If the economic mess was a disobedient child, at least one expert would recommend a spoonful of castor oil and a good old fashioned whack on the behind to set him straight.
“We need to get back to basic common sense,” said Louis Scatigna, Certified Financial Planner and national radio talk show host known as “The Financial Physician” “The economy is a mess, and there are two sides of the cause. Yes, the big banks and investment houses were lending money through high-risk products without an ounce of sense to the outcome. However, for them to be knee-deep in bad investments, they had to be selling them to someone. All those high-risk mortgage loans belong to people who were buying more house than they could afford and they knew it. All those people with high credit card debt weren’t having their arm twisted by the credit card companies. They were simply given the chance to live beyond their means and now they are paying for it.”
Scatigna, author of The Financial Physician: How to Cure Your Money Problems and Boost Your Financial Health (www.thefinancialphysician.com), recommends a back-to-basics approach for consumers to get through the rough patches on the road to recovery.
“To a certain extent, recovery is irrelevant,” he added. “A lot of these troubles would correct themselves if the average American just buckled down a bit more, and exercised some restraint and common sense.”
His tips for getting through include:
· Stop using the credit cards, sort of – The average American is carrying about $7,500 in revolving debt, and it’s only going to continue to grow if people don’t stop using their credit cards for things they don’t need. I call credit card debt cancer to the financial body; it’s the worst form of debt available and dangerous to your financial health. Now, some banks are starting to charge “inactivity fees” to people who don’t use their cards, and that’s only one of the rubs. If you have credit, and don’t use it, it may actually adversely affect your credit accounts and reduce your credit rating. The best thing to do is buy something small with your credit card once a month, or use your credit card for one grocery run each month, and then pay it off with the next billing cycle. That keeps your card active, and the regular use will reflect positively on your credit rating.
· Only spend what you have – If you don’t have it in your checking account, don’t spend it. Many households that can’t make ends meet get into trouble because they are spending their money on things they really don’t need. Make a budget and stick to it, even if it hurts a little for now. When your cash flow increases, you can relax the rules. Remember buy what you need, not what you want.
· Pay down your debt – When you have a little extra money to spend, don’t splurge. Use it to pay extra on your credit cards. In many cases, paying the minimum balance on your credit cards won’t reduce your debt by much. A simple $10,000 balance could take as long as 15 years to pay off if you stick to minimum payments. By the time you pay it off, you could actually spend double the amount of your debt because of increasing interest rates.
· Use cash when you can – The debit card can be deadly, because it is so easy to swipe it and forget it. Because some debit card transactions take days to clear, many people operate day to day without a clear picture of what they have in their checking accounts, leading to the surprise of being overdrawn. If you can track your debit card use closely, then do so. If not, drawing cash for specific purposes and sticking to those budget items is a low-tech way of keeping things straight. In the depression of the 1930s, many families used mason jars marked with their regular expenditures as a way of keeping track of their monthly budget. It’s not pretty, but it got many Americans through the worst depression in history.
“There are a great many of us who are in dire financial straits, and are already tightening the belt as far as it will go,” he said. “Many of those families are already doing the hard work of living within their means. However, many of us still cling to some of the bad habits that put us in the mess we’re in now. We need to learn better habits if we’re going to survive and boost our financial health”.