The title almost sounds like it’s advisable to live within your credit limit, but it’s not. In fact, living within your credit limit is one of the worst ways you can live. Eventually, it catches up with you and can leave you financially devastated and homeless.
My first brush with credit limits was soon after college. I was so blue and depressed one day and one of my friends asked me “You know what you need?” I told her I didn’t know, perhaps I needed to get away, get a new life, maybe some therapy. She laughed and said “No! You need a JC Penney credit card!” Of all the things I thought she would reveal, this was not even on the list, but she persisted. “You can treat yourself to something nice! You can buy anything at JC Penney! Even shampoo!” I don’t know why this sounded so great to me at the time, but it did.
So I applied for one. When my shiny new card arrived in the mail a week later I took my student-loan-owing self down to my still-making-payments-on-it car and went to JC Penney to get myself a treat. I had a $700 limit and I knew this would buy me some kind of happy.
A few months later my helpful friend called me. Since her declaration of credit wonders to me, she had graduated from department store credit to the big daddy, Mastercard. After many late night spending sprees she lost her job and couldn’t make her payments anymore. The interest accruing was growing by leaps and bounds and she was heading into bankruptcy on a speeding bullet. She told me the worst thing she had ever done in her life was open a credit card. “Never do it!” she admonished.
It seemed she was now JC Penneyless.
Did I listen to my friend? No, I did not. I was bitten by the credit card bug and the itch to fill out those pretty applications was too hard to resist. By the time I reached 30 I had a wallet full of credit cards. I had one for everything from gasoline to catalogs. My wallet bulged more with plastic than it did with cash. I was living the dream!
I was also living within my credit limit.
“To live a financially responsible life means you’re living within your means. That is, you’re not spending more money than you make. For many people, it’s a lot easier said than done. Using credit cards and loans allows you to buy more things than your income will allow. That kind of lifestyle isn’t sustainable and, at some point, your debt will become too large to pay. When that happens, you’ll be forced to make some important changes or face financial ruin.”
I’ve watched many of my friends take the path of financial ruin. It’s not a pretty one. The beginning of the trip is pretty awesome though! I’ve seen this open road so many times that now I can drive you to the first pitfall with my eyes closed. Here are what the first few road signs say;
“I’m flying here and flying there! I’m at this resort! I’m at this spa!” And your friends are saying “Wow, you’re so awesome! You’re so cool! You’re my jet setting friends! I wish I had your life!”
“Look at my new dress, it’s ImSup Erexpensive Label! And check out the new shoes! Heels2High! And I got this for the hubbie! He looks so great in RUMental!” And your friends are saying “Wow! You both look awesome! I wish I had your life!”
Take the first exit…
“Look at my brand new car! Can you believe I got an Audit? The top comes down and it has all the bells and whistles!” And your friends are saying “Wow! You look awesome in your new auto! I wish I had your life!”
WATCH OUT FOR THAT ROADBLOCK!!!!
BOOM! Too late! You’re broke now.
My credit limit wake-up call came from an unexpected source, my husband.
One afternoon during our long engagement he sat me down to have The Talk with me. He said that he loved me very much and he wanted to buy a home with me and get married someday, but that could not happen until I got my spending under control. Ex-squeeze me? My spending was in control, I assured him. He shook his head and sighed. Then he asked to see my wallet. He pulled out credit card after credit card and laid them on the table. Then he asked to see my credit card bill. He pointed out one purchase after another. So? I worked hard! I deserved to spend my money! He sighed again. Then he told me that he knew I worked hard, but I spent my money on crap instead of saving it for important things, like a home together. He told me to make a list of every credit card I owned and the balance I carried on them. Then I needed to make a list of every loan I owed. When I had the lists made we could talk again.
He wanted to marry me, but he wasn’t crazy about marrying my debt.
It took me quite a while to make those lists. There was a lot of information to be put on them, but I was resistant to seeing how much information there needed to be on them. I didn’t really want to see how much I owed. I was afraid to see just how close to the edge of my credit limit I had dared step. And what if I slipped, just a little, and went over the edge? Would the fall kill me? Or would I wake up before I hit the bottom?
Did you know that even if you haven’t reached your credit limit on your card that the bank still sees your limit as your debt? That’s right! When you go for a loan, your credit limit is counted against you. Try buying a home when you have 20 or so credit cards. You’ll see what I mean.
It was a struggle, but I finished my lists. I was devastated, embarrassed, ashamed and I appeared broke. I had no savings except my 401K, and that’s supposed to be for my Golden Years. Even my 401K was lacking because I only put in the minimum amount. Well, I needed the money I made to pay my credit card bills. Oh, and I had much more than just bills from credit cards! I had a car payment and I still owed for student loans. Imagine being in your 30’s and still paying for college!
It was depressing to see my state of affairs.
My future husband picked through the lists, sighed heavily more than once, and then he laid down the new law. One, I was to whittle away at my stack of credit cards until I had only one. The one left should be a major card that I could put any of my purchases on. Two, he would help me pay off my student loan in one lump sum. Three, I was never to buy another car without checking with him first. Four, I had to limit my clothing purchases to a set amount each month. I was spending close to $2000 per month on clothes. That was way too much! Realistically, he told me, I should try not to buy any more new clothes for a long time. I had too many. Five, after we were married he wanted to take over handling all of our accounts. I was totally fine with that.
All of that happened almost 15 years ago.
Today I have 2 credit cards that I use. I travel a lot for work so they come in handy for that. My husband takes care of all of our finances and we have not carried a balance on a credit card in over 10 years. I still buy more clothes than I’ll ever wear, but I’m more frugal than I used to be. I found that I like saving my money for something special, like a home for the two of us.
If you’re living within your credit limit, it’s not too late to find your way out. Take inventory of your debt and find resources that can help you. If you don’t have a partner in life to help you get tidy, there are numerous agencies that do this kind of thing for free. Try the National Foundation for Credit Counseling to get started.
There are many reasons to start living within your own means. You are the only one that can figure out what those are.
My reason was love.
Good luck to you on your journey to financial freedom. May the roadblocks be few and the rewards be many!