Goodbye to Debt
The new American status symbol and how to achieve it
Liz Lahm hates being in debt. Three years ago, during her divorce, she owed $15,000 and was "spending like crazy--a time share, furniture--major purchases that I couldn't afford," she says. "I was just moving my [credit-card] balances from one bank to another." But for the past year, Lahm has been working with a financial planner in her hometown of Lexington, Ky., to erase her debt, and she says she'll never carry a balance on her cards again. Now, when she shops, if the money isn't in her checking account, "I don't buy it."
A growing number of Americans are making the same decision. Mired in debt, struggling to pay the minimum amount due, transferring balances among credit cards to get a lower interest rate, dodging calls from creditors, consumers have tired of the treadmill. While headlines still scream about the growing number of personal bankruptcy filings, what's easy to miss is evidence that a new attitude toward debt--enough!--is taking hold. Consumer borrowing has slowed--it rose only 4 percent last year compared with 14 percent in 1995, according to Haver Analytics, an economics consulting firm in New York. But the clearest change is in the way people view their credit cards. More holders are using their cards for convenience, paying off the balance each month and generating no interest charges. In 1992, 29 percent of cardholders were convenience users; today the share is 42 percent. In January, Wirthlin Worldwide reported that 36 percent of all users had canceled at least one card in the previous 12 months. About 20 percent of those said they did so as part of a conscious effort to charge less.
Debit cards are gaining in popularity, too. These cards allow consumers to control their spending because money is subtracted directly from their checking account. In the first half of 1997, Visa and MasterCard saw 14 percent growth in debit-card accounts; credit-card accounts were up only 1 percent.
Plastic surgery. Some consumers are targeting all their debts, from mortgages to student loans to car loans. But the main problem is high-interest credit-card debt, and that's the one most tackle first. Gone are the impulse buys--dinners out, trips to the Bahamas, the latest video games; in are planned purchases with the money to back them up. "A lot of people are hunkering down and realizing they can't just spend, spend, spend for the rest of their lives," says Karin McKerahan, a financial planner in Temecula, Calif. Indeed, conspicuous consumption is giving way to a new status symbol: debt freedom.
The most compelling reason for this change in attitude is simple: "It makes no sense to buy $200 worth of groceries and then pay 18 percent on it for six months," says Jack Reed of Longmont, Colo., who has paid off $12,000 in credit-card debt. Reed now uses cash for most purchases. "The only way to really justify those kinds of interest rates--18, 19, 20 percent--is to have something that is going to be around when you pay it off," he says.
advertisement
