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Credit Card Debt Calculator”

The article everyone is talking about today

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…is the phenomenal New York Times article written about how a woman named Diane McLeod got into thousands of dollars of debt. It’s remarkable because it includes a rich set of multimedia features that let you understand how many of us get into so much debt — and also allow you to compare yourself to others. They include:

Want to watch it all? Click here to start.

Here’s my take: On one hand, we all know people like Diane, who make poor financial decisions, never take the time to get educated about money, and sink into a hole of financial quicksand. These people are easy to judge because they have all the visible signs of financial stupidity: New cars every two years, expensive high-definition TVs, vacations, houses they can’t afford. And yet, on the other hand, financial institutions, advertising, and social influence have all coordinated an attack on us to spend more. In fact, we’ve been told for decades that owning a house is the single-best financial decision we can make. It’s not.

Is education the answer? Maybe, but it’s not a panacea.

Should we just stop spending so much? Of course we should, but that’s like saying we should all lose weight by making better choices. Easy to say, extremely difficult to do. I’m hopeful that the current environment calls for a restructuring of our priorities. I hope that we get conscious about our spending and start prioritizing saving over spending. With extended hardship, this will become more likely. We all need to be conscious of our finances, but we’re playing in a world with the deck stacked against us.

I’m tired of demonizing people for making poor spending decisions. It might make you feel good about yourself, but it doesn’t actually change behavior.

And fundamentally, that’s what this site is about. It’s not about making people feel better about themselves by looking down at other people. It’s about getting behavioral change. In that vein, the 557 examples of changes people have made as a result of reading this site are probably my biggest success.

I fully expect lots of commenters to brag about how you got out of debt by making hard choices (just as they annoyingly bragged about their inexpensive weddings in the comments of this post). That’s great. But I’m sick of those comments that tell people to “just spend less.” Not everyone can stop spending 30% of their money on going out, because a lot of people don’t have that extra money.

There’s nuance to these arguments that’s missed by idiots who blather about how we should all “make better choices” and “start being responsible.” Of course we should, and if you’re reading this blog, you’re already doing this. But there are details that are missed by such superficial statements.

Here’s what I suggest: Read the New York Times article. Then, read the 152 comments from other iwillteachyoutoberich readers about how they got into debt. That’s 67 pages of startlingly honest stories, most of them having to do with educational loans. Then, I would encourage you to carve out some time for two resources to understand some of the nuances of why many people — especially poor people — can’t get ahead. Here are two resources I fully recommend:

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Nickel and Dimed: On (Not) Getting By in America

Also, check out 30 Days of Working Minimum Wage, a video in which Morgan Spurlock (who brought you Super Size Me) and his girlfriend work minimum wage. Sure, it’s gimmicky, but it’s a truly eye-opening movie that provides insights on why it’s nearly impossible to get ahead if you’re earning a certain income.

I’d love to hear your comments.

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57 Comments

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  1. My parents wouldn’t let me get a credit card until I was out of college. By then, I had student loans out the wazoo and with no credit history, I was a bad candidate for credit cards. I had a secure card through my bank with a $500 limit, which moved to $1,000. That right there was too much for me to handle. I couldn’t pay it back when I was laid off – so I worked with my bank to close it and got put on a repayment plan. (I’m halfway through repayment.)

    It kinda sucks, but I’m glad I can’t get a credit card for now. I know I’m just not in the right place for it currently. I would spend, spend, spend on the idea that one day I’ll be making more than I am now, but want things (new computer, iPhone, clothes, blah blah blah) now.

    It’s tough to choose between a tune-up and oil change or a bag of groceries while watching smug people “save” by only going to Starbucks once a week while you chip away at your credit debt with the only $50 a month you have to yourself.

  2. I don’t really get the impression that you want to hear our comments, Ramit.

  3. Sorry if that’s what my post conveyed, but I am interested. What do you think?

  4. Thank you Ramit! That’s exactly how I feel when I read most PF Blogs! How can you save 30% of your income when 100% is dedicated to necessities for your family!

    However, we can’t sit around and feel sorry for ourselves… we must take action, whether that be getting a 2nd job, or whatever we need to do.

  5. Ramit, the NYT article goes out of its way to paint a sympathetic portrayal of this woman, and does a good job of that. But let’s not get carried away here. If she is emblematic of “why so many people can’t get ahead,” it isn’t much of a story. She’s not a nickel-and-dimed minimum wage earner who can barely afford food and shelter. She’s a middle-aged woman who, despite holding several middle-class jobs, simply failed to save any of her income and whose solution to soaring credit card bills was a series of ever-larger home equity loans. While a social safety net rightfully exists to help those like her in their time of need, we should be careful about drawing too many conclusions about the “stacked” nature of our system based on her example.

    Ramit writes: “Should we just stop spending so much? Of course we should, but that’s like saying we should all lose weight by making better choices. Easy to say, extremely difficult to do.”

    Having options, I guess you could say, is more challenging than not having them. I guess that’s Ramit’s point. Should the government limit the availability of credit? Should we return to the old ways of lending, where only the wealthy could borrow enough to buy their own homes? Or should we get rid of credit cards, forcing people to wait until their paychecks come in before they can buy the monthly groceries?

    Point is, many “average” Americans benefit from the easy availability of credit. If you take too many steps to limit Americans’ options, merely out of sympathy for those of us incapable of controlling their spending habits, you’ll end up screwing over an equally large number of people who use credit to their great advantage.

    Perhaps the solution is to focus less on bemoaning the present state of economic affairs (as is so popular amongst my over-educated, under-paid comrades), and more on educating those who want to be educated about how to play the financial game as it exists. It is not so “extremely difficult,” or else a 20-something recent college grad couldn’t have much to say on the subject. This isn’t Ph.D-level stuff, brother. A little effort goes a long way. Just because the subject of the article wasn’t willing to exert that bit of effort on her own behalf doesn’t mean you have to ruin things for everyone else.

    Suggesting that the economic deck is stacked against us implies that there’s some unseen hand out there conspiring against all of us “little guys.” That may be true in much of the world, including China and India. But in the U.S., the fact that so many “little guys” have learned to play the American system as it is and become “big guys” suggests that you may be overstating your case more than a bit. The fact that so many blogs exist to help average Americans improve their daily finances (and actually offer useful advice!) only reinforces the notion that it isn’t so hard to find out how to use the rules of the game to your advantage.

    If you really think the deck is stacked against most of us, then why bother even offering this advice?

  6. We are just greedy here in America. Until we get our “wants” in check with our NEEDS, this will never end. Honestly, I’m tired of hearing about the horror stories of debt, because it is easier to avoid then most believe. Just don’t borrow money unless you need to buy a house or go to school That’s it! Don’t go into debt over a car, a TV???, clothes, etc.

  7. In most cases people get stuck in these cycles of just putting money on the credit card. They rack up enough debt to put themselves in serious situations. When this happens it makes it increasingly more difficult to get yourself out of the situation. Credit cards make it so easy to lose track of how much you are spending because you don’t see how much you are spending until after you have done it.

    I know plenty of people like Diane and I would never make fun of somebody in such a terrible situation. I could only think of how easy it would be for me or anyone else in my situation to be in her shoes.

  8. On Nickel and Dimed –

    I understand why you recommend Ehrenreich’s book – her interviews and personal interactions with America’s working class definitely shed some light on “why so many people can’t get ahead.”

    I do remember, though, that her portrayals were a bit too stereotypical, something that the NY Times article certainly parallels. Gooch is spot on when he says to “be careful about drawing too many conclusions about the ‘stacked’ nature of our system based on her [Diane’s] example.”

  9. Hi Ramit – Sligthly off-topic, but here’s one aspect of this whole topic I still don’t understand: who is buying all these terrible loans and why? This article (and others) talk about how the viability of these loans don’t matter as much as they used to since the loans are bundled & sold off. I’m just not understanding who buys them & why they would buy a bunch of risky loans?

  10. When I read stories about this, I can’t help but feel exceptionally grateful for the example set by my parents as they raised me.

    As a family, we lived below our means. They bought a house they could “afford”, only drove used cars (paid in cash), BIG summer trips included the Zoo or amusement park, our video game was pong and we often frequented the 2nd hand stores in town.

    Only on occasion would my father comment that we had the money for that fancy new car or boat or > but he would ask me, ‘Why do we ‘need’ that??

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