Updated on 09.08.14

Ten Big Mistakes #3: Lifestyle Funded by Credit Cards

Trent Hamm

Avoiding the Trap of Credit Card Debt

I spent more than I earned and made up for the difference with credit cards.

How I Accumulated Credit Card Debt

It started in college. The bookstore offered a discount on textbooks if you signed up for a card. I signed up. Later, I used that card to buy video games, starting with The Ocarina of Time.

When I graduated from college, I had a small amount of credit card debt – nothing unmanageable.

Next came our honeymoon, a year later. I financed most of our honeymoon to London, Edinburgh, and Inverness on a credit card, nearly reaching the credit limit on that card.

When we returned, we furnished our new apartment with a new card. I bought some golf clubs and a bunch of electronics. I began to settle into a routine of buying books every week.

I remember buying a $500 crib for my son on credit in late 2005, going home, and attempting to pay bills. There was less than $500 in my checking account then and I really didn’t think anything of it until later on. I just kept rolling on.

The end result? By April 2006, I had accumulated around $20,000 in credit card debt. The monthly payments on that debt were actually higher than our rent. When you add car payments and student loan payments on top of that (as well as all the regular bills), we simply did not have enough money to continue to make ends meet.

What I Could Have Done Differently

The tricky part about this mistake is that it was actually just a series of small mistakes that I didn’t bother to fix. Every time I used credit to pay for something I couldn’t afford, I could have just said no. Every time I went through with buying something unnecessary, I could have been more frugal in other areas of my life and just paid for that indiscretion.

I didn’t do either one. Instead, I kept buying things that I couldn’t really afford. As the debt built up, I found that I could actually afford less and less because of the growing monthly bills, but it didn’t keep me from racking up more debt.

Why did I buy? There was a mix of things going on. Poor impulse control. Career-related anxieties. Lots of stress. All of these things were solvable on their own and buying things I couldn’t afford was merely a short-term salve for them. It was easy to forget that pain if I could go home and read a new book or play a new game for a while.

What Can You Do to Avoid this Trap?

The solution is simple: never, ever put a balance on a credit card that you can’t already afford to pay at the end of the month. The moment you do that is the moment you’re financing a lifestyle that’s beyond your means.

If you’re already in a situation where you’ve built up a large deal of consumer debt, start getting rid of it now. Yes, this means you’ll have to live quite a bit below your means for a while. The first place to start is by selling off all of the stuff in your closets and on your shelves that you never look at or use. If you have a CD or a DVD or a video game or another item that you’ve not looked at in more than a year, sell it. Use that money to hammer the debt. When you’ve done that, focus on minimizing your monthly spending – here are 100 such tactics – and roll the money you’re saving into a debt repayment plan.

Finally, deal with the other problems of your life head-on. Start wiping away the stress and the concerns. Focus on fixing broken relationships and moving on from ones that can’t be repaired. Deal directly with the things that are bothering you. Seek professional help if you cannot. Eliminate the stress and clear your mind to make better decisions with the resources you have.

Just remember that you can do this – and don’t beat yourself up over every mistake. Success isn’t perfect and it doesn’t come in an afternoon.

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  1. Josh says:

    Ocarina of Time was, and still is, quite a terrific game. I still have a copy somewhere, I think, along with a Nintendo 64 to play it on.

  2. So true. I had a friend that did this on one credit card, then he used the second one to help pay off the first, and then he got a third one, and eventually he ended up with three maxed-out credit cards.

    He eventually hit a limit, consolidated his debt with a bank, and worked his way back down the debt ladder. He learned his lesson, though it was one expensive lesson.

  3. friend says:

    This paragraph is wisdom in a nutshell… thank you.

    Finally, deal with the other problems of your life head-on. Start wiping away the stress and the concerns. Focus on fixing broken relationships and moving on from ones that can’t be repaired. Deal directly with the things that are bothering you. Seek professional help if you cannot. Eliminate the stress and clear your mind to make better decisions with the resources you have.

  4. jeremy says:

    Totally agree, and I had a zero balance until we moved across country from Boston to California and put the $3000 on the Visa (we didnt have $3k cash). Now its at $7k. argh

  5. Squirrelers says:

    Excellent work. The tips on how to avoid the credit card trap are wise indeed.

    More broadly speaking, I really like where you talk about dealing with life problems head on. The inability of people to do just that can lead to issues with relationships and health…which can also spill over into money. Best to be able to handle stress, keep perspective, and deal with things head on without procrastinating. This can lead to a more prosperous life.

  6. Jill says:

    “When I graduated from college, I had a small amount of credit card debt – nothing unmanageable.”

    um…why would you justify the amount of debt that you had? It shouldn’t matter whether you graduated with $500 of CCdebt, or $50,000. CCdebt is CCdebt no matter the amount. And it is bad.

    As a PF blogger, I would expect that you wouldn’t have dared to include those last two words “nothing unmanageable.” That attitude is exactly how things start to slip.

  7. Shannon says:

    Like Trent mentioned, you should NEVER buy anything with a credit card that you can’t pay off immediately with cash.

    Umm, Jill calm down a little bit?

  8. TeacHer says:

    This story sounds just like my tumble into an abyss of credit card debt, and your advice is so spot on: if you don’t get your head straight and confront the reasons you were overspending in the first place, you’ll NEVER get out of credit card debt.

    You’re also totally right that anyone can get out of debt if they really want to. I paid off a $5700 credit card balance in only 11 months – on a teacher’s salary. If I can do it, anyone can.

  9. Brooke says:

    Great post. My partner and I just recently became a two-income household, but instead of increasing our spending on material things we are now using the extra money to plug away at our debt. Credit cards, lines of credit, student loans, mortgage….it all looks like a mountain at this point, but hearing stories of people being able to get themselves out of debt inspires us to keep on the right track. Keeping the faith, some day we will be debt-free!

  10. Elle says:

    @Jill- I think Trent was trying to convey the feelings he had at the time and give a little context to the amount.

    I appreciate the post, reminds me of my mistakes with credit cards. I got a credit card in college and like many of my friends, I charged on it like crazy.

    I would spend it on ‘essentials’ like eating out and getting gifts for my family. I realized I was hurting myself and not really helping others by spending so much.

    Trent looking back I realized that I was spending as a way to escape stress instead of dealing with the problem itself. Great insight for myself and I’m sure for others.

    It took time, but I’m proud that I got out of credit card debt.

  11. Nicole says:

    The advice to fund your lifestyle on credit when you’re just starting out in Suze Orman’s Young, Fabulous, and Broke drives me nuts. At least if she’s going to recommend debt for living expenses she should be recommending low interest debt like not paying off subsidized student loans right away or something.

  12. chacha1 says:

    Yeah, but that book came out in 2005. The general tone of PF advice has changed considerably over the past 5 years.

  13. Nicole says:

    It would have driven me nuts in 2005 too. Or 2000 when it would have applied to me.

  14. Nicole says:

    Of course, in 2000 I also knew that the life cycle hypothesis was not empirically supported, despite its theoretical elegance.

  15. Mol says:

    This is such a distasteful comment, but…
    Ocarina of Time ftw.

  16. Sandy L says:

    Am I the only one who gets a physically sick reaction from the act of taking on debt?

    My husband and I were talking about a property the other day and I literally got nausea when I calculated the monthly mortgage payments.

    Being in debt is so stressful to me that I think I would get sick if I couldn’t pay off my credit cards every month.

  17. Tom says:

    It does seem like a series of small mistakes and it is difficult to look back and go, ah thats where it went wrong. Another issue I have that you hit on is Colleges/Universities promoting or allowing credit debt for their students. They should at least offer or require financial planning of their students.

  18. TODHD says:

    This is definitely not the way to go because you will be living day to day your entire life

  19. Saskia says:

    My son is going to college next month. I saved since his birth to pay for tuitions, insurance and books so he won’t need a loan. Yesterday his best friend told him that his father urged him to take a maximum student loan because he could pay it back easily with a well paid job. His friend said he doesn’t even know what to do with all the money… I hope he won’t influence my son, who is a spender by nature. Sorry, bit off topic but it bothers me so much

  20. Mule Skinner says:

    Way back when I got my first credit card — this is deep time, guys — I noticed that making the minimum payment would result in a very long payback period. I was so shocked at the way I was being set up that I determined never to carry a balance, because I could see the bank was out to get me.

  21. Ajtacka says:

    @Jill – My feeling about the offending sentence (“When I graduated from college, I had a small amount of credit card debt – nothing unmanageable.”) is that it was Trent’s thought at the time he left college, and to me illustrates how easy it is to get sucked into that kind of lifestyle – you get the first debt because it’s not much and is manageable, then the next one because you can still just manage, then the next because that’s just what you’ve got used to. Kind of like having a few candies then realising the whole bag is gone.

  22. Johanna says:

    @Jill: Of course it matters whether you have $500 or $50K in credit-card debt – the $500 is a whole lot easier to pay off, and a whole lot less likely to cripple you financially for any length of time.

    It sounds a bit like you’re falling into the trap of thinking of debt as morally wrong – so that once you’ve “sinned,” no matter the magnitude of your sin, that makes you a “sinner.” But credit-card debt is not morally wrong – it’s just a bad idea.

  23. Adam says:

    @Mol I have to agree…

    Back on topic though, if you’re really trying to get out from under the credit card debt, contact your creditors, too. Often times, banks will have “hardship” programs available or at least be able to lower your interest rate. Some banks will require you to already be past due on your payments, but others (like the one I work at) will work with you before you get past due. They may ask what your hardship is, but unmanagable debt is a valid hardship.

  24. Melody says:

    My husband and I were both laid off from our jobs right before our wedding. We had a very inexpensive wedding but put the whole honeymoon on our credit cards. It took us years to pay that off.

  25. Tracy says:

    @Johanna – I second that. Debt isn’t a good idea, but it doesn’t make you a bad person.

    I like my CCs – I generally have a balance of between 500-1k at any one time and pay them off the balance every month so I never get charged interest, but it’s an easy way to track specific kinds of spending habits.

    Plus the protection plans (lost/damaged/disputed items) that most CCs offer make me more comfortable than paying with a check.

    And between various rewards, I make more off of them (if only SLIGHT amounts) than they do off of me.

  26. Reasonable says:

    I know a couple who financed a household’s worth of furniture through an IKEA credit card. They claimed that the interest rate was too amazing to pass up! The temptations are out there, some people just can’t help themselves.

  27. Gal @ Equally Happy says:

    I would go a step further and say that financing any depreciating assets is a bad idea. Actually, with the possible exception of loans for school, I’m starting to think that any debt is bad.

  28. Jenna says:

    I agree w/ the “unmanagable” comments being from that perspective of time b/c I went through the exact same beliefs at that exact same stage of life. I believe those of in our mid/early 30’s were the first cohort to be solicited by cc companies on school campus. Started school w/ no knowledge of personal finance (mom is bad w/$)and high school doesn’t teach anything on it. So yeah, at that age if the bank believed I could “manage” the debt, I did too. It didn’t help that I never actually figured out how long it would take to pay stuff off..just looked at the amount due. Hard lessons to learn, I am thankful I have found my way. Thanks Trent for your help in that :)

  29. One of my big concerns with debt is that it changes every decision I make. When paying down debt is at the front of your mind, every other decision is made under its influence. Talk about a recipe for a difficult life. That said, not using CCs and/or paying them down can be nearly impossible for many.

  30. Milt says:

    I love it how people comment about what we should do when they finish reading insightful articles – “you should only pay with cash”. Well, yeah! of course, we should only pay with cash. That would have solved all our problems. I think the point he is making, which others have commented on, is it doesn’t take much to get knee deep in consumer credit card debt. So here’s how it happens and beware. He didn’t go out and buy a $20K motorcycle on credit. It happens, over time with poor money management, unplanned emergencies, stresses of life etc that cause us to buy thing we can’t afford and dont need, and to spend more than we have in the bank. I’m sure there are countless examples of this situation. I’m still in the process of reversing this and YES, for the last three years I have paid this debt down only paid with cash. Great article! Thanks for sharing. It makes us realize others are humans.

  31. Amanda says:

    Sandy, I agree with you. You’re not crazy! I’m working hard to pay off my mortgage, something probably 95% of American’s don’t do let alone think about. However, sometimes I feel there is a purpose to mortgages. If we get a duplex to take care of my MIL for instance. But I wish I had cash to pay it off!!

    Johanna, why are you always telling people they think it’s morally wrong to have debt? I’m an accountant I just flat out feel it’s wrong to have debt. There is no moral issue involved.

    Tracy, I don’t think anyone here is talking about a credit card you pay off every month. I have $1000-2000 on my card at all times. But I pay it off every month!!!

  32. SLCCOM says:

    Sandy L, Getting physically ill at the thought of getting a mortgage is pretty extreme. That will keep you from using a mortgage to leverage your money into (eventually) paid-for housing. Rents will always go up, and if you let that kind of extreme reaction keep you renting for your whole life it will cost you a LOT of money.

    Are you sure you aren’t pregnant instead?

  33. “The solution is simple: never, ever put a balance on a credit card that you can’t already afford to pay at the end of the month”

    That’s it in a nutshell. I only wish more Americans would do this and that we’d all educate our children about this, starting at a very early age.

  34. Amanda says:

    #20 LOL

  35. Stacy says:

    I love this post. This is where I am now. I buy stuff and then realize it all came adding up. Credit cards are like weight, they go on so easily but are so hard to get rid of. I need to pay off my debts, but it is very hard to get comfortable not having for awhile and cutting back in order to make a dent in the debt.

  36. Sandy L says:

    #20 wow..I hope not again. 2 kids is a handful.

    I’ve had 2 mortgages (one that is paid off and another that is not). My mom lives in one of the homes. Looking at another house meant I would have to refinance something that we just spent a decade paying off. I think the feeling I had was where the term “gut reaction” must come from.

    My mom has never had debt, so it really was a leap for me to embark into the world of credit.
    I wrote an article about it if you care to look.

  37. Stephan says:

    good tips, but selling old dvd’s and videogames and books will do nothing. i sold 2 textbooks back at school for 2$ each and i rarely get more than 5$ for a videogame

  38. Mary W says:

    Jenna – CCs and students have been going on much longer than that. I got my 1st CC standing in line at college registration in the early 1970s. $150. limit though, lol. Even then you couldn’t get in too much trouble with that limit although you could buy 4 tires for a compact car.

  39. yeah, i never use credit card if i know i won’t be able to pay it off during when the bill arrives. I have never carried a balance and I never plan to. the interest rates so so ridiculously high that it’s really not worth it.

  40. It is always a trap to go on shopping with credit card on the side because of tendency to engage on impulse purchases. You have to be more disciplined so as to gain self control over your shopping habit. Setting personal limitations can guard you from such kind of unneeded buying.

  41. penelope says:

    trent, i’m in a similar situation. i came out of college with some debt and over the last decade, that debt has accumulated to a peak of $40,000. i have a solid job that pays $70,000/year, but with my credit card debt and day to day bills i’m having trouble footing a grocery bill these days. moreover, i recently entered into a serious relationship that i believe could lead to marriage. i’m too afraid to tell him about my debt and not even sure where to begin to go about dealing with my own situation. i realize i am to blame for this whole debacle but would appreciate any insight you have to share.

  42. the Tropes says:

    Luckily, this is one mistake I’ve never made. I’m 29 years old, and have one credit card. I don’t think I’ve ever paid interest on it. I pay that sucker off in full every time.

  43. cash queen says:

    I really love this post because of its honesty. He really painted a clear picture on how he got himself into huge credit card debt. You see this simple “nothing unmanageable” attitude is the main culprit why people sink themselves into credit card debt. And worst is when they procrastinate on their credit card payments while they continue swiping. And indeed beating yourself up for every mistake without taking active measure to resolve the problem will only depress you. And nothing will happen too if you only plan all these lovely solutions but not put them into action. You’re certainly not doing anything to save yourself cash fast.

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