Like many observers, I predicted that the major reforms in bankruptcy law in 2005 would make it difficult, if not impossible, for most consumers to walk away from their credit card debt.

Wrong.

The intent of the new law was to force consumers into debt restructuring and repayment, and not wanton and wholesale charge-offs…behavior exacerbated by prior experiments with bankruptcy reform legislation.

This was legislation long-sought, and openly bought and paid for by the powerful banking lobby.

But remember, the definition of legislative independence and integrity these days is when you can take their (lobbyists’) booze, money and women and still vote against them. Bankers fought tooth and nail for the new law for over a decade.

Well, the lawmakers finally ponied up, but consumers went on such a binge that bankruptcy filings are now higher than before the rules were tightened.

Never underestimate the sheer ingenuity of the American wage earner to get in way over their head. See the recent Wall Street Journal article, “Hi, My Name is Fred, and I’m Addicted to Credit Cards.” (6/10/08, page 1)

In our therapeutic culture, poor budgeting is now viewed as yet another in a long, long list of addictions, with its own 12-step program and group confessional ritual. Whatever works to fix this problem is fine by me.

For those intent on gaining control over their spending, here are some pertinent observations.

Budgeting Tips

1. You are an adult now. It’s high time you developed some impulse control. You must wait for red lights to turn green. It’s not up for a vote.
2. Amazingly, these self help groups are teaching debtors how to prepare meals at home. Good. I’ve been ranting to whoever listens that restaurant food is harmful not only to your budget, but to your health and proportional body weight.
3. You must learn to distinguish between a want and a need. If in doubt, call Mom or Dad. They’ve learned this lesson the hard way.
4. You can’t overspend, if you deduct every credit card purchase in your check register, as if it were actual cash spent, or a debit card expense. When the bill comes you’ll have the funds set aside.
5. View and pay your balance online. Credit Card issuers have stealthily shrunken the window between receipt of your bill and the payment due date to force late and over-limit fees.
6. Paying cash is a draconian solution, and if you are totally lacking in self discipline and control, this is always an option. But remember, no good deed ever goes unpunished. Because by virtuously paying cash or via debit card you are doing nothing to create or improve your credit score.

And by now you must know how easy it is to “overspend” your debit card. The merchants who accept debit cards will often reserve a much higher charge amount than your final bill, to ensure that the funds are not spent elsewhere before they are credited with their full reimbursement.

Keep That Credit Score High

You’d be amazed at the families who abhor debt, and are shocked to find they have no credit score as a result.

To get your next home mortgage at the rock bottom rate, you will need to show timely payment on both revolving and installment debt.

This means credit cards, college loans, your car loan. Regular, systematic repayment, with no skips and no lates and no bounced checks.

No exceptions to this iron rule.

Remember the timeless motto of “Faber College”…

Knowledge is good.

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Posted: 06|26|08 at 6:44 am. Filed under: budgeting, credit cards.
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