3 Unintentional Credit Lessons from Our National Government

For better or for worse, governments lead by example. Unless you live in seclusion on a remote desert island, you've probably noticed that our government has given us a prime example of how not to handle one's finances. If you've accumulated a bit of credit card debt, you need only look at our nation's deficit spending, corporate greed, and irresponsible lending practices for shining examples of what you do not want to become.

Think of your wallet as the national government writ small. It's a microcosm of the global financial market and demands the same consideration -- lest your credit score sink like George W's approval rating. These are the questions you should ask before you charge in with cards ablazin': "Should I spend this money?" "Is the purchase a need or a want?" "Can I really afford it?" "How will I pay the money back?"

Lesson #1: Credit Cards are NOT Free Money

It's frightening how quickly we're indoctrinated into the "charge now, pay later" culture. For example, after watching an ad for some randomly cool item on television, my seven year old daughter rushed over and asked me to buy it. "Sorry," I said. "We can't afford it right now." Her answer? "So put it on your credit card!"

Hmm. Her idea reminded me of a certain man who used borrowed money to pay for a very expensive war. Too many of us take the second grader's approach to financial management. We see something we want right now, and we don't want to spend time saving up for it. Since credit cards are little plastic rectangles of instant gratification, we often use them to buy things we can't really afford. Which brings us to Lesson 2...

Lesson #2: Don't Live Beyond Your Means

Did I really need to say that out loud? Yeah, probably. I've known people with four-bedroom, three-bath McMansions who couldn't keep their electricity turned on. (Isn't that what got us into this mortgage mess in the first place?)

The sad truth is that, unless you were born into money (or managed to earn a lot along the way), you can't have everything. Really; there's a lot of stuff out there, so it's important to prioritize. Living within your means is all about balancing your income and your lifestyle. If you want to live larger, you'll need more money to do so. Real money. Not the plastic stuff.

For a real wake-up call, track your spending for a whole month. Write down everything. No latte shall go unreported, nor shall any vending machine purchase, no matter how desperately needed it was at the time. When you reach the end of this experiment, you'll be floored by how expensive "cheap" convenience purchases really are.

It's time to prioritize! Do you really need that gourmet coffee every morning, or would you rather brew your own and save enough money to start a high-yield savings account? It sounds cliché, but that's only because it's true: small sacrifices add up to big rewards.

Lesson #3: You Have to Know When to Stop

If you keep borrowing money to pay off your other debt obligations, your financial reputation will be harmed. A study from life: The United States has borrowed so much money that China is worried about our ability to pay it all back. Lenders will wonder the same thing about you if they see that you've maxed out your credit cards but still want more.

Instead, be proactive. If you're having trouble making payments, put a moratorium on all credit card spending until you've paid down your balances. The goal is to keep your debt under 25% of your total available credit. Each individual card should have no more than 30% of its credit limit taken up by purchases. It's best to have lots of available credit, but no debt.

Take your minimum monthly payment, a number that was never intended to help you become debt-free, and pay double every month. Triple if you can. That's what it will take to get lenders to speak to you again.

Climbing out of the debt hole can be exhausting and make you feel deprived, but remember that it's a temporary process. How awesome will it be when you don't have any credit card payments to drain away your income?

It's sad but true: you are neither the auto industry nor the financial sector. There won't be a bailout for you unless you decide to bail yourself out. But if you take these lessons to heart, you'll be out of debt way before our national government. Take that as a sort of consolation prize. Good luck!

Sources:

- Janna Weiss, CreditorWeb.Com