Why We Debt : Part 2

Girl, Get Your Credit Straight!: A Sister's Guide to Ditching Your Debt, Mending Your Credit, and Building a Strong Financial Future
by Glinda Bridgforth

(Page 2 of 2)

Seduced by Advertising

Advertising today is savvy and manipulative. Advertisers know how to get you to buy, and even how to get you thinking that debt isn't all that bad. At this writing, the commercials put out by Visa include many hidden messages. Think about what the following voice-over really means: "Enjoy life's opportunities. Life ... it takes risk and joy; life takes spontaneity; it also takes a little help. That's where we come in, to give you the freedom to experience life the way you want to. So go on, live life, and remember that no matter what it takes, life takes Visa."

Sounds great, doesn't it? But if you think your credit card gives you the freedom to experience life and buy whatever you want, you're right ... and wrong. For every purchase we make that we can't pay, we take away from our future freedom in how we can choose to live.

But it's not just television advertising that is to blame. Each year, billions of credit-card solicitations go out to people with letters that appear to offer unique personalized opportunities and rewards. They make you feel special - a chosen one - so it's harder to resist the invitation. Moreover, the government pushes us to spend money because it adds to the economy and protects jobs. Whenever a recession looms or the indicators of the economy point to a slowdown, the government persuades us to renew the economy by spending our hard-earned money. No one will talk about saving or cutting back or even the consequences of excessive spending on an individual level. Why? Because the government is less concerned about individuals than it is about the masses and the power that the masses have as a whole on the economy.

Nearly two-thirds of the GNP (gross national product), an indicator of the state of the economy, is a result of consumer spending. So if we're not spending money on goods and services - including goods and services we don't need to live, like weekly manicures, designer heels, and fancy bottled water - that GNP goes down and you'll hear the media talking about a weak or slow economy. During the holiday season, the media like to cover how much people are spending in retail stores and how much profit those stores are making as an ultimate end-of-year indicator of just how well America is doing. But, once New Year's is over and those credit-card bills start arriving, people get the "holiday hangover" and worry about how they will pay for those bills. The second wave of worry comes around April 15, when Mr. Taxman wants to get paid. If you're due a return, you're a happy sister. But if you owe money, it can be a very stressful time period. That's when the Internal Revenue Service endorses credit cards as a "convenient" way to pay your taxes (albeit with a "convenience fee"!). Everywhere we turn, we are encouraged to use credit. And our reliance on it continues to increase at a staggering rate - as we buy everything from lattes and leather purses to vacations and Volvos.

Societal Changes in How We Treat Money

If you're asking yourself, How did this happen to me?, keep in mind that one of the reasons for our debt problems is simple economics: Americans have been experiencing higher costs of living and falling median family incomes. Housing costs, child care, and health insurance have all had double-digit growth while incomes have stagnated or dropped. Even a booming economy can share some of the blame. In fact, the economic boom of the 1990s was driven largely by consumer spending as people tended to spend more on goods and services and save less.

In addition, the way we treat money has changed in recent decades, and unfortunately, these changes set the consumer up for trouble. One shift that has occurred is in how we as a society actually view money, and the second is in how the lending industry gives money to us, including credit. Combined, these two forces add up to a distorted sense of our own wealth, encouraging the mentality that every purchase we make can eventually be paid for with future income.

A lot has changed since our grandparents' and great-grandparents' generation. Families who experienced the Depression were thrifty savers, but decades later we've become big spenders. Part of the reason baby boomers have had the luxury of spending a lot (and fueling the resulting economic boom) is that they inherited money from their parents and grandparents who had saved and invested so well. But today less and less is getting passed on to future generations as families spend more and save less. No one has a Depression mentality anymore; in fact, we have the opposite. Marketers encourage us to spend both what money we have and what money we don't have. And the money we don't have typically comes from credit cards, which are easily abused for the sake of living beyond one's means and keeping up with the Joneses. And when all those lifestyle purchases add up to a lot of money, it becomes increasingly hard to visualize paying off that debt without winning the lottery or hitting it big in Hollywood.

Twenty and thirty years ago, credit was rationed based on your ability to pay it back, your reputation, and even your character to some degree. Now it's seemingly based on your inability to pay it back, because that's how creditors ultimately make money off you: via high interest rates and late charges. The industry discovered that the most profitable consumers were the least responsible ones, including college students, people who'd declared bankruptcy, housewives with little experience and no education on money management, and those who were consuming beyond their means. That's when creditors began targeting people who would pay anything - any fee or any interest rate - because they needed more credit.

Other changes have also factored into society's debt and credit equation. One is the lack of regulation. Since the early 1970s, usury laws - that is, laws that specify the maximum legal interest rate at which loans can be made - have virtually been eliminated, so credit-card companies can basically charge whatever interest rate they want. Second, technology has made transactions quicker than the blink of an eye. Back when Visa was just getting started in the late 1960s and early 1970s, credit-card processing took a long time. Not anymore it doesn't. You can buy a high-ticket item in less time than it takes to extract and count the dollars from your wallet.

Finally, our philosophy toward credit has shifted. It used to be that bankers objected to credit cards out of sheer ethics; they didn't like extending credit to individuals who they knew couldn't pay it back. That was considered immoral - like giving consumers the gun with which to shoot themselves. So in some respects bankers also assumed the role of being regulators. Well, we all know that that's not the case anymore. Now bankers and lenders throw money at us under the guise that it's practically free ... for the time being. They try to distract us from focusing on the payback while we're in the highly emotional flurry of feeling good about spending and buying. Which is why so many of us are now deep underwater.

The financial industry doesn't only prey on those who've already messed up their credit or have fallen into debt. It also goes after those on the verge - those who have some home equity, who have been responsible, and who have saved a little. When such people accept high-interest loans and go from living within their means to living beyond them, they can quickly find themselves going from solid middle class down to poverty levels, taking their creditworthiness and sense of well-being with them.

If this all sounds depressing, it is. But here's the good news: You can fight back and reclaim good credit no matter how far you might have fallen. The flip side to all this information is that because of how our world now operates, you hold power that many sisters before you did not. Women in general aren't financially dependent on their husbands anymore. We can make our own money, pay our own bills, and buy our own houses. In fact, in 2005, single women snapped up one of every five homes sold. That's nearly 1.5 million - more than twice as many as single men bought, according to the National Association of Realtors. No matter what the advertisers or credit-card companies would have you believe, you are in charge. I'm going to show you how to change your money mentality and take the power back, one step at a time.

Copyright © 2007 by Glinda Bridgforth

About the Author

is founder of Bridgforth Financial Management Group, a company that emphasizes holistic coaching. In 2006, Glinda appeared on Oprah in a five-part series called "America's Debt Diet." The author of the bestsellers Girl, Get Your Money Straight! and Girl, Make Your Money Grow!, she writes articles for Essence and is featured regularly on television and radio programs nationwide. She lives with her husband in Detroit.