Monday, February 19, 2007

another day older and deeper in debt

i tell people that i've never carried any credit card debt in my life -- maybe missed one payment way back after something got lost in the mail -- but it's something that i am quite proud of. i read an alarming statistic once that credit card companies write off over a billion dollars a year of bad debt annually. a billion dollars sounds like quite a lot of money to me. i know there are a lot of companies out there that have lost a few billion here or there -- the airlines were doing poorly for a while, u.s. automakers are bleeding money right now -- but the reason that credit card companies can basically throw away a billion dollars a year is that total u.s. credit card debt is somewhere around 700 billion dollars!

i used to think that if i could amass about a million dollars, i could live off the interest without chipping away at the principal. at about 5%, that's 50,000 a year -- a very reasonable take home for doing nothing at all. now, with inflation and other trappings of middle class life, i estimate i'd need a bit more, but imagine what you could do with 700 billion dollars! and, credit card companies don't charge no 5%, either. they're pulling in 14, 15, sometimes close to 20%. i could learn to live on that, i'm sure.

what's more, people don't pay off their cards at the end of the year -- many people just make the minimum payment -- so these numbers just keep growing for the credit card companies. if you continue to just make the minimum payment on those balances -- as many people do -- it'll take forever. i've seen articles that show that by making a minimum payment on a 1,000 dollar balance, you could have your balance paid off in a short 22 years! that's just nuts.

look, i'm not anti-credit by any means. i'm not even anti-credit card. i use my credit card for everything, but i always, always, always pay it off every month. i've found that's the easiest way for me to not fall into the 700 billion dollar trap.

No comments: