The following is an excerpt from Happy Go Money by Melissa Leong, from ECW Press.
When it comes to money and happiness, there is no lesson that I can impart that will be more important than this one: the biggest happiness killer is debt. The Life Events Inventory, a 2001 UK study, ranked 56 of life’s most stressful experiences. Where do you think “getting into debt beyond means of repayment” ranked?
Problems with your boss ranked #36. Your spouse cheating on you was #14. The death of a close friend, #13; divorce, #9; a period of homelessness, #6.
Getting into debt ranked #5.
Debt is one of the biggest predictors of relationship strife. Every 10-fold increase in consumer debt is associated with a 7% increase in the likelihood of divorce, according to research out of Utah State University. High debt is associated with health issues, including higher blood pressure and mental health problems.
To be happy, you must tackle that sucker. You can do it. I’ve interviewed many people over the years who have been able to dig themselves out of ginormous holes. These were people who were languishing on debt row. They had maxed out their credit cards. They were stuck deciding which bill to pay each month and only making minimum payments. They were raiding their retirement funds to cover bills. One 48-year-old father of three had racked up $85,000 in consumer debt. At one time, he had to ﬂick through his credit cards, as if he was going through a half pack of playing cards. He sought help, buckled down and now only has one credit card with a $300 limit. Another young man I spoke to racked up a $20,000 balance by the time he was 23; after maxing out one $15,000 card, the company increased his limit to $45,000. He reined in his spending, got a second job and put more than $500 every month into his accounts until he was debt-free four years later.
If you’re drowning in an undertow of debt, I don’t want you to feel like an ass. Or a lost cause. You’re not alone. Surveys have shown that almost half of us carry credit card debt. We have a lot of credit options — credit cards, leasing companies, private lenders — and people are offering it to you everywhere you go. Last week, I was in a grocery store and near the deli section, a woman offered me a credit card like she was offering me a ham sampler. We’ve been able to borrow more with historically low interest rates, and we can shufﬂe our debt by transferring loans to new credit suppliers.
Getting in debt has become so easy that we’re numb to it. If you had told previous generations that they should take out a line of credit to pay for a vacation, your parents/grandparents would slap you upside the head (because in previous generations, parents punished with spankings while we change wiﬁ passwords).
Once you have the ability to charge it, spending is all too seductive. Merchants and retailers are trying to make buying as easy as snapping your ﬁngers; in the retail/banking industry, they call these “frictionless” transactions, which sounds like they’re talking about the condom market. Credit cards anesthetize the pain of spending. So now you just tap your money away, buy with one click or rely on auto-renewals.
With what we’re up against, absolutely it can be a struggle. The Happy Go Money journey is personal and it can be a long one, with hits and misses. But you’re a ﬁghter. Your mistakes, your bad choices, your losses: they don’t deﬁne who you are today.
And I hear you saying, “Melissa, this isn’t making me very happy right now.” It will. I promise. You have to look at the big picture. Hey, no one likes going to the dentist, but having teeth will make you plenty happy in the end.
When you’re battling debt, start by listing your opponents: credit card balances, lines of credit, mortgages, unsecured loans, automobile ﬁnancing, student debts, pay advances, outstanding bills, loans from family and friends and so on. If you can, include their corresponding interest rates. With the interest rate handy, plug the numbers into a free online debt repayment calculator; adjust how much you think you can put against that debt every month and see how long it’ll take you to eliminate it.
We need to prioritize which to tackle ﬁrst. If you owe money to the taxman and they’re calling you, don’t ignore them. They’re charging you compound daily interest on what you owe. They have incredible powers to collect money owed to them, including garnishing your wages, seizing your assets (including your house), closing your business and freezing your bank accounts.
That Darth Vader–level foe aside, facing your biggest debt can be discouraging — it could feel like you’re bouncing off a sumo wrestler. I get that the little guys are easier to pick off. And it feels good to do so, building conﬁdence and motivation after each victory. Personal ﬁnance is, well, personal so you should do whatever charges you up. But if you’re a smart ﬁghter, you’ll overlook the little guys to ﬁrst deal with the debt that is causing you to bleed the most — the debt with the highest interest rate.
For many of us, this is our credit card debt.
Get drastic on your plastic
When I was in university, the banks set up booths on campus peddling credit cards. “As a bonus, get a free hat!” the reps said. My father had given me the “with power comes great responsibility” lecture when it came to credit cards, but many of my peers signed up. I wanted to tell them to hang onto their hats when the credit card bills came. I’ve spoken to tons of people who got themselves in trouble with their ﬁrst credit cards. No one explained to them how interest rates worked, what minimum payments meant and how their credit could be destroyed.
For example, let’s say you use your credit card to buy a $2,000 patio set. Your card has an 18% APR (annual percentage rate, or interest rate). If you only made the minimum payment of 2% or $10 a month (whichever is higher), you’d spend more than 30 years paying off the set. I don’t even know if my teeth will last that long, let alone a wicker chaise longue, and I deﬁnitely don’t want Silver Fox to be still paying for anything that I buy today (including my house). On top of the $2,000 price tag, through the wonder — or in this case, horror — of compounding interest, you’ll have paid more than $4,900 in interest. There’s that dragon that I was talking about earlier, but this one’s playing for the other team — you’ve gone from being the Mother of Dragons to dragon food.
But if you put $150 a month against your debt (and assuming you don’t buy any more outdoor decor), you’d be square in a year and three months and drop almost $250 to interest payments. Better. Not the best. But better.
If you always pay off your credit card balance in full every month, then carry on. But if you have a balance that you want to wipe out, take that credit card out of your wallet. Delete your credit card information from your computer browser. Whenever someone says they’re trying to get rid of debt and I see them swipe their credit card, I think of The Simpsons episode where the townsfolk have literally dug themselves into a deep hole: “How are we going to get out of here?” Otto asks. “We’ll dig our way out!” Homer exclaims. Then Chief Wiggum retorts, “No, dig up, stupid!”
I have friends who, rather than dig, bury their heads in the sand and do nothing. You can try to ignore it, but like the weeds in your yard or your mother-in-law, it’ll just become more powerful. Do something. Do anything to pay down your balance. To anyone starting the hard work of confronting credit card debt, my hat’s off to you.
Melissa Leong is a personal finance writer, keynote speaker, on-air personality, and bestselling author. She appears on CTV’s The Social as its resident money expert and was a staff reporter at the Financial Post. She lives in Ajax, Ontario.
Excerpted and adapted from Happy Go Money by Melissa Leong. © 2019 by Melissa Leong. All rights reserved. Published by ECW Press Ltd. www.ecwpress.com