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Yet another reason to pay off credit cards

The bad news: He got laid off. The good news: It happened AFTER he'd cleared his consumer debt.

By Donna_Freedman Sep 17, 2010 4:30PM

I feel very bad for Smithee, a staff writer for the Consumerism Commentary personal-finance blog. With no warning he was laid off from his job at a small Web design agency.

In a post called "Laid off, 2010 edition," Smithee wrote that the job loss was particularly frustrating because he had only recently -- and for the first time in his life -- managed to zero out his credit cards.

"I was just learning what it was like to walk around without worrying about paying all my bills on time," he lamented. "I was about to start seriously saving money and/or paying down loans faster than expected. I was going to be in a position to be more than a couple of months away from homelessness. I was stable, and I had plans."

Here's where I think Smithee errs in his thinking:

  • He can probably still pay all his bills on time, as long as he makes a serious effort not to add to them.
  • He probably can save money, if he's willing to work at it. It might be only a couple of dollars a week, but it's symbolic.
  • He is not likely to become homeless. His wife has a job, and he has filed for unemployment benefits. Even though it may not be much depending on where he lives, it's something.

Smithee is panicking. If I were laid off I'd be panicking, too. But at least he's out of debt. Not only does that free up some "minimum payment" dollars from the budget, it's a giant weight off his stunned shoulders.

A little here, a little there

I'm always surprised to find out how many people I know carry credit card balances and feel perfectly OK about it. That is to say, they don't make it a priority to pay it off once and for all.

They don't adjust their spending. They don't even pack their own lunches. Instead, they continue to shop for new clothes, upgrade tech toys, take vacations, meet friends for dinner several nights a week.

Or they spend in constant, smaller ways. Mindless spending can kite your credit card balances faster than you can say "latte factor." In a previous post, Smithee had admitted that "insidious '$5 here, $30 there' behavior" kept his balances creeping upward even as he embarked on a pay-down plan.

Understand: I'm not bashing Smithee. I truly hope that by the time he reads this he'll be gainfully employed once more.

I also hope he realizes that now that his consumer debt is gone, he needs to keep it gone -- especially if the unemployment lasts awhile.

'Weak moments'

In other words, no more $5 here/$30 there behavior. No more visits to Jack in the Box or Whataburger. No more iTunes downloads. No more weekend road trips to an out-of-town friend's birthday party.
Those were some of the expenses he mentioned in another post -- and all were incurred while he was carrying about $5,500 of debt. He explained it away with phrases like "weak moments" and "friendship isn't always logical."

I have the same weak moments. But I can afford them because I'm not in debt.

Yes, life is for living. But sometimes it just makes sense to scale back for a little while -- say, until you can pay cash or at least pay off the credit cards in full each month.

If you're carrying consumer debt while continuing to live the way you've always lived, put yourself in Smithee's place. He had no idea that a layoff was looming. What will you do if the first thing your supervisor says to you on Monday is "Clean out your desk"?

Here's one thing I bet you won't do: Feel happy to be carrying a credit card balance for meals you barely remember eating, clothes you rarely wear or technology that's now outdated.

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