How do some people let their credit card debt get so high?

[bjl584]

This question was posed on a different forum.
I know it doesn't apply to most on here, but the answers and thoughts on the matter could make for interesting conversation

[disneysteve]

Way too many people focus purely on if they can “afford” the monthly payment on their debt. Minimum CC payments are 2% of the balance I think so it’s pretty easy to carry a large balance that way. Of course it would take you 30 years to repay it but folks don’t care about that. Same reason they take out 8-year car loans. They can “afford” the monthly payment that way.

[ua_guy]

I'd guess the most common scenario is a mix of poor financial decisions and attempts to cover emergency expenditures with credit instead of an adequately funded emergency cash savings. The situation creates vulnerability where further emergencies can eat up the available credit or make the payment balloon as interest accrues, burying the borrower. Credit is designed to indenture undisciplined borrowers, and it works.

[myrdale]

A very large percentage of the population is unable to see the future.

When you understand that what you do today is going to affect you tomorrow, you handle money differently that if you don't.

I've mentioned a friend on here who is up to his eyeballs in debt. He said his budget is negative and he is having to rely on credit cards to make ends meet each month. That is OK for a single month or two, but after living like that for a couple of years you end up where he is. I haven't pushed details, but he did mention in passing that he was making around $80k. To add to his drama, he is thrilled that he just settled a workman's comp case for about $50k which he says is going to pay off all of his credit cards. Now he is debt free, but he is still broke and has no job on top of that. He rents so there is no equity in his house either.

A couple years ago when I was speaking to the finance guy while purchasing the Tacoma, the BS he keep feeding my way was astounding. When he started talking about a 5 or 7 year loan to keep my payment low, I said 7 years x 12 months x $xxx per month >>> $33k. That SOB (decked out in gold rings and necklaces none the less) said "No one ever explained it like that to me before. I can tell you like numbers." I did the 5 year loan and paid the truck off in full in 3 months. I think there was about $200 worth of interest total.

I suspect most people are completely oblivious to the simple math of monthly payments. Then when they trade in a car that isn't paid off, that loan gets rolled into the next loan and they just get deeper into debt.

Now that there are on line credit services for Amazon or Door Dash, I suspect people will continue to take on more and more debt.

[kork13]

Ignorance, inattention, and overconfidence. Keeping it simple, that's how I see it. Ignorance of the future consequences & how CCs actually work (the 2-4% minimum payment DS mentioned). Inattention to their expenses and ensuring that they can actually afford something, and ensuring to pay off CCs monthly. Overconfidence in their ability to earn more income, cut future spending, save more future income, pay off past spending, and so on.

[disneysteve]

A lot is simply the live for today mindset. eBay sellers often get messages saying “can you hold this until next Friday when I get paid?” Sorry but if you’re broke why are you shopping for crap on eBay? Maybe next Friday when you get paid you should take what you were going to spend and use it to start your EF. Or pay off a little more of your CC balance.

[Fishindude77]

I think a lot of it is keeping up with the Jone's.
Generally people try to live within their income, but then something cool comes up; a vacation, travel sports, dining out, gifts, etc.

Another issue is emergencies, new water heater, roof repair, furnace repair, etc. All their income is going out to house, car, insurance, etc. payments and they don't have the cash reserve.

When they don't have the cash for it, on the card it goes. Then it adds up fast at credit card interest rates and they are soon deep into it.

Too much house and too much cars are likely the biggest money sucks.

[ua_guy]

The Joneses... that's the sad part. Debt...specifically, credit card debt is the norm. The theoretical Jones family and everyone trying to keep up with them are leveraging themselves to the moon with revolving credit to maintain or outperform what they perceive is the standard of living.

[james.hendrickson]

I think the basic problem with credit card debt is future discounting. People focus on their immediate needs/wants and discount the future cost of the credit card. Supposedly this is more common when stress levels are high, or when there are impediments to people's executive functioning systems.

Here is a pretty good article on the cognition of future discounting.

[herrysmith]

It happens from emergencies, subscriptions, and minimum payments. I have seen it often budget gaps add up, even at First National Bank of Germantown

[LivingAlmostLarge]

I would argue a lot of people only see the monthly payment like DS mentioned. They can't even tell you the balance because they only know their minimum payment is affordable. No seriously what's the balance? When you can't tell that's a bigger problem.