Wednesday, June 11, 2008

The Great Seduction

This is the year, 2008, when I will finally pay off my credit cards. Ive said it in past years, but that was merely wishful thinking. This year, Im already halfway there and I can almost taste the end. Im really not sure how 5 figures of credit card debt happens. It certainly wasnt planned out. I have several friends that are in the exact same situation and they sure as hell dont know how they got there, and many of them dont have much of a plan to get out. All of these people are hard working, with good jobs, and if you met them and observed their lifestyles you would not think they are financially irresponsible.

But in NYC, where you need to be worth at least a million dollars to even take a whiff of owning a piece of property, almost everyone I know rents. There is no borrowing against your home to pay off debt like normal people who live in normal places do. Im sick when I think about how if I bought a nice piece of property 8-9 years ago when I started renting, it would be mostly paid off by now. But no, here in NYC you rent. You flush good money down the toilet on living expenses like it came out of a Monopoly box. You are paying $15-25,000+ a year just to have a roof over your head. Then, a pack of cigarretes costs $10, a half gallon of organic milk is $5, a burger is $8.50, a gallon of gas is now $4.50, a baseball ticket is $85, an ounce of the good stuff is $500, and if you pay under $1000 a month in rent you must be living in a closet with 3 roomates or under the subway. Its not quite London, but the cost of living here in NYC is very high.

I can see the light at the end of the tunnel finally, but how did I and many of my friends and a hundred million other Americans all get ourselves into this pickle? I think it has to do with shifting cultural and social values, and not much to do with economics. David Brooks summed it up very nicely in his Op Ed in The New York Times yesterday saying:

"The United States has been an affluent nation since its founding. But the country was, by and large, not corrupted by wealth. For centuries, it remained industrious, ambitious and frugal.

Over the past 30 years, much of that has been shredded. The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened."

Basically, David Brooks is saying that saving isnt cool anymore. Its not hip. Now, our motto is "spend em if you got em." Between 1989 and 2001, credit-card debt nearly tripled, soaring from $238 billion to $692 billion. Everyone started borrowing money that they could not immediately pay back, and the unravelling of our economy began. The current home mortgage lending crisis is just an extension of this phenomena. When you have $25,000 in debt you cant pay off, why not buy a home you cant afford also? We'll combine your high interest payments with the home loan. Heres the paperwork. Sign here, here, and here. Thank you very much. Do you need another credit card?

Sure, the top of the pile, the "haves," the people who make 6 figures and own homes they can afford and are invested in the market have done quite well. But the rest of us, "have nots," who dont have 401ks and financial planners live day to day, moment to moment, bill to bill, one credit card payment to the next. Well, a couple of years ago I decided I had enough of debt and living moment to moment with basically no savings. Of course, closing the doors of my music studio business was tough, but after a good run of a few years it was no longer making enough money to justify its existence, and my other business plans werent working out at all. So, I converted my studio into a poker room, and rented out the space for the off nights. I traded in my G35 for my old '98 Subaru, left my duplex in Williamsburg for a loft way out in Bushwick, and started selling stuff on ebay. I cant really say I have too many regrets. Its unfortunate that well laid plans dont always work out as expected, but you have to move on. I still get to play music here and there as I kept most of the instruments and sold off the recording gear, and a friend has a studio out in D.U.M.B.O. I can use for producing the ocassional recording. But as a full time business its pretty much done. Now, instead of hoping that a major label might pick up my latest production, I hope that Eddy tries to bluff me one more time. I dont have to tell you where I get better odds.

Also, Ive stopped using credit cards all together. They're just evil, and I figure that without health insurance (cost: $6000/year and Im never sick) it might be a good idea to have some wiggle room should something unexpected come up. Ive focused on new small business projects and seen everything start thriving - but Im not letting it get to my head this time. Everything I buy, I now pay for with my bank debit card. If I dont have the $2200 in my bank account for an uber-sweet X-Arcade MAME Machine, Im just gonna pass for now. But when those evil little pieces of plastic are fully paid off and Ive finally saved enough to feel comfortable, I think Im gonna have to find a spot in the poker room for an X-Arcade. Or two. You know, one with a vertical widescreen LCD for vert shmups like Radiant Silvergun, and another with a 4x3 CRT display for for side scrollers and fighting games like Street Fighter 2. I should probably put every penny in savings for a rainy day, but old habits die hard. And man I love arcade games.

I have to admit, I fell for The Great Seduction - in my case it was an endless stream of mail offers when I was broke at college. My first credit card was for $500. I think that lasted about 2 months before I got the limit raised. Where its at now, I cant even say as I havent opened the bills for quite some time. All I know is, now I give them that same intial $500 a month every month automatically from my bank account, and after a while the account should eventually go positive. Positive. Its an interesting concept, a positive credit card balance. Negative credit. Positive debt. Savings. I tried to imagine what that would be like, but Ive strained my brain and need to go lie down for a while.


umopapisdnpuaq said...

There's a degree of personal responsibility with credit card debt, but the extent they allow people to build up debt and still give them more credit is bordering on the criminal.

Some places have laws about serving alcohol to someone who is already clearly too drunk. Of course it's hard to tell where the line is exactly, but it's very clear when somebody is paralytic that maybe it's time to stop serving them.

Not when you can fleece them for all the money they have and most of what they may get in the future.

Having said that. I too only use a card which has enough funding already and have had negative (positive) balance on it quite often. It freaks them out, they send me a bill saying I'm in credit and I feel like writing them back and demanding they pay me in 30 days or else!

Laqueta said...

Interesting to know.