Alternatives to the multi-generational survival tool

A whole lotta folks are way too comfortable with credit card debt, according to the “Generations Apart” study from Allianz Life. Nearly half of the Generation Xers and Baby Boomers surveyed consider plastic to be “a financial survival tool.”

Guys, guys, guys: The credit card is not a superhero. Sure, one swipe saves the day, but it's only that day. What will you do on the day the bill arrives? Or on all the days you carry a balance?

Oh, wait. That doesn't bother some people, either:

  • 43 percent of those surveyed think that “lots of smart, hardworking people who are careful with spending [emphasis added] also have a lot of credit card debt.”
  • 20 percent of Gen Xers and 14 percent of Boomers think going into debt for day-to-day purchases is “just a fact of life.”

According to Allianz Life spokeswoman Katie Libbe:

Over the last three decades, there has been a collective shift in how people view debt — it's now perceived as a normal part of one's financial experience.”

Debt and retirement

The effect on retirement is troubling. About one in five Boomers and 23 percent of Gen Xers believe they can't save until consumer debt is zeroed out. In terms of compound interest, that's a missed opportunity for Gen Xers, some of whom are only 35 years old.

Debt might also mean long-delayed retirement: 27 percent of Gen Xers aren't sure when/whether they'll stop working and 11 percent of Boomers feel that way too. Problem is, we don't always get to choose whether we retire. Illness or disability — our own or a partner's — sometimes makes the decision for us, and a layoff in midlife sometimes results in de facto early retirement.

Debt triggers and workarounds

Not all credit card reliance has to do with hot dates or cool shoes. For example, 57 percent of personal bankruptcies are triggered by impossible-to-pay medical bills. Divorce and un- or underemployment may leave you with little choice but to charge groceries, utilities or other essentials.

The key word: “essentials.” Dining out is generally not essential. Neither is live entertainment or recreational shopping.

In fact, some essentials may not be essential. For example, suppose your car needs $400 worth of repairs or $150 worth of new tires and you haven't got the scratch. If possible, stop driving until you have the cash.

Will that be easy or convenient? Probably not. Here's what else isn't easy or convenient (in the long run, anyway): Putting a $400 repair bill on a credit card without a clear idea how you'll pay it off. So before you charge ahead, so to speak, use The First Rule of Personal Finance Workarounds.

The six rules of personal finance workarounds

Rule #1: Brainstorm affordable tactics.

Have your partner drive you to work (or vice versa). Carpool with a colleague. Walk. Ride your bike. Use public transit. Borrow a car. Work from home part time to reduce the commute issue.

Not all of these suggestions will work for you; maybe none would. The point is to think outside the plastic. A great way to do that is with The Second Rule of Personal Finance Workarounds:

Rule #2: Ask for help.

A friend or relative might be willing to lend a bike (or a car!) or drop you at the light-rail station. You'll never know unless you ask. Need short-term child care, the use of a lawnmower, or tips on cheap comestibles? Put it out in the universe via peer group, social media or the Get Rich Slowly forums.

Suppose you're not an ask-for-help kinda guy? In that case, get going right now on The Third Rule of Personal Finance Workarounds:

Rule #3: Build an emergency fund.

If you had that $150 or $400 in an emergency fund, you wouldn't have these issues. See “Stealth Savings: Sneaky Ways to Fatten Your Account.”

Saving is easier with The Fourth Rule of Personal Finance Workarounds:

Rule #4: Do a financial fire drill.

Create a budget for food, rent/mortgage, utilities and debt service (student loans, child support). Go to the frugal mattresses for a few weeks (or months) to save that emergency fund or save that car-repair fund.

A big help with the financial fire drill is The Fifth Rule of Personal Finance Workarounds:

Rule #5: Maintain a deep pantry.

Personal finance goddess Liz Weston calls a well-stocked larder “the emergency fund you can eat” because it cuts both short- and long-term costs. During cutbacks you'll just need to buy fresh stuff and, over the long haul, you'll buy less takeout because you have items to cook.

Unable to do this because you're barely covering the bills now? Time for The Sixth Rule of Personal Finance Workarounds:

Rule #6: Do the (side) hustle.

Tend bar. Deliver pizza. Let people know you're available to clean houses, babysit, walk dogs, defrag computers. For other earning entry points, see “Can't Get A Job? Get A Microjob!” (Note: Don't run yourself ragged. The point is to get a little ahead, not to wind up in the hospital.)

The realities of debt

Again: Sometimes life happens. Nobody asks for unemployment or illness or Hurricane Sandy. The point of these workarounds is to be ready when life hands you a big bag of poo.

Available credit is not a superpower. It's actually Kryptonite, and it will slowly destroy your finances, your peace of mind, and your ability to direct your own life.

Sure, it would be nice to go out to dinner and a show with your friends. No, it's not fair that you got laid off or hit by a bus.

But putting all your “wants” on plastic is like loading your pockets with rocks and jumping into the deep end. Swiping that card is so easy — and then you realize that getting your head back above water is going to be very, very difficult. Maybe even impossible.

How about it, Readers: Do you consider credit cards to be survival tools? Have you had to use one that way? How long did it take you to pay it off, and what steps have you taken to prepare in case something like that happens again?

More about...Debt, Retirement

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lmoot
lmoot
5 years ago

I’ve mentioned my view of cc’s numerous times here. CC’s are one of my, if not THE most, used and important tool in my personal finances. I’ve lived my entire adult life on a single income so I’ve never had the benefit of a 2nd person’s income to move things along faster. I paid off my car by myself. I saved 20% down on a house by myself. I funded the total gut and reno of that house by myself. I’ve taken 6 months off of full-time work without tapping into ANY of my efund or other savings…by myself. So… Read more »

Adam
Adam
5 years ago
Reply to  lmoot

Maybe contentious, but there’s nothing wrong with this, in my opinion. Responsible use of your good credit is a useful way to get ahead. But so few are capable of “responsible” use.

That’s not to say it’s not without risk. Too much debt combined with a job loss could be catastrophic. For that reason, it’s always best to avoid debt when possible.

Donna Freedman
Donna Freedman
5 years ago
Reply to  lmoot

I’ve got nothing against credit cards per se. I use them myself, for the rewards. It’s when you rely on them to get you through every little rough spot that you (a) never learn to think creatively and (b) run up debts you can’t easily pay.

lmoot
lmoot
5 years ago
Reply to  Donna Freedman

Whenever I see these statistics though, I’m just curious: A) What they define as “going into debt”…technically those who pay their cards off each month are in debt for those 30-60 days, and those who use 0% cards as a budgeting and earnings tool are definitely in debt until they pay off the balance B) Are the pollers applying the “going into debt” term to everyone that simply uses their credit card (for the ease, the protection, and the points) and pays it off immediately? There are so many ways to use credit cards today that I’ve never really seen… Read more »

lmoot
lmoot
5 years ago
Reply to  lmoot

But I agree with your statement. I just don’t always believe the statistics. But who does anyway right?

Frank
Frank
5 years ago
Reply to  lmoot

Imoot’s strategy sounds interesting? I would like to see a detailed post on it.

Merry
Merry
5 years ago
Reply to  lmoot

My husband and I have always paid off our credit card by the end of the month, but usually as soon as the purchase is made. However, my husband decided to apply for another card that had a higher limit to improve his credit. It came with a 0% APR for a year. I’m so glad he did! Right after he got the card, we were hit with three unexpected, expensive experiences: two expensive medical procedures and a dead car. Our emergency fund was good enough to cover one or two of these emergencies, but all three at the same… Read more »

Vanessa
Vanessa
5 years ago
Reply to  lmoot

lmoot, somewhere in your busy schedule I hope you take some time to pat yourself on the back. You should be very proud of everything you have achieved.

getagrip
getagrip
5 years ago

Given the amount of people with serious, say $30-100K in student loan debt, a thousand on a credit card that is doing the slow creep up to two thousand may hardly seem substantial and may not be their big focus. This can be especially true for young professionals who are single or DINKs and making decent money. Looking back I survived, and saved, and bought a house with a mortgage, bought cars with car loans, had kids, etc. all while generally carrying various revolving balances on credit cards for well over a decade. I believe a large segment of the… Read more »

HKR
HKR
5 years ago
Reply to  getagrip

“Short of a major life shake down (e.g. protracted unemployment, illness, etc.) the problems only come when you want to get rid of the debt and realize how addicted you have become to your lifestyle.” This mentality is what sets people on the road to financial ruin. First, you can’t bank on not having some sort of life crisis; even if you beat the odds and never lose your job, don’t become ill or incapacitated, and don’t have any other sort of unexpected emergency, you cannot avoid getting old. Chances are you won’t be able to work until you die,… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  getagrip

“The problems only come when you want to get rid of the debt and realize how addicted you have become to your lifestyle.” I respectfully disagree that the problems come ONLY when you want to get rid of the debt. Two problems leap out at me in this scenario: 1. You’re paying interest for years and years, and some of the stuff you’re paying extra for likely could have been cheaper (or avoided altogether) with a little creativity. 2. You really CAN’T predict life’s twists and turns, so if things do go south you might have to choose between keeping… Read more »

getagrip
getagrip
5 years ago
Reply to  Donna Freedman

Interesting that both Donna and HKR jump to the conclusion that I am endorsing this path just because I lived it. Apparently I wasn’t clear, so let me add a bit, (I do not promise to clarify). The article spends a long time on people apparently considering debt not a problem, I provide a probable reason (admittedly based on personal experience, observation of others, and also potentially supported by the data presented in the article itself) why this could be the case (e.g. 43% of those surveyed thinking careful spenders have lots of debt, perhaps they think they are carefully… Read more »

Jen from Boston
Jen from Boston
5 years ago

Debt is a tool, but only a tool. If I hadn’t taken out a mortgage I’d currently be at the mercy of Boston metro’s expensive rental market – OUCH!

The trick with debt, and any other financial tool, is knowing how to use it responsibly.

Adam
Adam
5 years ago

This is what I was trying to say up above. You said it better.

Laura Beth
Laura Beth
5 years ago

I agree completely Jen. You said it perfectly.

KWL
KWL
5 years ago

My husband has been in school while I worked full-time the last 4 years and he finally graduated then started working full time earlier this month! Yay! Unfortunately, we have been in the situation the last four summers where he wasn’t at school or work and my low-30’s income could only pay our expenses, leaving us mostly dependent on credit cards for food, essentials, and emergencies. In most cases, once school started back up again in the fall, we were able to pay our debt down by the end of the year and save a little bit so the next… Read more »

Alexander @ Cash Flow Diaries
Alexander @ Cash Flow Diaries
5 years ago

I personally think debt can be a great tool to utilize but only once youre way passed the being in debt stage and are using it for rewards or to use as leverage on investment vehicles (rental properties).

Im sending this article to a friend of mine who has 10 credit cards, im in the process of helping him clean up the debt but he and many others Im sure could use a read like this.

Thanks

Laura
Laura
5 years ago

Money is more about mindset than math (thanks, J.D.!). The problem Donna presents in her excellent article is that the mindset of a good number of folks is that debt is o.k. And as I think most of us know, getting out of debt is a whole lot harder than not getting into it in the first place. Her tips for avoiding debt are good ones, but teaching (and learning) the right mindset is necessary before folks would find it desirable to implement them. I actually am encountering this problem at work; I have a new boss who is excellent… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  Laura

You raised that one right! Now you just have to keep raising your boss.

You’re right that people have to know more — or hit bottom — before they’re ready to take responsibility for their money and their choices. Otherwise it just seems like penury imposed by someone else.

Bryan@Just One More Year
[email protected] One More Year
5 years ago

It is amazing that 14% of Boomers and 20% Gen Xers go into debt for their day to day purchases. Very disturbing! I wonder if this part of the trend of moving away from cash toward the electronic form of payments? Unfortunately in the past I had to learn the use of credit the hard way. I definitely spent more money as a result of having credit available and too little self-control. Today, I consider credit cards and debt as instruments, part of my high tech tool box, helping me in my personal journey toward financial independence. We use credit… Read more »

Jen from Boston
Jen from Boston
5 years ago

I’m wondering of those who go into debt for their regular living expenses how many are doing so because they simply living beyond their means and buy things they don’t need and how many don’t have a choices, i.e., they don’t make enough to cover their NEEDS and end up using the credit card. I suspect most are the latter, and that is troubling, but I really have a lot of sympathy for the former.

Tyler
Tyler
5 years ago

For a long time I had this system of spending all available cash, then spending all available credit (which I only allowed to be how much I estimated my tax return to be) then when my tax return came in it would all go to paying off the debt I accrued the year before TA-DA out of debt. This in the long run wasn’t able to support me or years later my family that I now have. So now i’ve found myself in more credit card debt than 10 tax returns so changing my methods was a must. The first… Read more »

Jay
Jay
5 years ago

Interesting article. Thanks for posting. Love the advertising link to Synchrony Bank. Clever.

ryan
ryan
5 years ago

Great post. So many times I think… oh, it’s only $10 and then swipe the debit card… I recently got an AMEX Serve card and I decided that I would stick to my budget more strictly but that I would put $10 a week automatically into the AMEX Serve debit card and try to not spend the $10 on random things. Now, when I feel the urge for something random or a new pair of shoes or something not in the budget I can use the AMEX Serve card and not worry that I am blowing my budget since it… Read more »

Ely
Ely
5 years ago

Yeah, I did this for years while under-employed in a high cost of living area. Groceries, gas, utilities all went on the card; my meager paychecks went to rent and minimum payments. I finally got out of it with help from family, moving to a cheaper area, and getting a better job, and I NEVER WANT TO DO IT AGAIN. Now I maintain an array of savings accounts; I use my card and I pay it off in full every month, no matter what. If I find myself scraping the bottom of my bank balance, I save more next month.… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  Ely

Sorry to hear about your dog. Glad that you have managed not to go into the red to care for him.

Hannah
Hannah
5 years ago

Brainstorming affordable tactics should be everyone’s first rule of personal finance. If you’re swimming in Benjamins, then everything is affordable, but if you’re not a little bit of creative thinking can go a long way. This creative thinking has led me and my husband to becoming a one car family. These days, it’s rarely even an inconvenience.

Alexandra @ Real Simple Finances
Alexandra @ Real Simple Finances
5 years ago

It’s terrifying that people think going into debt for everyday things is “normal”! We do use our credit card daily for everyday purchases, but it is always paid off in full by the end of the month so we never get interest or service charges.

Jeff
Jeff
5 years ago

I charge nearly everything, I only carry more than a small amount of cash when on vacations and even then it’s only used if for some reason the card cannot. With Mint I can easily track my purchases every day and monitor my budget, then just pay it all at the end of the month. If I used cash I’d have to monitor it manually all of the time and that is damn annoying, just forgetting one or two times can screw up the budget. Going almost entirely to the credit card has made my budgeting so much easier and… Read more »

Ash
Ash
5 years ago

I have always had a healthy fear of credit cards and credit card debt. Earlier this year when I had to pay for a medical intervention for my son I prepared by doing some ‘side gigs’. I hosted (in my house) and taught English to some foreign students and also I let out a spare bedroom. I also tightened up my budget and cut back on trips, luxuries, clothes, haircuts etc. Before reading blogs such as Donna’s it would never have dawned on me to do this. I probably would have looked for a Credit Union loan(cheapest way of borrowing… Read more »

Donna Freedman
Donna Freedman
5 years ago
Reply to  Ash

Good for you, Ash! Creativity takes a little more work but now you don’t have the anxiety that comes from wondering how you’ll pay off the credit card bill.

Thanks for reading me both here and at my personal website. I appreciate your comments over there as well.

Sara
Sara
5 years ago

I consider credit cards a tool, like many others here, but my biggest reason is because I like having options. If I suddenly need a $5K roof repair, I would much rather have a choice over whether or not to use my savings or maybe take a 0% offer on a credit card. And sure, I may still choose to pull it out of savings but having that financial flexibility is huge for me – not being locked into Plan A in case I need to go to Plan B.

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