Don’t buy what you can’t afford. Sounds simple, right? Well, sort of. While restricting spending to what you bring home in a paycheck is the foundation of sound money management, doing it can be difficult. The reasons are many, but primary among them is the popular idea that living in debt is acceptable. However, this is a dangerous way to view your finances.
The widespread availability of credit has made not having cash to pay for both necessary and discretionary items easy. Currently, about 191 million Americans have at least one credit card in their wallet.* The average credit limit is $29,855.** Having immediate access to such a large sum inspires many to charge their way into debt. Though the average per-household credit card debt currently exceeds $8,674, balances in the six-figure range are not unheard of.† Credit cards have morphed from their true purpose as a convenient payment tool to instant emergency account, holiday bonus, vacation fund, and salary increase all rolled into one.
It’s not just plastic that makes descending into debt so easy. Payday loan institutions have exploded onto our landscape (Read this blog to learn about the dangers of payday loans). We can now tap into our future earnings just by writing a check. Many who use these businesses become entangled in a never-ending cycle, with interest rates that would make a loan shark gasp.
Having consumer debt causes stress and worry. It may also undermine your ability to save for retirement and higher education.
How can you reverse the trend? Here are some ways:
- Refute the idea that maintaining debt is inevitable and just another way of managing money.
- Redefine yourself as a “saver” rather than a “consumer.”
- Relish the feeling of living within, rather than beyond, your income.
- Accept that you may not be able to have everything you want (or even need) today and that a quick cash fix won’t bail you out of a bad situation; it will just make the following month more difficult.
- Borrow only when you are absolutely certain you can repay the entire balance when the bill comes in.
- Reject the idea that it is your responsibility to keep the economy rolling. It is not. You need to save for (rather than borrow from) tomorrow so you and your family can be financially independent, prepared, and secure.
If you cannot cover your expenses, don’t get a loan—get help—get educated. Visit our Financial Education Center for video tutorials on budgeting, saving, credit scores, credit cards, and more. If you’re facing a complex financial challenge, contact our experienced Certified Financial Counselors. They’re here to listen and share practical ways to help you regain control of your finances.
Final thoughts.
For most people, finding themselves in debt isn’t something that happens overnight. Getting out of debt won’t happen overnight, either. Start making the transition to being a saver now. If you’ve never created a monthly budget, do so today. If you don’t have an emergency fund, start making small, regular deposits with your next paycheck. Our Online Savings account has no minimum deposit or maintenance fees. And if you sign up for Direct Deposit, you’ll earn 4.00% APY‡ on your money. For a bit of added discipline, consider a Rainy Day Savings account, you’ll earn 3.04% APY§, there’s no minimum balance requirement, and you can make two free withdrawals per calendar year. Finally, if you are contemplating a purchase that is outside of your means, don’t buy it. Sometimes, it really is that simple.
This article was developed in partnership with our friends at Balance Pro.
*Pokora, Becky, “Credit Card Statistics And Trends 2024,” Forbes.com. 28 March 2024. Accessed 19 September 2024.
**Johnson, Holly D, and Egan, John, “What is the average credit limit for Americans?” Bankrate.com. 10 September 2024. Accessed 19 September 2024.
†Luthi, Ben, and Frankel, Robin Saks, “What is the average credit card debt?” USAToday.com. 17 September 2024. Accessed 19 September 2024.
‡APY = Annual Percentage Yield. APY is the annualized rate based on a compounding period of one year. When the deposited money earns dividends and the accumulated dividends starts earning dividends as well, we are talking about compounding. Fees could reduce the earnings on an account. All yields except Certificate yields are subject to change retroactively to the beginning of the month.
Rate bonus is for a minimum of $1,000 monthly ACH Direct Deposit into a Farmers Insurance Federal Credit Union Checking Account. Rates are subject to change at any time. No branch or call center access with this account.
§APY = Annual Percentage Yield. Rates are subject to change at any time.
Limit one Rainy Day Account per qualified membership. Rainy Day Savings is an interest earning savings account eligible for 3.04% APY interest on balances up to $2,000 and the standard Membership Savings rate on balances over $2,000 when funded via recurring ACH deposit or other qualifying external funds. Dividends are calculated by applying a periodic rate to the Average Daily Balance in the account for the Dividend period. Interest earned will be credited to the account at the end of the statement period. This account is limited to two withdrawals per calendar year, each withdrawal in excess of this amount will incur a $20 excessive withdrawal fee that must be paid at the time of the withdrawal. This account does not qualify for withdrawal access via debit or check and does not support transactions originating via VRU, online banking, mobile banking, or ATMs. Withdrawals can be made in person at a Credit Union branch or by calling us at 800.877.2345. This account does not qualify for overdraft protection. Account holder must be a member with a regular share account who is in good standing. Current interest rates and the annual percentage yield may be found at the Credit Union’s website, may be verified at a Credit Union Branch or by calling 800.877.2345. Interest rates earned and qualifying dollar amounts for interest earned are subject to change at any time. APYs and eligibility criteria are subject to change at any time. Fees may reduce earnings.
