More and more Americans are using credit cards. The numbers go up every year. Right now 79% of all Americans have a credit card and most have three or more. This is amazing when you consider that credit cards have only been around for about forty years. This means that a lot of our parents did not have credit cards and most of our grandparents did not, but America has changed a lot over the past forty years. Most people are afraid to carry cash, so they carry their credit cards instead. They know that if a credit card is stolen, they can call the company and have it canceled immediately. They know that if fraudulent charges are made, they can report them to their credit card company and they will not be held responsible for them. If used properly, credit cards are wonderful things.

Getting into Debt

If you pay your balance off on a monthly basis, then charging purchases on a credit card is the same as paying cash. If you carry a balance over from one month to the next then you are getting into debt. Only 29% of all card holders pay their balances off on a monthly basis, so 71% of all card holders are in debt. Financial experts evaluate an individual’s financial “health” by creating a ratio or percentage that shows the relationship between credit card debt and total debt. Percentages are a little easier for most people to understand. If you owe $100,000 on your home and you have $5000 in credit card debt, then the experts would say that you are fairly healthy financially. Your credit card debts amount to less than 10% of your total debt and while it would be wise to pay that credit card debt down to avoid paying interest; you are not in financial trouble, yet. If you continue charging purchases on that credit card and only making minimum monthly payments, until you have say $10,000 in credit card debt while continuing to make your mortgage payments so you owe say $90,000 on your home, then you are getting into trouble. Financial experts recommend that your credit card debt should not be more than 10% of your total debt. If you get up to 20%, you are getting into real financial trouble and may want to get some credit counseling.

Instant Gratification

Until recently most Americans “saved up” for large purchases, holidays and vacations. Now, according to the Federal Reserves Survey of Consumer Finances, most Americans think it is “okay” to go into debt for these items. Vacations for example; everyone wants one, feels they deserve one and most people pay for them with credit cards. The average American vacation costs $2700. A cardholder who makes only the minimum monthly payment (7% of all cardholders according to a recent survey) will spend 16.5 years paying for that vacation and it will cost him an additional $2200 in interest. If he had waited until the following year and saved a little more than $200 per month, he could have paid for his vacation without going into debt. Because most of us do not do this, experts are beginning to call us an “instant gratification society”. You see it really does not matter how much cash we spend or how much we charge on our credit cards, the real problem is debt.