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It’s all Greek to Americans with credit card debt

For national politics, most Americans profess a strong belief in conservative values - tight controls on spending and avoiding deficits at all costs.

In a recent edition, Fortune magazine humorously pointed out, in our personal lives, however, too many Americans operate like Greece, a country making headlines for its near insolvency with excessive spending. When it comes to household spending, the majority of Americans are free-spending liberals.

In fact, Fortune found that if you compared Greek debt, earnings (GDP) and amount of income required to service interest with the average American’s financial condition, the foreign country was in better shape. (Now as a disclaimer, Greek’s debt is held with a phenomenally low 2.6 percent interest rate. And much of the American family debt is in mortgages, which is a productive use of borrowed money.)

But if world bankers were gathered around the dinner table with an American family, when they started looking at credit card statements, austerity programs would quickly come up. As Fortune noted, the nation of Greece has all sorts of negotiating power for bailouts that the rest of us do not. You are not likely to see this headline ever - Jasper Family announces default if bank bailout not extended.

The comparison of family debt to Greece is a clever way to highlight the problem that  too many Americans live beyond their means courtesy of  plastic cards. 

According to Federal Reserve figures, the average American has around $10,470 in credit card debt. However, as the Consolidated Credit website showed, this figure drastically underrepresents the situation as it bases the average on all Americans. If it is refigured using only the 53 percent of Americans  who have credit cards (average 3-4 cards each) then the debt is actually $15,799 per American credit card user.

Online estimates of the average credit card interest rates vary between 12 and 17 percent. Even with the lowest rate, you see a lot of family income going to pay monthly credit card bills and related interest – a use of money as productive as buying scratch off tickets.

Economists have long argued that consumers make better decisions when using cash over credit. With cash you see when your money is running out and bypass non-essential purchases. With a credit card: It’s buy now and worry later about how much of your salary just went for the new shoes or fishing rod.

A German government official recently provoked a backlash by suggesting that if Germans were encouraged to use credit cards, their consumer economy would improve, knowing what retailers have long realized, people buy more with credit cards. Average Germans responded that they like the control of cash and didn’t want anyone pushing them to run up debt.

In America, we use credit cards for 50 percent of our purchases, according to an article in the July 17 edition of USA Today. And this is increasing with the ease of swiping cards most anywhere and online purchases. No one need urge us to whip out the plastic here.

What we need is some urging to stick with cash and to be aware that the ease of using plastic makes us less responsible – in essence we become the liberal spenders noted at the start of this piece.

Finally, back to our average American with his $10,000 plus in credit card debt. Consider this for your budget, if you are that person and pay only the minimum every month, it will take you a little over a decade to pay it off and you would spend slightly more in interest than you did for the goods purchased.

A purchase that takes less than a minute to make could have you paying for years. Just because credit cards are easy and convenient doesn’t mean you should use them whenever something catches your eye.