The following exercise will be enlightening to those deep in credit card debt, entertaining to those not in debt, and a cautionary tale to those too young to have experienced it. If you are in the former category, like me, I encourage you to hunt down your most recent credit card statement, or simply lookup your credit card balance online.
How Much Of Your Debt Can You Itemize?
Now that you know how much you owe, set aside five minutes, grab a sheet of paper, and brainstorm all the things you purchased with that credit card. How much of the outstanding balance can you account for? 50%? 75%? 100%? Your answer is probably indicative of your relationship with credit cards. The lower the amount you can account for spending, the higher the chances your spending is out of control.
A Credit Card Debt Audit
I’m fortunate that I’ve been able to whittle away at my credit card for some time now, and am finally seeing the light at the end of the tunnel. But even as the balances decrease, memory of the purchases made to run up the debts fail me. Well, there was the vacation we took in 2007; back to school clothes for at least a year or two; the occasional car repair; and the new bedroom furniture we just “had to have.” That represented about 70% of my remaining balance, and I’ve paid it down over the last year!
The other credit card charges were mostly forgotten living expenses. Expenses charged because we were living beyond our means. Sure, we had our share of legitimate emergencies, health scares, and educational expenses associated with my dream of completing a degree. But to justify accumulating debt for these reasons is to make excuses for our lack of financial planning. We should have had an emergency fund in place. I should have saved for school and paid cash.
I guess the lesson learned from this exercise is that the things that we “just had to have” probably could have waited, because only a year or two later I can’t even remember what half of them were! Sad. The rest is accumulated interest and probably the occasional fee assessed before I got my act together.
Armed with this information I can do two things: I can sell as much of the stuff I bought as possible and apply proceeds to my remaining debt, and I will no longer charge impulse or lifestyle items on my credit cards. I keep exactly one card in my wallet for emergencies, and I promptly pay it off immediately in the event I have to use it for car repairs, a replacement appliance, etc. Never again will I find myself wondering where half of my credit card debt comes from. Never again!