free.jpgIt is no secret that one of the key problems with many homeowners is their enormous debt load. In 2005, nearly one in sixty households in America filed for personal bankruptcy, and this was long before the current housing crisis. Expensive mortgages, dozens of credit cards, impulse buying, and living without a budget all contribute to consumers having no structure in their lives that will allow them to defend against the constant advertising and competition for new toys and machines.

Banks, on the other hand, have made it incredibly easy for the average American to obtain nearly any item without having to pay for it. Simply whip out a credit card, given to the consumer regardless of income or ability to pay back the amount borrowed, and the newest extravagance is magically paid for. And when the over-spender inevitably starts to feel the weight of the debt, there is almost always another new credit card offer waiting in the mail. The consuming culture of debt has caused many of the current economic instabilities, and neither banks nor consumers are blameless. But, it will be those who have borrowed who will pay the ultimate price for poor financial decisions, as banks can count on bailout after bailout from central banks.

Thus, it makes sense for homeowners with large mortgages and other debts to plan for the stability of their family’s economic future. Banks begin pushing credit cards on college students, ostensibly in an effort to “establish a relationship” with the consumer, whether the student has a job or can afford a credit card at all. The temptation for abuse is insurmountable, in many instances, and the new consumer begins the habit of spending more than what is earned. The banks know this is the likely outcome, but they are full aware that the parents will bail out their children.

Every person should take extreme care when deciding whether to borrow money for purchases. Besides a very large purchase, such as a house, credit is most likely unnecessary and will cause undue harm. Borrowing $10.00 for lunch, which will end up costing $35.00 or more in finance charges over time, is simply bad financial management. But consumers do this all the time, and they can produce credit card after credit card in order to keep spending.

Unfortunately, though, borrowed money is much different psychologically than earned money. Homeowners are much more likely to spend the money they save very carefully, guarding it against unwise or impulsive decisions. But money given to them from a bank through a credit card is often spent as quickly as possible with little regard for the consequences.

Families have to establish good spending and borrowing habits and pass those habits on to their children, if there will be any lasting avoidance of the credit trap. That means impulse buying and unnecessary extravagant purchases must be avoided, and a little bit of money from every paycheck (or every allowance for the kids) should be put aside in a separate account to be used only for savings. And savings should have a future goal attached to it, such as a new car purchase in the long term, or a family movie night once a month if the savings goal is met, for example.

Good spending habits and working together to get out of debt can foster a family relationship that does not suffer from the financial instability present in so many homes, a problem that can lead to divorce, bankruptcy, or foreclosure. And for consumers who are already deep in debt, cutting up the cards and selling off the ill-gotten gains of a lifetime of overspending can bring the family back together. Never having to worry about an unnecessary load of debt by paying off and destroying credit cards and going on a “selling binge” is one of the longest-lasting positive projects a family can take on. It is also one that will dramatically reduce the chance of facing a devastating financial hardship leading to repossession, a scarred credit rating, or the loss of a home to foreclosure.

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