A sobering experience for me occurred a few years ago, when I happened to see the docket at the local small-claims court. It was filled with a long list of banks that had filed suit against people who had stopped paying their credit card bills altogether. Those defendants who showed up had two options: Negotiate with the lender, or watch the magistrate rule in favor of the banks.
Jordan may end up on the docket if she doesn’t make some changes in her spending habits. She has luxury tastes, but can’t fund them through her middle-class income. She’s resorted to using three credit cards to fund luxury purchases such as fancy shoes and high-end appliances. She hasn’t been able to pay off the amount owed for more than a year.
Now she’s watching things snowball, as unpaid interest and further spending leads to ever-increasing bills and a big credit card problem. Jordan owes $15,500 now, and it’s still climbing. Eventually she won’t be able to meet her minimum monthly payments, which will cause additional penalties to kick in. Failure to make payments will also make it hard to get credit from other sources, including bank loans. If things get particularly bad, she could find herself dealing with the situations described in “What Happens When You Don’t Pay Your Bills” in Chapter 3 of Personal Finance For Beginners In 30 Minutes, Volume 1.
Jordan’s experience is not an uncommon one. According to estimates based on Federal Reserve data and other sources, nearly half (about 60 million) of American households carry a credit card balance that averages over $15,000 per household.
We’ll return to Jordan’s credit card problem in Chapter 3, when I give a big-picture view of debt and discuss practical ways to deal with it.
This post was excerpted from Personal Finance For Beginners In 30 Minutes, Volume 1:
How to cut expenses, reduce debt, and better align spending & priorities. “Jordan” is a fictional character used to illustrate personal finance concepts and spending patterns.