This weekend, the New York Times ran a series of articles on debt in America. It’s definitely worth reading, but if you don’t have the time to go through all of them, there are two paragraphs that I think are absolutely key:
Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.
Mortgage lenders similarly added or raised fees associated with borrowing to buy a home — like $75 e-mail charges, $100 document preparation costs and $70 courier fees — bringing the average to $700 a mortgage…
Credit card interest rates are on the rise, as well, even for those customers with good credit.
It costs money to buy on credit, whether you’re purchasing a new home or just putting a bag of groceries on your Visa. Credit is expensive, and while various lenders work on recovering from the credit crisis, it’s going to get even pricier. It’s important to remember that credit card companies don’t send you all those preapproved offers out of the kindness of their hearts. They’re marketing their businesses in order to make money — from you.
There is only one way to avoid paying fees and interest, and that’s to stop using credit. Personally, I’m not entirely there yet, and I still have some debt I need to pay off, but I’m working on it. I know it’s the only way to go.
Very few people are ready to go completely cold turkey on their credit cards — very few can truly afford it. But there are steps that you can take.
- Use only one line of credit. You’ll still have to make payments on your other cards and lines of credit, but if you’re only adding to what you owe with one card, you will have a better handle on what you spend.
- Pay cash wherever you can, especially for anything beyond the bare necessities. You have to buy groceries and pay rent, but for consumer purchases, using only cash can help teach you to save up for purchases. Even better, you don’t pay any fees or interest on cash purchases.
- Don’t open new lines of credit. For mortgages and other loans, a big chunk of the fees occur whenever you get a new loan or open a new account. The same is true for refinancing and other major changes to your account.
There are plenty of personal finance advisers out there recommending extreme solutions. If you can handle an extreme approach to paying down debt and getting away from needing credit, I’m all in favor of it. Most of us need slower and steadier methods, though. We all have to look at our own financial situations and chose the best path for ourselves.
