Are You Ready for 2020?

Lately, I’ve been skipping Page One and heading straight to the editorial pages, where I’ve been stopping more frequently in an effort to make sense of the day’s news.

Was The New York Times making a case for credit card debt?

“Put the Next Recession on Your Card,” read the headline, but it was the graphic that got my immediate attention. Eight desperate consumers were barely hanging on to a zagged arrow that keeps ticking upwards. They were just about ready to lose their balance and fall. Only one lone figure wasn’t at risk of falling; in fact, his feet were steady, and his arms pumped ahead energetically, as he strode ahead. He was clearly able to manage the rocketing rise in interest rates indicated by the arrow.

As I studied the graphic more closely, I realized that he represents the wealthiest 10% of Americans who are profiting from the recent tax cuts legislation. These lucky few are not only unfazed by what’s going to happen by 2020 but, like the sole striver in the graphic, are going to profit over the next 18 months.

If you haven’t been paying attention, the Federal Reserve, the nation’s bank, has been steadily raising the federal funds rate, the rate at which banks and other financial institutions borrow money.  Currently, that rate is 1.9%, but it’s projected to increase to 3.4% by the end of 2020.

That means that the money you and I borrow over the next 18 months—for a mortgage, a car loan, and a revolving credit card—is going to cost more. “The Fed is picking our pockets because, to prevent the economy from overheating, it is legally required to keep inflation in check by raising rates,” the writer explained.

Is that fair? Of course not, but don’t focus on that headline. Start focusing on another story that has yet to come into view:

Your own story, of how you’re going to pay off your credit card debt.

Are you among those U.S. cardholders who carry a balance from month to month? You’ve got a lot of company: Two out of every three cardholders has an average balance of $5,700.

Have you ever thought about what it costs to pay the minimum? Up to 15 years. Yes, seriously. I just used the credit card calculators available from creditcards.com and bankrate.com. Keep paying the minimum payment, which is typically 3% of your balance, and you’ll eventually pay back close to $3,800 in interest.

As of July 2, when this editorial appeared, Chase was adding 11.74% to 20.49% to the prime rate, which nudges the rate to the brink of 30% (29.99%). Those rates are already high, but, over the next 18 months, they’ll be in the nosebleed zone when the prime rate hits 3.4%.

Financial reality is always a shock to absorb. Years ago, I thought I could use credit cards to stretch my budget, until I realized that I couldn’t pay the balance when the bill came due. I was living in New York City’s SoHo neighborhood, in a third-floor walkup studio that cost two-thirds of my monthly income to pay my mortgage. I had moved there in May 1987—six months before the stock market’s “Black October” cut the value of stocks and, subsequently, my 350-square-foot studio in half.

Then other factors piled on, as they inevitably do: I couldn’t refinance the adjustable rate on my mortgage, because New York’s co-op rules require that 50% of a co-op’s units have to be individually owned and occupied. The landlords who converted the building from rentals to co-op apartments had held onto 32 units out of the 60. For 12 of the 17 years I lived there, I paid interest rates averaging 10% to 12% on my mortgage after the end of the adjustable rate period.

I worked every freelance job I could, in addition to my day job, and, when all else failed, I tried to have a sense of humor about it: Just think of the exercise you’re getting, I told myself, as I skipped a subway ride and walked the 30 or so blocks back home before heading up those stairs.

My point is, there’s always something you can do. Pay attention now to the cold, hard facts laid out in The Times’ editorial and make a plan to get out of debt. You have 18 months to write a new headline for yourself.

So here are my questions to you this morning. Do you carry a balance on your credit card, or cards, from month to month? What is your plan for paying down your debt?

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