As time goes by and taxpayers see less and less personal benefit from the bank bailouts, tensions are on the rise. People are starting to ask more and more questions. People are starting to question what caused all the problems we are facing today. People are wondering if there is another way, a better way.
I am one of those people.
What caused the current credit crisis?
Did banks overextend credit and employ substandard lending practices? Did individuals get carried away and accept more credit than they should have accepted? Maybe we just plain lost our way and let our abundance get the better of us across the board.
Regardless of cause, many feel the financial sector is hanging them out to dry. While taxpayers bailout failing financial institutions with their paychecks, banks have been raking them over the coals in preparation for the CARD Act of 2009. So much so that our elected officials are stepping in to bump of the date of its passing.
Has the credit crisis changed the rules we have to play by? Has it changed the rules we have to live by?
Who is responsible?
Are we as individuals personally responsible for our behavior today? Many contend that, over the last few decades, our principles have deteriorated. Is this same general lack of personal responsibility spilling over into business, resulting in corruption… Or has it always been this way?
What about the banks? Banks have received a tremendous amount of bailout money, but have done little to help restart the economy. Instead, they’ve been holding the money and posting huge quarterly profits. As more and more homes go into foreclosure, their profits increase.
Is some of this bailout money filtering back down to the taxpayers? Not really. As banks profited, loans dropped. Have they refunded the bailout money with all of these profits? Not entirely. Some banks have refunded in full, some have refunded in part, and others have not refunded at all. Here is a great resource to help you track which banks have refunded and which have not.
Personally, I’m amazed at what’s happening. The public has been called upon to fund the unprecedented bailouts of private industry and maintain high levels of consumption to sustain the economy, all while being asked to live with ever-increasing credit card rates, fees, and an inability to refinance troubled mortgages.
As far as I’m concerned, the banking industry must be absolutely brilliant to have pulled this off. I am truly in awe as I watch all of this unfold before my eyes. Banks have definitely not been making friendly with the American public, and people have just been taking it. Perhaps the American public is finally be ready for a change!
Can we live without credit cards?
Given all the unfriendly changes in the credit card world, what about living without credit cards altogether? Can we possibly do it?
People are resilient. I think you’d be surprised by what you could do if you absolutely had to. If things spiral downward, and we find ourselves facing a devalued dollar and ever-increasing unemployment, how would we react?
My best guess is that most of us would react just like folks did back in the 1930s. We’d band together and do what needs to be done to get by. And perhaps most importantly, we’d start living within our means. So why put some pressure on ourselves and take those steps regardless?
I think this pressure is good for us.
There are many examples in nature where pressure provides us with a precious bounty. Coal left under pressure gives us diamonds. When certain fruits are exposed to pressure they yield precious oils. And history shows us how pressure and fear of failure are some of the best motivators in the financial matters of both businesses and individuals.
And since we (as individuals) aren’t going to a bailout… Let’s focus on bailing ourselves out!
Real world ways to curb the use of credit
- Are you borrowing for wants or needs? Did you need that 2,500 square foot house, or could you have made due with 1,500 and a much lower mortgage payment? Did you need that brand new Chevy Silverado, or should you have gone with a 3 year old truck in solid shape? Did you need that Jet Ski? How about that new 50″ plasma HDTV? If you truly need to borrow money, then borrow it… I’m just asking you to reevaluate your needs against your wants.
- Reduce your available credit. How much credit do you have at your disposal? And how much do we really need? Get a free credit report from AnnualCreditReport.com. Next, go through your report(s) and figure out your total credit limits. I’m betting you’ll be surprised by the high amounts. If you cannot stop using credit, or just plain don’t want to, try cutting back to just one or two cards. Do you really need more than that?
- Change the way you think. If I asked how you would buy a car, most would answer, “Get a loan.” If I asked how you would buy a house, most would answer, “Get a mortgage.” What about TVs? What about furniture? What about college? Loans. Loans. Loans. Why do we automatically think we have to borrow money to buy things? Is this a trained response? We need to reduce our standard of living so we can get out of debt and save for future purchases… Then pay cash. Change the way you think. Start today.
- Reduce your standard of living. Live below your means. Spend less than you earn. You may be sick of hearing these phrases, but they work. Maybe it’s time we start living them. Doing so will eventually allow us to save pay down debt and save.
- Pay down debt. Once you’ve brought your standard of living back into check, follow through on that spirit of discipline by paying off your existing debt. Doing so will empower you. Don’t believe me? Try it out for yourself.
- Save Money. Now that you’re spending less than you’re earning and paying off debt, you’ll be able to save more money for future purchases. Pretty soon, paying cash for your next car will be a reality. Remember, by saving money, you reduce your risk. The more money you have saved, the better buffer you have against emergencies… Which means you’ll no longer need a credit card for an emergency!
- Use your debit card. If you are used to using your credit card for everyday purchases, start using your debit card instead. I promise that you’ll hardly notice a difference, but you’ll become more deliberate in your spending. Many will argue the superiority of credit over debit for reasons like purchase coverage and rewards. In my experience, however, these things hardly make a difference in everyday life. In light of the pros and cons of each, I would choose debit every time.
- Pay cash. Now that you’ve saved up some money, start using. Paying in cash has been linked to reduced spending rates. In fact, it’s argued that handing over cash actually elicits brain function that mimics pain. Paying with cash will also give you better deals when you go to purchase goods and services. For example, medical bills paid with cash can often be reduced because it eliminates the practitioner’s need to file an insurance claim or pay credit processing fees. Also… When you spend cash, you can only spend what you have!
Remember… If you don’t agree with industry and/or business practices, your best course of action is often to simply stop using their products. The same is true for the financial industry. Reevaluate your priorities, change the way you think, pay down debt, save your money, and start using cash and/or debit for more of your purchases. You have a voice, don’t be afraid to use it!
No one makes changes for us… We must make them for ourselves, and go from there.