Editors note: This article originally ran on Get Rich Slowly. It has been reprinted here with permission.
Americans might be more responsible now than they were in the early 2000s when it comes to the use of credit. At least, thats what the evidence from a Gallup poll taken earlier this year seems to suggest.
The Gallup poll that was based on random telephone interviews with 1,026 adults shows that 48 percent claim to pay their credit card balances in full when the bill comes due. Not surprisingly, the opposite group, those who carried a balance each month, came in at a record-low percentage since Gallup began recording this metric in 2001.
But the poll went further to reveal more about the secret lives of credit-card users in the United States, and how the use of credit affected overall debt levels. For example, it showed that the average American carries 2.6 credit cards on average, but the figure jumps to 3.7 when you remove those who dont carry a credit card at all from the equation. Furthermore, the average American carried $2,426 in credit card debt when this poll was taken. However, exclude those without a credit card and the figure quickly jumps to $3,573. So, what does this mean?
Americans are less reliant on credit cards than in the past. They are carrying less credit card debt overall, own fewer cards, and are more likely now to say they always or usually pay their full balances every month, Gallup summarized earlier this year.
This suggests that credit cards a staple of American consumer life for decades might not be as vital a financial tool to individuals as they had been in the 1990s and 2000s, when Americans often used their credit cards to make ends meet.
Thats a good thing, right?
Many experts would say yes.
Are Americans on their best behavior since the Great Recession?
Is the Gallup poll really telling us that Americans are on their best behavior when it comes to the use of credit? Say it isnt so.
Gallup polls might indicate that trend, but other bean counters and media outlets are taking the opposite stance. According to this MarketWatch article from two months ago, American credit card debt hits a post-recession high, Americans are relying too heavily on plastic for day-to-day living expenses. An excerpt:
Americans added $28.2 billion to their credit cards in the second quarter of 2014, the largest amount in the last six years and nearly 200 percent more than in the second quarter of 2009, when the economy emerged from the depths of the Great Recession, according to new research from personal finance website CardHub.com. After paying off $32.5 billion owed during the first quarter of 2014, consumers ran up roughly 86 percent more debt during the following quarter.
Its scary how quickly the tide can turn, isnt it? Although personal credit card debt figures took a nose dive earlier this year, the trend certainly didnt stick around for long. Once again, were racking up those balances with wild abandon and living the dream. Isnt it grand? insert sarcasm here
Of course its not. Most people who have lived it will tell you that it isnt grand at all especially when you realize what it takes to pay those balances off. The cycle can be painful the realization that youre in credit card debt again, the struggle to pay it off, the elation at your success. The mere fact we see the cycle repeating again shows that any change was, at best, momentary.
Thats the part many people just dont seem to get.
Drop the cards and break the cycle
Still, there is a way to avoid the credit card debt cycle if you are an avid spender, says Certified Financial Planner Practitioner Katie Ward of YourRichestLifePlanning.com.
As a CFP, Ward works with people to develop long-term financial plans that help them meet their goals. And since credit card debt goes against the grain of what most people are trying to accomplish, many of her clients found that, over the years, any benefits they got from the use of credit cards were soon overshadowed by the elephant in the room their revolving debt load.
Many of my clients that struggle with spending will choose to stop using credit cards altogether, Ward admitted.
But she doesnt see that as a sign of failure or an indication that something is wrong. According to Ward, life without credit is just better for some people.
There are two groups that may want to consider discontinuing the use of credit cards, says Ward. The first group includes anyone trying to pay down existing credit card debt. Second is anyone who could better control his or her spending without the use of credit cards.
Does credit make you spend more?
Several studies indicate that credit cards enable people to spend more than they planned, and Dave Ramsey constantly drives this point home on the radio and on his website. According to Ramsey, using credit for everyday spending is an all-around bad idea.
There is no positive side to credit card use. You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system!, he said.
That might be a harsh stance to take, but many, many people would agree, including my friend Brian Fourman, a father and writer who blogs about his own financial journey at Luke1428.com. He and his wife stopped using credit cards altogether several years ago when they realized that their credit cards made it easier for them to overspend.
It seemed like every other month, in order to pay our credit cards off on time, we were forced to remove money from our savings account, said Brian. Consequently, we never developed an adequate savings fund to handle lifes emergencies.
The cycle went on for some time until Brian and his wife decided to drop the credit cards altogether. It was then that they learned why credit cards were problematic for them from the get-go.
There are no warning signs with credit cards. No real limitations that you bump up against each month that make you take notice, Brian told me. You can spend as much as you want up to the credit limit of the card, whether or not you make that much in monthly income.
Debit to the rescue
Fortunately, the move away from credit cards proved successful for Fourman and his family. Once they removed credit cards from the equation, he says, their financial situation improved dramatically. All of the mystery surrounding their overspending disappeared almost instantly, and a new sense of purpose took its place.
Instead of credit, the Fourmans turned to debit cards instead, a move which forced them to keep a close eye on their bank account day in and day out.
A debit card served as the restrictor plate on my spending. It forced me to slow down, which in turn limited the amount of financial damage I could do to myself, he says.
Is credit the culprit? The jury is out
Is easy credit the reason Americans continue to rack up bills they cant afford to pay? I suppose the jury is out on that one. However, it is hard to argue how a person can get into credit card debt if they dont have a credit card in the first place.
Still, I think the issue runs deeper. Sure, some people get into credit card debt because they have a job loss, illness, or emergency situation that necessitates it. But for every person with an emergency, theres someone whose emergency situation is the new iPhone coming out or a seriously awesome trip to Cabo theyve been planning. For most people, getting out of debt and staying out of debt requires much more than a stack of cards and a pair of scissors; it requires a different mindset too.
Still, if the goal is less dependence on credit cards, we have to make decisions that will set us up for success. Foregoing credit card use altogether is just one option on the table. And if your spending is a problem, foregoing credit, at least for the time being, might be just the solution youve been seeking.
Holly Johnson is a wife, mother of two and frugal lifestyle enthusiast. On top of writing and running her own blog, Club Thrifty, she also works in a mortuary with her husband and is the queen commander of her household.
He will need a doctor to certify that his disability prevents him from obtaining gainful employment, Kantrowitz said. He will also need to earn less than the poverty line annually for the three-year post-discharge monitoring period.
Kantrowitz has more information about such discharges on his site.
Another option is to consult an attorney, Kantrowitz said. If he lacked the mental capacity to enter into a contract, he might be able to repudiate the loans, Kantrowitz said.
Your nephew also may be able to discharge the loans in bankruptcy, Kantrowitz said. Typically student loans cant be erased this way, but there are exceptions, including one woman in Maryland who was able to erase $340,000 in law school and other education debt after a judge said her Aspergers syndrome made it impossible for her to hold a job.
The odds of success are low, but many of the successful discharges involved disabilities, especially when the loan program did not provide for a disability discharge, Kantrowitz said.
A final possibility, if your nephew has federal student loans, is to sign up for an income-based repayment program. If his adjusted gross income is less than 150% of the poverty line, his required payment would be zero and he would be eligible for the discharge of his debt after 25 years.
Dear Liz: Youve answered a number of questions regarding credit card debt when a person dies. But I havent quite seen the answer I need. If a spouse dies, and the remaining spouse is not on the credit card account, is it still the responsibility of the survivor to pay the card? Does the answer vary by state? Or is it a federal law?
Answer: As you read in previous columns, the dead persons assets are typically used to pay his or her debts. If there arent enough available assets to pay the creditors, those creditors may be able to go after the spouse in certain states and certain circumstances.
In community property states such as California, debts incurred during a marriage are typically considered to be owed by both parties. Other community property states include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In the rest of the states, a spouses debts are his or her own, unless the debt was incurred for family necessities or the spouse co-signed or otherwise accepted liability.
Collection agencies have been known to contact spouses, children and other family members and tell them they have a legal or moral obligation to pay the dead persons debts, regardless of state law. If you are married to someone with significant debt, contact an attorney to help you understand and perhaps mitigate your risk.
As you pay down your credit card debts and keep making on-time payments on all your accounts, your credit score will rise. Eventually, youll be in a better position to close cardswithout driving down your score.
Tipfrom the roadside manual: You mustpay more than the minimum every month to get rid of card debt. Need a step-by-step strategy for paying off credit cards? Find it here.
Youre taking the safe route. You pay bills on time every time and regularly pay cards off in full every month. Over the years, youve taken out a car loan or a mortgage or both, and you paid reliably.
Can you safely close an unused, paid-off credit card? Absolutely.
If youre someone that has a variety of credit a mortgage, auto loan, line of credit closing one credit card is not going to hurt your score, says Sprauve.
Look, any kind of change freaks out credit-scoring formulas. Opening or closing a credit card will temporarily shave points off any score. But because you have all that good credit history working for you, that dip is going to be small and fleeting.
Just to play it safe, avoid closing (or opening) a credit card in the six months before you apply for new credit. That gives your score time to readjust.
Tip from the roadside manual: Dont let fear about your score paralyze you from making credit decisions. Scores capture the big credit picture and thats what you should focus on, too.
Youre in this group if youre in transition credit-wise. Maybe you had some trouble with bills, but now youre getting back on track. Or maybe youre a relatively new credit user who has only a few cards.
Can you safely close an unused, paid-off credit card? Maybe not right now.
As youre build or rebuild your credit, avoid unnecessarily closing credit card accounts even paid-offones. Each account change will dock points from your score. And the lower your score is when you make a change, the bigger the hit and the longer it can take to recover.
Jeff Richardson of VantageScore says that the point loss for closing an unused credit card can be 10 to 30 points. To put that into perspective ... a first missed payment caused a drop of 70 to 90 points, he says. In other words, there are bigger ways to trip yourself up.
But ifyou dont have credit card debts youre trying to offset, your unused card isnt helping your score. You have to use credit and manage payments -- to build your score. So why not put that card to work for you?
Use it for just one modest purchase every month or two -- something you would ordinarily buy anyway and know that you have the money to pay off. When you get the bill, pay it off in full.
With each payment, you build good payment history without accruing credit card debt -- and boost your score. This is a good way to rehabilitate a credit card you goofed with, too, so you can close it on a good note.
Once youve got a couple years of solid payment history on your side, you can close unwanted cards without damaging your score.In general, when youswitch credit cards, open the new account before you close the old one.
Tip from the roadside manual: Its not how much credit you have, its how you manage it. It is better to have one or two credit cards that are never delinquent and have low balances than multiple credit cards with high balances and a history of delinquencies, Richardson says.
What works for everyone:
Youll feel better about making credit decisions if you know what your creditors are saying about your accounts. Get your free credit reportfrom each of the three major credit bureaus by calling 1-877-322-8228 or visiting annualcreditreport.com.
Im 28 years old, and Ive never had a credit card. I didnt know this was weird until I started talking about it more and saw peoples reactions.. Lots of confusion, thats for sure! Since then, Ive discovered that Im definitely in the small minority of people by not using credit cards.
There are two main reasons why Ive never had a credit card that stem from my past: 1) my grandpa told me not to, and 2) Im a spender and do not believe I would consistently pay off my credit card every month.
My Money Blueprint
When I was in my late teens, my grandpa said to me using a credit card is like taking a mortgage out on your clothes. Apparently, Im very impressionable because thats all it took. I never questioned it; never thought twice about it. My grandparents are extremely frugal and well-off (and good financial role models, so I thought and still think) they know what theyre talking about when it comes to money.
The second reason I never got a credit card was because of my propensity to spend money. I naturally want things right now and usually spend based on how Im feeling and justify it later. I like some of the finer things in life, and I think that it would be incredibly hard, if not impossible, for me to only use my credit card up to the amount I could pay off every month. So for me, I dont even want to have that temptation. I understand that everyone is not like me, so I dont think this is the way to go for everyone. But for those of you interested, here is how I operate without a credit card.
How I Operate Without A Credit Card
I have never thought of credit cards as an option. Not once. It didnt cross my mind as something that I should have while growing up, and that hasnt changed. During college, I saved money over the summers and used my savings for any extra spending money. Now, I operate the good old-fashioned way: cash only, baby. Actually, its more like the modern old-fashioned way: using my debit card as credit. By using my debit card, I can only spend what I have. I choose credit instead of debit when I use my debit card so that Im afforded all of the protections that Visa offers in terms of fraud. By using cash and spending only what I have in the bank, I always have enough.
Unfortunately, no one brainwashed me about not getting student loans like my grandpa brainwashed me about not getting a credit card. So, I graduated law school with $206,000 in student loans! My student loan debt is now at $157,000. Student loans are reported to credit bureaus as installment loans (which is different than credit cards, which are reported as revolving credit), so this is how I build my credit: by paying off my student loan debt. Because I pay off my student loans consistently and have several student loans showing on my credit report, I am building a good credit history on my credit reports, and I have an excellent credit score.
I am in a unique situation where I have a lot of student loans being reported, which is why this works for me, and as a result I have great credit. I understand this is a completely different situation than someone without credit or student loans. In my case, I dont need credit cards to build credit; my student loans do that for me.
I will say that personally having a good credit score is important to me, but it ranks lower on my priority list than being out of debt and having a strong financial foundation. I dont know what Ill do once my loans are paid in full, but Ill worry about that when the time comes (I know it will not be getting a credit card though). For now, my student loans keep my credit in tip-top shape.
The Perks Im Giving Up
I understand fully that I am passing up on miles and other credit card rewards that could save me money. But I know myself. I know that a $400 flight isnt worth it because of my propensity to spend. Id so much rather be in the habit of saving ahead of time and paying for things with cash than having my credit card as a backup plan. Its really just my mindset about consumer debt and credit cards: theyre just not for me.
I heard Dave Ramsey say on one of his episodes that if debt is an option, youll always be in debt. I truly believe this. By not having a credit card, I dont even give myself the option of getting into consumer debt. And with $157,000 of student loan debt, I think thats enough debt for the rest of my life!
I have never considered credit cards as an option. I think this is a true testament to what is possible with a particular mindset. Only because of my commitment to avoiding credit cards have I managed to avoid consumer debt. Its also been a helpful way for me to get good at saying no. I would say Im a professional at saying no due to the amount of times Ive declined cards at retail stores.
If you take nothing else away from this post, take away the idea that being committed to something and having the right mindset can change your entire life.
If a spender like me who loves clothes can go through life without a single credit card, then anything is possible.
PS For those of you with kids, I encourage you to brainwash your children. I was told from a young age that I would go to professional school after college (either medical school or law school), and I was also told not to use credit cards. Im a lawyer, and I dont use credit cards. This didnt happen by accident.
This content originally appeared on here.