When Suzette Scarborough graduated from Cornell University in 1989, she had 19 different credit cards but was only $5,000 in debt. Immediately upon graduation, she landed a great job with Coopers & Lybrand, in New York, as a human resources professional and was living the life, or so she thought. She would frequently jet across the country with her sorority sisters to various conventions. Developing a taste for the finer things in life, she began to purchase Liz Claiborne suits and Coach bags from Lord & Taylor. She caught all of the Broadway shows, and would travel to different cities just to see Phyllis Hyman sing. Her credit card debt was rising steadily.
“I had the mind-set that I didn’t have to wait for what I wanted. I could have it now,” recalls Scarborough, 33, who resides in Brooklyn, New York. “By 1997, I was $32,000 in debt, including the $10,000 balance on my GEO Prism. I was making all of this money, but it was going to all of these banks.”
Scarborough is not alone. According to a Federal Reserve report for May 2000, total consumer debt-mortgages were not factored in-hit $1.45 trillion, up almost 10% from a year ago. The same source reports that credit card debt was $626 million in May 2000, up 8.9% over the previous month. According to Myvesta.org (formerly Debt Counselors of America), an online credit-counseling service (www.myvesta.org), for every dollar the American family earns, it spends $1.22. Family debt was $33,300 in 1998, up 42% from 1995. However, the average net income per family was only $27,219.
Determined not to remain a part of these statistics, Scarborough cut up her charge cards and began to track her balances, including how much she was paying off and how much she was accumulating. She read all of the finance articles she could get her hands on, started attending seminars, and began paying down her debt. By 1999, she owed $25,000. Later that year, she received a $26,500 severance package from her employer. This allowed her to pay off the remaining $22,000.
For many Americans, being debt free may seem like a pipe dream. But it is possible to live a debt-free life. Just know how to recognize the types of debt. In her book Debt-Proof Living: The Complete Guide to Living Financially Free (Broadman & Holman Publishers, $14.99), Mary Hunt cites the following “debt traps”: credit card accounts, monthly installment plans, overdraft protection plans, past taxes, student loans, medical and dental bills, and personal loans.
“People often find themselves getting into secured debt, such as mortgage and car loans, which they can sell to get out of debt,” says Hunt. “But the dangerous types are unsecured debts such as credit cards and signature loans.”
According to Michael Kidwell, co-founder of Myvesta.org, consumers have to recognize the warning signs of debt. Those clues may include always having to use credit cards when you make a purchase; only being able to make the minimum payment on cards; and going from using one