NOT get an ATM card for the account).

Only after you have paid yourself first do you then pay for the necessities (home, utilities, food, transportation).

If you don't have enought to pay for the necessities after paying yourself first, then you either have an income problem (not making enough) or a spending problem (living in a home that is beyond your means). More often than not, the problem is a spending problem if you are totally honest with yourself.

By Carol @ 06/11/08 02:04:04 PMreport abuse

Debt Control

One sentence: Live within your means. Credit card companies love the people who pay minimum balances, and pay late. We live in a society of buy now pay later. Be consservative and listen to Clark Howard everyday...save, save, save

By Phyllis Rosen @ 06/11/08 10:18:13 AMreport abuse

how do you pay monthly payments to yourself & charge yourself interest?

how do you pay monthly payments to yourself & charge yourself interest? could someone please clarify this for me?

By Anon @ 06/11/08 10:16:16 AMreport abuse

Debt is a tool, not a resource

I am in agreement about means and purchases. However, having purchased used cars with cash or debt, and only one new car with debt - I believe that the entire industry is misunderstood. Don't lose sight of the fact that the vehicle purchased with debt should have a utilitarian purpose, be a used vehicle to minimize the depreciation hit, and kept for the majority of its functional life. If those things are followed - I feel you get your money's worth if financed at a competitive rate and a fair purchase price. Change any of those to the banks favor and you lose. The opportunity cost of a cash purchase is just as bad unless the vehicle is bought for pleasure. Then it is just an expensive hobby.
Our last car was a 3 year old that was purchased for the wholesale price, financed for 48 months at 2.9%, and had a full warranty for the term. If kept for 7 to 10 years, having gotten one with such low mileage, the use of debt is fair because the asset - albiet depreciating - stands good for what is owed. The real issue is stupid consumers getting upside down from the get go and then having it become cyclical or extending the break even point for liquidation. This prevents them from ever being in a position to pay cash or save. You might call our method sacrifice with cheese, but everything is better with cheese rather than settling for just cheese by itself for the sake of paying cash.

By Chris @ 06/11/08 12:16:10 AMreport abuse

Paying cash for Cars

Bluth, I did the same thing you did, but one step better, I charged myself 8% interest, I would have to pay a bank that, so paid it to myself instead

By Guy @ 06/10/08 08:45:45 PMreport abuse

excuses for debts

excuses are like belly buttons...everybody has one. there are people in this country at every income strata. some of them at every income strata live consumer debt free and some don't. for all of those people who say it can't be done..well it can. as i said, there are people at every income level who do. so don't say you can't. living beneath your means in my opinion is a virtue that reaps enormous benefits. hasn't someone ever said to you, when you are in a hole to stop digging?

By brian @ 06/10/08 08:39:10 PMreport abuse

Paying Cash for Cars

The way I bought my last two cars (paid cash) was by making the monthly payments to myself instead of the bank. After saving enough (and drawing interest, to boot) I bought a 1992 Camry in 1991 and a 2000 Camry in 1999. And I'm planning on paying cash for my next car -- in 2009 or 2010. Unless I decide to delay it until 2011.

By Bluth @ 06/10/08 07:49:56 PMreport abuse

No way!

I can't believe only 1% of car buyers pay cash. I've always done it and my parents have always done it. We just buy older cars and make them last forever. It just doesn't make sense to get in debt over an item that will depreciate as much as a car.

By Robin @ 06/10/08 06:43:22 PMreport abuse

Hang in there

shawn, hang in there! short term, you might need to rely on debt. long term, try to put yourself in a position that doesn't rely on debt.

By eats @ 06/10/08 05:23:27 PMreport abuse

That may be true Shawn, however you don't have to buy new. I have 3 paid for cars the newest being 14 yrs old. All paid for in cash. Budget, save, do without. My wife and I do not make a large income but there is a huge diffrece between wants and needs!

By Matt @ 06/10/08 04:48:11 PMreport abuse

Well, right now there are alot of us with no freakin choice. you just said last week that its not your place to tell people to go to bed hungry. Unfortunately, not everyone is as well off as yourself to pay cash for everything.

By Shawn @ 06/10/08 03:43:43 PMreport abuse

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Jun 10, 2008 -- Pulling in the reins on consumer debt

What others are saying