American Credit Card Debt – Symptom of a Debt-Based Currency

American credit card debt ballooned rapidly in the 90s and early to mid-2000s leaving many families with total combined balances in excess of $10,000. Some used the easy credit irresponsibly, racking up $50,000+ in consumer debt (not even counting car debts).

Then, in the fall of 2007, signs of weakness in the housing market — and the economy in general — began to appear. By the fall of 2008, the entire economy seemed to be falling apart.

All of a sudden, Americans were struggling to repay their credit card debt. They were even struggling to pay their mortgages.

One commenter on Digg suggested that credit card debt wasn’t the problem, but rather that irresponsible Americans were the problem.

Yes, I laughed. On the surface, it’s easy to agree with. Irresponsible people get what they deserve, right?

But the issue is actually much more complicated because the dollar is a debt-based currency. It is not real money. Every dollar in circulation is actually owed to the Federal Reserve — with interest!

In other words, our entire economy is based on debt.

Credit Card Debt Is Inevitable

The way the American economic system works, credit card debt — and, indeed, all forms of debt — is inevitable. Because the only way the economy stays healthy is if the money supply is expanding.

And the ONLY way new money is created is through debt.

This may be hard to believe. And since I don’t have space in this article to explain how this works, I will simply point you to G. Edward Griffin’s masterpiece, The Creature from Jekyll Island.

In America, every dollar magically turns into 10 dollars, maybe more, all through the dubious practice of fractional banking.

American Blindness

Most Americans don’t really understand how our money system works. They are blind. As a result, they hack at the branches instead of striking the root.

The branches are things like credit cards, irresponsible behavior, etc. These are not the real issue. The root is our debt-based money system. This is what is hurting us.

Right now, Americans are paying off debt faster than they ever have before. They’re tightening their belts, cutting back, using extra money to reduce debts. They are borrowing less.

This is all good. All things being equal, having no debt is better than being in debt. So I commend any person or family that is fighting the good fight (so to speak).

But until our money system gets a complete overhaul (including real money), then Americans will continue to bear the burden of oppressive credit card debt.

Credit Card Law – What the New Rules Mean

In May of 2009, Congress passed a new credit card law called the “Credit Card Accountability Responsibility and Disclosure Act of 2009.”

It is called the “Credit CARD Act” for short. (Politicians just love acronyms, don’t they?)

While some of the provisions of the law went into affect last summer, most of them go into effect February 22, 2010.

If you want to learn about the new credit card law in some detail, you can read this write-up by the FDIC.

But I found the infographic below to be much more fun and enlightening. It is the most beautifully executed explanation of the Credit CARD Act I’ve seen. It shows:

  • The severity of the credit card and debt problem in America.
  • A few of the good things the new credit card law does.
  • Plus, the sneaky practices the new law does NOT prohibit. (The credit card companies can still get away with a few shenanigans.)

I encourage you to click the infographic below. This will take you to the original blog post where you will want to click the same infographic and scroll through it. Takes about 2 minutes.

Credit Card Law - Debt Is Crushing Americans

Not what you’re looking for? Search Google:

Car Debts – Driving Away from Debt

Car debts often eclipse a person’s credit card balances by a long shot. It’s not uncommon to have $30,000 up to $60,000 or more in car debts.

Worse, monthly payments can exceed $1,000 a month — almost as much as a small rent or mortgage payment! This can put a huge strain on your ability to meet all your monthly obligations.

Obviously, if you can reduce your car payments or get rid of them altogether, then it will be better for you financially.

Pay Just a Little Bit Extra

One way to get rid of your car debts is to pay off your loans earlier than expected. It’s actually not that hard to do. Simply pay an extra $10 or $20 a month.

You won’t miss such a small amount of money, but your loan balance will step down faster. You may be able to shave off a few months of payments over the life of the loan.

Downsize Your Car

Probably one of the fastest ways to make your car debts go “poof!” is also the most difficult emotionally. That is to downsize your driving lifestyle.

Instead of driving a new Acura, sell it and get a used Honda. Instead of driving a new Lexus, sell it and get a used Toyota. Instead of driving a new Cadillac Escalade, sell it and get a used Toyota 4Runner.

You get the idea.

By selling one of your vehicles, you can instantly wipe out thousands of dollars in debt, maybe even tens of thousands of dollars. Then, when you purchase a used vehicle as a replacement, your car loan may only be one-fifth or one-third of the old loan amount.

This will not only reduce your debt, but reduce your monthly payments as well — both really positive things if you’re trying to become debt free.

Become a One-Car Family

For most of my 10 years of marriage, my wife and I (and kids!) have shared one car. This is not always possible, but we’ve been able to make it work during different periods of time.

If you have two car loans on two different cars… and you sell one car… you may erase half of your car debts in one fell swoop!

And I can tell you from personal experience that it’s WAY easier to take care of one car compared to two. It’s half the oil changes, half the repairs, etc.

Live Closer to Work

By living closer to work, you may not reduce your car debts, but you will save money on gas, insurance, maintenance, and repairs.

If you live close enough, you may even be able to ride a bike or walk to work. Or carpool.

Some brave individuals have moved closer to work and gotten rid of their cars for good. They use only human-powered and public modes of transportation. And it can work well for certain people.

Others who live in warmer climates may want to trade in their car for an inexpensive motorcycle or motor scooter. Again, this is not for everybody, but it works well for some.

Car Debts Be Gone!

No matter what angle you take, you can quickly get in a better financial situation by eliminating or reducing car debts. Thankfully, once you get over the emotional resistance you may have, it’s actually easy to do.

Here are the four strategies: Pay off your loan faster, downsize your car, become a one-car family, and/or live closer to work. Choose the approach that works best for you.

Spending Money Like There’s No Tomorrow

Our spending goes in fits and starts throughout the year. Sometimes we don’t spend much; other times it seems like we can’t hold onto our money.

Example: In the past couple months, we’ve spent $1,000 on homeschooling curriculum, around $400 on new clothes for the kids (since they’ve apparently outgrown all of last winter’s clothes), and $1,200 for fillings of all things.

That last expense was completely unexpected. My daughter came home from the dentist this past summer with not one but six cavities. Don’t ask me how that happened (no soda in the house, few sweets, etc.). She then had to go in three separate times over the summer. They filled two cavities each time.

And then there’s other miscellaneous expenses that have been piling up: renewing our license plates (happens once a year), birthday gifts, surprise doctor visits, etc.

All is to say, it’s been a little bit frustrating lately to keep our spending under control. I guess on the bright side it makes me more sensitive to where our money’s going so I can cut back as best I can. And once we get past the next couple weeks, maybe I’ll be able to look forward to a month or two where we don’t spend as much. :-)

Zero Percent Loan Same as Cash?

A couple months ago I was talking with my neighbor about some purchases I was thinking of making because of the zero-percent financing that was available.

He said, “That’s great, man. If it’s zero percent, that’s the same as cash.”

In a way, it is.

Getting a zero percent loan and making payments against it is the same overall effect as saving that money up and spending the lump sum down the road.

Yes, you may lose out on interest from your savings… so you might argue that you’re losing money by taking the debt.

But on the other hand, inflation greatly outpaces the interest rates offered by banks. The more money the Fed prints, the faster prices rise. This process discourages saving and encourages borrowing.

With a zero percent loan I can borrow money today and pay back the amount borrowed with less valuable money. Yes, I’m paying back an equal amount of dollars, but each one is worth less (or has less purchasing power) than it did when I borrowed the money.

So in a very real sense, a zero percent loan is not the same as cash… it’s actually better than cash.

This is the kind of world most of us live in, particularly in America where the printing presses never stop running. It’s a topsy-turvy world where what should make sense (saving) doesn’t make sense; and where what shouldn’t make sense (borrowing) does make sense.

Thoughts? Leave a comment below.