Credit Is Middle-Class Slavery
Mar 26th, 2007 at 11:38 am by Susie
Chicago Dyke has a great piece on credit that everyone should read over at the Mighty Corrente building, and I have to say, it resonated with me.
I am, in fact, grateful that my credit got so screwed up that I can only pay cash. It’s made me a much more careful and patient person, because if I don’t want something enough to pay cash, I don’t need it.
I’ve watched some people take on that middle-class yoke willingly - albeit thoughtlessly. I remember one friend telling me had a $30,000 credit-card balance, and was remortgaging his house yet again. (He remortgaged as often as I replace car engines - that is to say, a lot.) When I asked him what he spent it on, he mumbled something about “Vacations, Christmas…”
“You spent thirty thousand dollars on vacations and Christmas?” I said. “If I spend $300 on Christmas, it’s a lot, and my family’s a lot bigger than yours.” I just shook my head. For some people, shopping is recreational. It’s what they do to distract themselves from their lives.
Now, don’t get me wrong. I do buy things: Books, CDs, clothes. But I buy cheap, and I get used goods when possible. I can afford well-made designer clothes if I go to a thrift store, but I could never bring myself to spend the kind of money they would cost new, or even on sale.
This quote is so true:
the truth is, there are a lot of people in this country who look like they’re middle class but in fact if you took away their credit cards, you’d see that they’re actually quite poor.
Amen.
Amen and 100% with you on the credit thing. I cringe at buying new & when I’m willing to spend the cash, it’s usually after a few weeks of both thinking about it and scouring Craigslist, Ebay & Freecycle for a used version.
Except sneakers. You can’t buy used sneakers if you use them for athletic purposes. So I hold my nose and go someplace like Kohl’s where I can get them at a discount and I just try really hard not to think about where they come from. I wish there were such a thing as affordable, environmental, ethical, performance sneakers. Sigh…some day.
New clothes? What’s that?
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The best advice you can give anyone, the best advice I ever received and to which I have adhered for twenty years now, is to never carry a credit card balance. Jonathon Pond said it in his lectures on PBS. It is the most expensive debt you can have and it is almost invariably carried for the sake of things you do not need. I use a credit card, but I pay the balance at the end of the month. I use it as much as possible so I get airline miles (which have allowed me and Mrs DBK to take some excellent trips). If you pay the bill in full when it comes in, you pay no interest charges. The miles allowed Mrs DBK to fly round-trip, business class when she went to Thailand with her sister and she and I went to Vegas last September (we went to see a friend get married by an ordained Elvis imitator–the camp was so thick you could cut it with a sweaty scarf), round-trip coach, on miles. SO you can get value out of using the credit card, but never carry a balance. It costs a lot of money and once you start it can become impossible to pay off.
Another thing is those home equity loans. Mrs DBK and I have used them to make improvements on the house (new windows lowered our energy consumption significantly), but we stayed within our means always and paid that down in months.
The bottom line is that debt is very bad for your financial health and a wise person minimizes debt as much as possible.
The flip side to your excellent point is that for what I’d guess is most Americans, a significant method of generating a measure of long-term wealth IS credit, specifically the good old-fashioned fixed rate mortgage…which, in the end, is sort of like forced savings, provided, of course, that the market doesn’t collapse.
Having pulled myself out of the credit dog-house after a twelve year battle (partly my own fault, partly an identity theft issue), I’m into the second year of a standard mortgage on a small house that, as best as I can tell right now, I intend to keep through retirement. By the time I’m done paying, of course, I’ll have given the bank about three times as much money as the loan’s face value, but hopefully the house will appreciate to the point that it’s at least a break-even thing (even if it’s a small loss, I still think it’s a better deal than, say, thirty years of rent…and I trust other investments even less, to be honest).
And, at least for now, I’m getting an awfully hefty tax break.
But…as real estate collapses, and as the exotic varities of mortgages end up slamming people, it makes me wonder about wealth-generation for subsequent generations. It also makes me all the more aware of the frustrations expressed by African-Americans and others re: redlining/other difficulties in obtaining mortgages. Racism isn’t always just the ugly, Bull Connor variety.
Trying again here–my first try at commenting got lost in the ether.
Let’s see–trying to reconstruct from memory, I was simply noting that for a large number of Americans, long-term “wealth” is often a function of real estate appreciation, which is usually purchased on credit.
Of course, it helps if the mortgage is fixed-rate, as mine is (and, full disclosure: it took me roughly a dozen years to clear up some credit problems that were partly my own fault, and partly an identity theft issue). Anyway, between the tax break and hopefully the appreciation of the property over time, it’d be nice to break even, or even gain a bit (and, another full disclosure: I don’t want to lose money, but my house isn’t solely an investment vehicle–I intend to live there for, well, the duration, as best as I can tell). If it’s a small loss (and I do wonder about that: I’ll be paying roughly three times the loan’s value over the life of it), well, I feel like I can live with that, because it’s not money totally down the drain, like a rent check (and I trust other investment instruments less, to be honest…or maybe I don’t trust my judgement with other investments).
By the way, even as I warily eye the ominous rumblings in the real estate market, I appreciate all the more the frustrations expressed especially by African-Americans as to practices like red-lining, which has cut millions of people off of what traditionally has been a means of economic advancement. Racism isn’t always the Bull Connor variety…
what DBK says.
I’m in the process of paying my credit card debt down, hope to have it taken care of by year’s end.
Ugh. When I can touch my IRAs without penalty (I have 3) I am going to wipe out the big credit card and be done with credit. Really.
It appears that Brendan and I are on the same page here. No one forces you to use credit. Those in debt from foolish spending are not victims. They are fools. Hopefully, they will learn from their mistakes.
Actually we’re not on the same page here.
A lot of people are in credit card debt because they were out of work for a long time and had no other choice. Others had medical emergencies (the most common reason for declaring bankruptcy).
Furthermore, when it comes to the impact of bankruptcies on the national economy, it is the bankruptcies of large corporations that do the real damage, far more than consumer debt.
Yet the Bill passed in the Congress makes it easier for corporations to declare bankruptcy, and more difficult for ordinary people. Why? Well, ordinary people don’t have the deep pockets that the credit card industry does.
All I said was that I agreed with DBK that it’s better not to carry a credit card balance. I said nothing at all about whether the people who run up debts are fools or victims. There are doubtless plenty of fools our there, but plenty of victims as well.
“because if I don’t want something enough to pay cash, I don’t need it.”
That’s fine to say, but when it’s time to buy groceries for the kids, most people will buy on credit rather than tell the kids they can’t eat. Also, I can’t count the number of times I needed gas to get to work but didn’t have money in the bank to pay for it. Or last winter when our water pump broke…
Not to mention the fact that it’s damn hard to be surrounded by wealth but to not have enough money to buy shoes when the ones I wear to my office job are so worn out that they have chunks falling off around the holes.
Also… being poor makes things cost more in the long run. I needed an economy car to commute to work. Bought one, ten years old, and although it supposedly “runs great,” it actually needed the engine replaced. I could not afford even a rebuilt engine, so I got a used one with 78k miles on it. It might be good or might be junk. I’m doing all the work myself, none of which I’ve done before, because I can’t afford to pay someone to do it. In the end this will likely cost me more than if I was able to buy a decent used car in the beginning.
I agree that credit is very dangerous, but it’s preferable to my kids going hungry, or cold, etc. Remember the kid recently who died of a tooth infection? Better to put the dental work on credit than have a kid die of poverty.
Maya: “Except sneakers. You can’t buy used sneakers if you use them for athletic purposes.”
Depends where you live I think. In west philadelphia, the thrift stores are awash in the worn-only-once cast off sneakers of African American teenagers. I’m currently wearing a brand new pair of vans I bought for $3.50. My last pair were all leather Adidas that were essentially brand new: cost, $5.00.
I try to buy all my clothes at the thrift store: I get brand names, and none of the money goes to a sweat shop in the Marianas.