The Bottomless Cookie Jar

People stop me on the street, in the mall, at the supermarket to ask me if the people who appeared on my TV shows were real and, by the way, how could they ever get themselves into so much debt.

It’s easier than most people think.

A credit card is kind of like a bottomless cookie jar. With easy access to credit, there’s no reason to wonder when the treats will run out, and you are never disappointed. Want a new outfit? Just stick it on a credit card. Want to have dinner with a bunch of friends? Ka-chunk, ka-chunk. Desperately in need of a sunny vacation to beat the winter blues? There’s room on the card and that’s just what it’s for, right?

When credit became a commodity and lenders started hiking limits and offering incentives to take on more cards, people started behaving like greedy children, gobbling cookies without a thought to the tummy ache that would eventually follow. Now Canadians think nothing of spending more than they make every year. Hey there grown-ups, before you think to chastise a child for anything, think about your own lack of self-control!

Equifax Canada is predicting that our consumer debt levels will hit $1.4 trillion in 2014. Here’s why:

People are paying only the minimum required on their credit cards. Those tiny payments are easy to work into their cash flow and, since people are loathe to add up what they actually owe, make people feel their debt is manageable. Ditto the debt on their lines of credit.
We simply don’t understand or won’t accept the fact that all that consumer debt is “callable.” That means, at the bank’s whim, you can be asked to repay what you owe in it’s totality and if you can’t you’ll be sent to collections tout de suite. When my girlfriend, Victoria, and I talk about this we scratch our heads. A stockbroker back in the day, Victoria tries her best to enlighten her friends and acquaintances. In response they say things like, “Oh, the bank would never do that.” Yah, they would.
Folks won’t live within their means. All that keep up is going to end up costing a lot of folks their financial security – something far more important that snappy shoes or the latest electronic toy. For the people who would rather have granite countertops than a six-month emergency fund, it is only a matter of time before all that debt catches up with them.
Our net worth has grown and we keep being told that all the debt we have is okay because, hey, look at how much we have in assets. Here’s the problem with this argument. Let the stock market change direction or let the real estate market see a correction and you’ll watch your net worth plummet. The debt? Well, it’s here to stay. As solid as concrete tied around your neck, that debt is going no where unless you’re prepared to declare bankruptcy. And even then, you’ll live a very frugal life for the time it takes to get back to even.

How did we get so much credit? All you needed was a nice, shiny credit score and you could have all the credit you wanted. Do you know that people who make only the minimum payment on their credit cards have a better credit score than those who pay off their balances in full every month? Why? Because they’re more profitable customers, so they score higher. Do you want to be some company’s dream customer, paying gobs of interest and twisting in the wind when the company decides to change the rules of the game? Or do you want to be in charge of your money and your life?

Focusing on your credit score is a trick, a distraction from the real issue: You have to learn to live within your means. Credit cards only serve YOU when YOU have the power. Give the power to the creditor and you’re a puppet, jumping and twitching. So, do you want to be some credit card company’s puppet? Like the feeling of twitching when collectors call? No? Okay then, it’s time to retake control.

Being in charge means being out of debt. It means paying off your balance in full every single month. It means having only as much credit available as suits YOUR needs.

Living within your means isn’t as hard as some people think. Yes, you have to make choices. And yes, you may have to wait a while before you can take that vacation. But when you stop treating your cookie jar like it has no bottom and start living within your means, you’ll be in charge. Sometimes there are cookies, and sometimes not. And if there are no cookies for a while, that’s not the end of the world. You just have to get busy baking!