Avoiding Consumer Credit:
For the Sake of Your Life

Avoiding consumer credit is probably the single best thing you can do for your financial health. I would go so far as to say that avoiding consumer credit is good for your financial health, but good for your mental and emotional health, happiness, marriage, and other relationships.

"Compound Interest is the eighth wonder of the world. He who understands it earns it, he who doesn't pays it." 

- Albert Einstein 

We become lawyers so that we can live the good life, have disposable income, and help create a thriving future for ourselves and our children.

The problem for us is that using consumer credit is the direct route to being clobbered by compounding interest. The single most powerful thing a person can do to secure their financial future is avoid the problem of compound interest working against us. 

Avoiding Consumer Credit:  Don't Use It.  Ever.

What is consumer credit?  It is when you borrow money to buy stuff. Examples are:

  • Leases for cars
  • Car Loans
  • "Don't make payments until next year" credit arrangements
  • Carrying a balance on your credit card of any sort
  • Paying for furniture in installments
  • Buying your computer by making payments

From the time we are in law school, there is overt and covert pressure on us (and all of our society) to spend money we do not yet have. 

Think about how sexy and promising these slogans are that have been used by American Express:  

  • My life. My card
  • Long Live Dreams
  • American Express, Do More; Make Life Rewarding
  • Don’t Leave Home Without It

And Visa:  

  • Visa. Love every day
  • Visa. All it takes
  • Visa. All you need
  • It's Everywhere You Want To Be
  • Wherever it takes you, the future takes Vis
  • Could be cheap. Could be expensive. Visa. All you need.

And Mastercard: 

  • There are some things money can’t buy.  For everything else there is Mastercard.

If we want to buy something and do not have the money on hand to pay for it, we cannot afford it. It is that plain and simple. There is no other way of describing the situation. The point is that we should save the money first before buying it. That is what avoiding consumer credit is about.

We cannot afford it if we want to live a life unencumbered by financial stress.

Consumer credit slogans and advertising promise us not only immediate gratification in terms of the consumer product or experience we are buying, but they promise us a lifestyle of excitement, satisfaction, love, and happiness.  The irony is, of course, that if we follow these sexy and tempting advertising suggestions, we get the opposite, a lifestyle of crushing debt and obligations.  The only way to stay away from this endless cycle is avoiding consumer credit.

We all know that consumer credit card debt and loans can load us up with many little payments that can become overwhelming.  I have been there and am continuing to clean up the consumer mess I have created. I sincerely wish someone had sat me down and talked to me about avoiding consumer credit at the beginning of my working life. 

I not only over-extended myself financially, but I have spent inordinate amounts of time making payments, organizing payments, and keeping it all straight. I also spend time earning money to pay down this debt I unnecessarily created.  All of this has been crushingly stressful and has, at times, caused me to feel huge misery. If I had seen avoiding consumer credit as an option (and it is an option), I would have made very different choices. 

The thing is, by avoiding consumer credit, we will also buy less stuff.  When we buy something and have the money to buy it in our bank account before purchasing, we way less likely to buy stuff unless we can afford it. This results in less consumer spending, and less junk and clutter in our homes.

Using consumer credit:  An example:

For example, I want a MacBook Pro. I just looked it up online.  It says that in order for me to buy that, I will have to pay $2,799 plus tax totaling $3,134.88. 

The thing is, I don’t have that kind of money lying around and certainly not that amount of money that I want to spend at the moment.  I look at what it would take to make that same purchase if I use a credit card. 

But they have this great offer.  The website says that I can buy this same product for 12 easy payments interest-free!  I gave them a call.  They told me how it works.   In essence, for an administration of $69.99 I can make 12 easy payments of $267.10.  Now, we can agree that $267.10 per month for 12 months is easier to come up with $3,134.88 in one shot. But what about that administration fee of $69.99?! Okay, sure...I am not paying "interest," but is there a difference? That's an extra $70 I'm throwing away so that I can have this thing I want and can't afford and have it NOW.

Multiply those kinds of purchases throughout the many areas of  our lives and they can add up quickly.  This is particularly the case if we have a car payment, furniture payment, and now a computer payment.  Heck, we can even finance our vacations this way.  This analysis does not even take into account the credit card balance you may be carrying.  

This kind of spending is actively encouraged by big and small businesses and is the basis of a huge part of our economy.  This consumer spending feeds our economy. It keeps us tied to our jobs and tied to our ever-increasing payments.  

See how happiness and money relate to one another?  As long as we continue to mortgage and loan out our future income - resulting in us being bound to an ever required increasing amount of income to sustain us, true happiness will elude us. Avoiding consumer credit keeps us away from this cycle.

I suggest that we opt out of this never-ending cycle of consumer debt accumulation and payments.  Doing this will result in living our lives with a ton of reduced stress.  

A Word About The Mortgage On Our Home:

Is the mortgage on our home is different than other forms of consumer credit? We all have to live somewhere don't we?

There are endless debates about this fact. 

This is my thought. Your home (and the mortgage associated with it) is not an investment. Do not let anyone tell you otherwise. It is a debt. An investment is something that makes money for you. So, unless you have your real estate rented out for a positive cash flow for your bank account, your home is not an investment, but a debt and a consumer debt at that.

For some of us, it is worth it. I know I totally love the home I live in, and it costs more by way of my mortgage payment, property taxes and insurance than it would cost to rent it. I know this, and I have decided it is worth it to me. Of course, I hope that in another 15 years or so, the mortgage payments will be at an end, and I can live rent and mortgage free for the rest of my life. 

It is important for us to recognize our mortgage for what it is. If we pay more for ownership of our homes than we would to rent, our home is not an investment. 

We hope to have the mortgage paid off one day, so we live rent-free for the rest of our lives. Is that, however, what happens? Most people do not live to see their mortgages paid off.

Written by Val Hemminger, divorce lawyer and owner of Hemminger Law Group Westshore Law Corporation.

Val has created this website to share with her colleagues. She is not suggesting, by any means, that she is the best divorce lawyer out there. She is, however, suggesting that she is the best divorce lawyer that she herself can be. Feel free to share anything you find useful.