Crazy Credit Card Debt

When working with people on their finances it is all too common for me to find they have Credit Card debt on one hand and savings sitting in a bank account on the other. Usually not enough to pay off the Credit Card, but a significant amount none the less.

This amazes me to say the least.

Why would you pay 18% or 21% (or higher) interest rate on money you borrowed via the ‘plastic’ while earning maybe 3% or 4% on the cash in the bank? This is NOT a good strategy for successful home budgeting!

It just does not make sense at all. These people are going backwards by the difference between the two interest rates on that money. In this case something like 16%. Why would you do that?

Now of course we are talking about people here and so to answer the question “why” you need to look behind the scenes at what makes ‘people’ tick. What is really going on?

We are all human and have weaknesses. I’m sure you have heard some one say “I’m only human you know!” We all know and have to accept that as humans we do stuff we shouldn’t do for no good reason.

If you were to draw a line on a piece of paper and on the left hand end of that line write the word ‘Logical’ and on the right hand end write the word ‘Emotional’, where on that line would you draw a mark to identify where you sit when it comes to managing money?

The opposite of Logical is Emotional. Do you make money decisions for Emotional or Logical reasons?

People who have money in the bank while they have Credit Card debt are operating near the emotional end of the line. Money in the bank makes them feel secure. If there were no money in that account it would be too scary!

The fear of having the debt is less than the fear of having no money! This is most likely because banks and finance companies (and our society) has really made us see debt as being OK and it is so easy to go get more debt.

On the other hand it is not so easy to go get more cash!

Of course it is not a pleasant thing when you have no money, but if you allow the banks to have a 16% feeding frenzy at your expense for no good reason then you are likely to face this problem more often than if you pay off as much of that debt as you can with the money in your savings account.

If you can control your emotions you can control your money. It’s that simple.

There are a whole lot of ‘E words’ that influence our financial status and number 1 on that list is Emotions.

If you are interested to know the rest (in order) they are

2. Environment (where you hang around and who with)

3. Education (how much you know about financial matters)

4. Earning and Expenditure (your budget)

5. External factors (like Global Financial crises).

If you realise that your emotions are causing you a lot of money stress (emotional pain) then it is time to do something about it.

You need to keep a record of all the money you spend and the financial decisions you make over a period of time (maybe a few weeks) and identify what was the emotion behind these transactions.

I recommend that you keep a small notebook for this purpose and when you look at the expenses ask yourself which ones were needs and which ones were wants.

See if you can identify the emotion that was behind each expense.

Was it to gain popularity, was it to satisfy the need for comfort, was so you would be liked by others, was it a pick-me-up because you were feeling down? I’m sure you get the idea.

If you can identify the emotions behind your spending then you can plan to deal with these emotions in other ways than spending money when they occur.

e.g. If you buy yourself something nice to make yourself feel better when you are feeling low, ask yourself how else you could deal with that emotion without it turning into an expense. Perhaps ‘phone a friend’; perhaps play your favourite ‘up tempo’ music (There is nothing that cut’s through emotions like music).

Just a tip with using music to deal with emotions, just be sure you choose music that lifts you when you are down and not music that exagerates the emotion. E.g slow sad music would just make you worse while some up-tempo rock’n’roll might get you hopping around and out of your pity party for free!

Anyway that’s just an example; you will need to identify the emotions that are costing you money and then find ways to deal with these.

You may not immediately have all the answers to these emotional issues but if you can identify what is going on you are more than half way to fixing the problem.

In one of my next e-mail newsletters I am going to be looking at a case study where there are some serious money-related problems all driven by emotional issues and what can be done about the problem.

To be sure you are on my e-mail list go to the Simply Budgets website and sign up by applying for the free report titled ‘The 7 Powerful Secrets to Unlock the Hidden Wealth in Your Life’

If you have any thoughts relating to today’s blog please feel free to add them below via the comments link. To automatically be notified each time I post a blog use the RSS feed button on the left at the very bottom.

More riveting stuff next time…

David Wright
http://www.simplybudgets.com

When working with people on their finances it is all too common for me to find they have Credit Card debt on one hand and savings sitting in a bank account on the other. Usually not enough to pay off the Credit Card, but a significant amount none the less.

This amazes me to say the least.

Why would you pay 18% or 21% (or higher) interest rate on money you borrowed via the ‘plastic’ while earning maybe 3% or 4% on the cash in the bank? This is NOT a good strategy for successful home budgeting!

It just does not make sense at all. These people are going backwards by the difference between the two interest rates on that money. In this case something like 16%. Why would you do that?

Now of course we are talking about people here and so to answer the question “why” you need to look behind the scenes at what makes ‘people’ tick. What is really going on? More go to my blog …..

We are all human and have weaknesses. I’m sure you have heard some one say “I’m only human you know!” We all know and have to accept that as humans we do stuff we shouldn’t do for no good reason.

If you were to draw a line on a piece of paper and on the left hand end of that line write the word ‘Logical’ and on the right hand end write the word ‘Emotional’, where on that line would you draw a mark to identify where you sit when it comes to managing money?

The opposite of Logical is Emotional. Do you make money decisions for Emotional or Logical reasons?

People who have money in the bank while they have Credit Card debt are operating near the emotional end of the line. Money in the bank makes them feel secure. If there were no money in that account it would be too scary!

The fear of having the debt is less than the fear of having no money! This is most likely because banks and finance companies (and our society) has really made us see debt as being OK and it is so easy to go get more debt.

On the other hand it is not so easy to go get more cash!

Of course it is not a pleasant thing when you have no money, but if you allow the banks to have a 16% feeding frenzy at your expense for no good reason then you are likely to face this problem more often than if you pay off as much of that debt as you can with the money in your savings account.

If you can control your emotions you can control your money. It’s that simple.

There are a whole lot of ‘E words’ that influence our financial status and number 1 on that list is Emotions.

If you are interested to know the rest (in order) they are

2. Environment (where you hang around and who with)

3. Education (how much you know about financial matters)

4. Earning and Expenditure (your budget)

5. External factors (like Global Financial crises).

If you realise that your emotions are causing you a lot of money stress (emotional pain) then it is time to do something about it.

You need to keep a record of all the money you spend and the financial decisions you make over a period of time (maybe a few weeks) and identify what was the emotion behind these transactions.

I recommend that you keep a small notebook for this purpose and when you look at the expenses ask yourself which ones were needs and which ones were wants.

See if you can identify the emotion that was behind each expense.

Was it to gain popularity, was it to satisfy the need for comfort, was so you would be liked by others, was it a pick-me-up because you were feeling down? I’m sure you get the idea.

If you can identify the emotions behind your spending then you can plan to deal with these emotions in other ways than spending money when they occur.

e.g. If you buy yourself something nice to make yourself feel better when you are feeling low, ask yourself how else you could deal with that emotion without it turning into an expense. Perhaps ‘phone a friend’; perhaps play your favourite ‘up tempo’ music (There is nothing that cut’s through emotions like music).

Just a tip with using music to deal with emotions, just be sure you choose music that lifts you when you are down and not music that exagerates the emotion. E.g slow sad music would just make you worse while some up-tempo rock’n’roll might get you hopping around and out of your pity party for free!

Anyway that’s just an example; you will need to identify the emotions that are costing you money and then find ways to deal with these.

You may not immediately have all the answers to these emotional issues but if you can identify what is going on you are more than half way to fixing the problem.

In one of my next e-mails I am going to be looking at a case study where there are some serious money-related problems all driven by emotional issues and what can be done about the problem.

More riveting stuff next time…

David Wright
http://www.simplybudgets.com