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Denying our debt

When it comes to credit card debt, many Americans are in denial.

Most say they are worried about the amount of credit card debt in this country but insist that they, personally, don't have a problem. Which raises the question, are they kidding themselves?

Bankrate.com's financial literacy poll shows: Nearly nine out of 10 Americans say credit card debt has not been a source of friction in their lives.

And most say they know how to handle credit wisely and that that's exactly what they do.

Seventy-five percent of Americans say they don't put major purchases on credit cards that they can't pay off immediately.

And 69 percent say they won't make any purchase on a credit card that they can't pay off immediately.

More than two-thirds say they find credit card debt so abhorrent that they view paying off credit cards as more important than saving for retirement or funding their children's education.

Think about that for a second: Clearing out credit card debt is more important than a child's education fund.

The mum syndrome
And yet when it comes time to reveal the amount of their credit card debt, these same people clam up.

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"You don't like to talk about it because it's a little bit embarrassing," says Mike Barnhart, executive vice president of Consumers for Responsible Credit Solutions.

Forty-seven percent of Americans flat-out refuse to divulge the extent of their credit card debt to a friend.

Many Americans would rather reveal their weight, age or monthly mortgage or rent payment than fess up to the actual amount of credit card debt they're carrying.

What gives? What could possibly be embarrassing about paying your credit card bill in full each month? If our credit habits are so stellar, why aren't we shouting about them?

Could it be that when it comes to credit cards, plenty of people aren't practicing what they preach?

Shocked when the bill arrives
The thought of owning up to our expensive card habits makes us very, very uncomfortable. So we deny that we have a problem at all.

"I think people are in denial," says Jeanie Levinson, 53, of San Diego, Calif. "They say 'Oh, I'll take care of it at the end of the month.' And at the end of the month you have no idea how much you've spent."

Levinson should know. She used to be surprised every time she opened her credit card bills.

"At the end of each month the balance would be higher and higher and I would go, 'OK, where is this coming from?'" Levinson says.

But she never really found out and kept right on spending.

For five years or so, Levinson, a self-proclaimed spender, charged more on her credit cards than she paid off each month.

"I think I knew for a long time it was out of control," Levinson says. "I just didn't want to take that first step."

When she finally sat down and tallied up her debt, it wasn't pretty. She'd piled up $16,000 of debt on eight credit cards. Just making the minimum payments on her cards was costing her several hundred dollars a month.

Levinson says her breaking point came in December 2000. "I totaled up my paychecks and I totaled up what I owed and I just said, 'I can't do this anymore.'"

Making a deal with debt
In January 2001, she went to Springboard Non-Profit Consumer Credit Management for help. She signed up for a debt-management plan.

Three years and whole lot of hard work later, all of her credit cards are paid off. She doesn't owe a penny of credit card debt and plans to keep it that way.

"The best thing I ever did," Levinson says.

Her debt denial is over and done with. "I've learned to control where I spend my money," Levinson says. "And now I make choices."

What about you?
Are you making good spending choices?
Are you in denial or in control of your credit card spending? Consider these questions.

Do you know how much you owe? If you had to estimate the balance on each of your credit cards right now, could you do it?

Do you know how much you're paying in interest on your credit cards?

"The interest accumulation is a killer," says Dianne Wilkman, president of Springboard Non-Profit Consumer Credit Management.

Bankrate has calculators that can help you pinpoint just how much carrying a credit card balance is costing you, including the true cost of paying the minimum.

Create a system to track spending
Are you surprised every time you open your credit card bill? Or do you have a system for tracking your credit card spending?

Levinson suggests keeping track of your credit card spending in a check register. Make note of your current balance, your credit limit and each new purchase. This will force you to look at your balance every day.

"Every time you spend something write it down," Levinson says. "It's not just $20, it's $20 plus interest and finance charges. You have to open your eyes."

There may be a big black hole in your monthly spending that you don't even know about.

"Do you know where the sinkholes are in your budget -- the black holes where money is being wasted?" Wilkman asks.

The only way to find out is to track your spending.

Three years later, Levinson still can't fathom how she racked up $16,000 in card debt. There was no big, unexpected expense that pushed her deep into debt. A little over-spending here, a little over-spending there just kept adding up.

"The thing that keeps me going and not picking up with credit cards again is looking around and going, where did that $16,000 go?"

Denial by the numbers
Here's a look at how Americans feel about credit card spending and debt.

Most Americans say they use credit cards wisely:

75 percent of Americans say they don't make major purchases on their credit card unless they can pay it off immediately.

69 percent of Americans say they don't put any charges on their credit card that they wouldn't be able to pay off right away.

87 percent of Americans responsible for paying credit card bills say credit card spending has not been a source of irritation with others in their life.

Only a minority of Americans own up to having credit card problems:

27 percent admit to getting into financial difficulties because of credit card spending.

23 percent say they've maxed out a credit card.

13 percent say they've been 30 days late on a credit card payment in the past year.

11 percent say they've had a credit card debt go to collection.

Credit card debt: Americans won't tell
Many Americans won't divulge the extent of their credit card debt, even to a friend.

Only 53 percent of Americans would be willing to confide the amount of their credit card debt to a friend.

47 percent won't.

And yet only 27 percent of Americans admit to getting into financial trouble because of credit card spending.

Americans believe paying off debt should be a top priority:

79 percent say paying off credit card debt makes better financial sense than investing in stocks, bonds and mutual funds.

70 percent say paying off credit card debt makes better financial sense than saving for retirement.

63 percent say paying off credit card debt makes better financial sense than putting money away for children's education.

Americans are concerned about other people's credit card debt even though they claim they don't have a problem themselves:

66 percent of Americans say they are concerned that the nation's credit card debt will weaken the economy.

64 percent of Americans say they think most people they know are concerned about being able to pay their credit card bills each month.

85 percent of Americans are concerned about always being able to pay their credit card bills each month.

-- Posted: April 6, 2004

 

 

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