I was astonished to hear that she and her husband of 15 some odd years were getting a divorce. But the true shocker was yet to come; hang on to your hat or sit down if you need to. She began to tell a financial story that made me sick, and it was not even my debt. She explained how they had amassed 70+ thousand dollars of credit card debt, along with many other debts, and home refinances that they had run up together over the years. Yes, you heard me correct. And I had to ask three times to make sure I heard her right: 70+ thousand dollars in credit card debt. I wanted to slap her and yell at the top of my lungs “ARE YOU STUPID”, but the compassionate side of me just gave her a hug as she began to cry. As she sobbed she just keep saying, “he always told me we were fine. I had no idea we even had any credit card debt.”

She went on to explain how well they lived and how they had wanted for nothing. He was doing all the bills and responsible for taking care of the household money. They had been buying what they wanted, when they wanted, and taking very expensive vacations all on credit cards. Without her really understanding what was going on, they had refinanced the house a few times and even took out a second mortgage to consolidate the debt.

Debt encourages impulse buying and overspending. In a few studies from major credit card companies, consumers tend to spend on average 25 to 30 percent more when they charge than if they purchase with cash. This allows people immediate access to desired items, allowing them to pay for those items tomorrow; with interest. This makes the cost of the purchased item much more  than the initial price; which does not seem to bother people today as long as they can have what they want NOW!!!  I call this “Veruca Salt” Syndrome; I want I want I want it, NOW. Just put it on the plastic and then pay for it later, regardless of the interest or finance charges.

This results in the debtor’s future standard of living being lower, because money that is borrowed today must be repaid with interest over time. This drives the overall cost of the item up when you pay for it with interest over time. When you use debt, you presume that you will not have any pay reductions, no loss of job, or any unexpected expenses such as hospital bills. It seems that most people are in denial of what compounding interest does to the future cost of an item purchased on debt.

Let’s take a look at an example of how much you really pay for an item if you charge it.