A Destructive Mindset: Is This What You Believe Too?

Becoming Debt Free Is Priceless Indeed

I was reading an article yesterday titled, Debt-Free: Priceless, and the one and only comment on this article blew me away!  Seriously, the comment brought me to my knees, like kryptonite did Superman!  Back to the ice cave!

The article talked about what a Federal Bankruptcy Judge was doing to combat the destructive nature of credit card abuse, that possibly led people to his courtroom to declare themselves bankrupt.

“John C. Ninfo II, a federal bankruptcy judge, has founded the Credit Abuse Resistance Education (CARE) Program, www.careprogram.us, a national initiative to teach high school and college students about using credit properly — which, Ninfo argues, means sparingly to not at all.”  (My emphasis added)

As the article points out, Americans are dealing with $880 billion in credit card debt.  This is an astonishing number, and one that must be addressed, and now is as good a time as any!  The mindset of most Americans sadly reflect what the person who commented believes, which is why Americans have had a negative savings rate since 2005, and has steadily dropped ever since.

The Cynic floored me with this response:

“Let’s see: you have no money and your car is very low on gas, the house is low on food. I have a credit card. Of course, I am going to use it. You think? While Judge Ninfo is well intentioned, situations do and will come up where an individual must use a credit card. And if you’re unemployed, things get very interesting.”

Do YOU agree with the Cynic? Now my first thought was that the Cynic was probably a college student, but with the current amount of Americans dealing with large piles of debt, this could be anyone.  Now I couldn’t just read something like that without responding, even though whoever wrote it may never even see my response.  This is part of what I said:

“I think you have completely missed the point! The point is that you should AVOID allowing your situation to become as you described, by proper planning! That is what people need to learn again. You are more capable of handling bad times if you save for those little surprises life throws at you. I have not used a credit card in OVER a year and situations have come up, but we did not have to use a credit card because we have an emergency fund. We were prepared for those situations and that’s the difference.

I think what the judge is doing is magnificent, and from what I can see, the only thing I disagree with him on is, what order to pay off credit card debt. That is a very small issue though. The big picture is that someone is ready, able, and willing to educate people on how to be responsible with money. That is what we need, especially at a time when economic decline, has put people in those very situations that you describe in your response.”

Here are some interesting facts:

Savings Rate in 1933: -1.5% (Great Depression)
Savings Rate in 1982:   higher than 10%
Savings Rate in 1997:   4.5%
Savings Rate in 2005: -0.4%
Savings Rate in 2006: -1%
*as reported by CBS in 2006

These numbers have dropped as low as -2%, and have only recently started to climb as people have become worried about the future due to the downed economy.  Last year, J.D., a writer at Get Rich Slowly, wrote an outstanding article that digs a little deeper into the history and habits of Americans.  You should check it out!

If What You Have Been Doing Is Not Working, Do Something Different

The Cynics response is the best example of the problem!  His solution is to continue to do the same thing that he has been doing to get through life.  Handling things in this way will keep you living paycheck to paycheck! The solution is to bring the amount we save each year back up to a responsible level, NOT rely on credit cards to fill up our gas tank, or put food on our table! Instead, resolve to save AT LEAST $1,000 for emergencies, and let’s get back to the habits of folks in the 80′s!  If you properly plan now, you will not have to scramble later!  Use your emergency fund as your shovel to get you out of tough situations.  If you continue to use your credit cards you are only making your hole deeper and deeper.

TAKE ACTION NOW!

Save $1,000 to handle the small emergencies while you knock out your debt!  After you knock out your debt, build your emergency fund up more to handle the big stuff, like unemployment or unexpected hospitalization costs.  The Cynic is right about one thing, if you lose your job and you have no plan to handle it, things WILL get interesting!

What do you think?  Are you the cynic?  Do you know people who think like the Cynic?  How would you respond to this mindset?  Share your thoughts!