Credit cards can help in times of an emergency. They are also necessary to help build a credit history so that lenders can decide whether or not we are a good credit risk. However, credit cards could possibly become an addictive quick fix when we are feeling sad or distressed.
Personal finance author Beverly Harzog talks about her past addictive relationship with credit cards in the new book, “Confessions of a Credit Card Junkie”Â (Career Press; $15.99). BLACK ENTERPRISE sat down with the money expert for some advice on how to avoid her mistakes. Hereâ€™s part two of that interview.
BE: How would you define a credit card junkie?
HARZOG: A credit card junkie who has shopaholic tendencies will use their card to buy shoes that they donâ€™t need, because theyâ€™re feeling depressed. For me, there was an emotional component. Back in the ’80s, when I was new to the workforce, I felt like I needed â€śpower clothesâ€ť to be taken seriously. I spent money on all kinds of clothes and shoes, and power lunches, and going out for drinks. It was just way over the top. And once I got started, I couldnâ€™t stop because I was getting emotional payback. After a while, when I would get the bill, I wasnâ€™t shocked anymore. It almost felt normal to carry a balance.
And thatâ€™s really the danger of being a credit card junkie. Once you start carrying a balance, youâ€™re going to end up in debt. Youâ€™re going to start carrying a balance on another card and then another. A real junkie who is a shopaholic doesnâ€™t have the cash flow to cover purchases in a given month.
BE: How did you know that you were a credit card junkie? What was the turning point?
HARZOG: One night I was at a department store, and I was trying to buy some Ralph Lauren jeans, and my card got denied. This had been my very first card. It was a retail card, and it had been a symbol of freedom for me. I was very proud of having that card because it was my first one. I thought there was some mistake, so I called customer service to ask what was going on. The representative said they had to cut me off because I was over the limit and I wasnâ€™t paying my bills on time. That was my rock bottom moment; that was my turning point. I had even been avoiding the mail. So I started to go through all of my bills. I couldnâ€™t even make my minimum payments at this point. I had seven cards, and they were all maxed out. I didnâ€™t have the cash flow to cover it, so I made what payments I could, and I started working on a budget.
At the time, I was a CPA, so this is why I made such a connection with the movie,”Confessions of a Shopaholic”. This goes to show that you can be great at corporate finance and not have a clue about personal finance. You really have to make an effort to learn so that you can protect yourself. The more I learned, the more confident I felt; I didnâ€™t need to spend anymore. I got empowered from the knowledge.
After a while, I didnâ€™t want to be a CPA anymore; I wanted to write about personal finance and credit. Once I transitioned to journalism, I could see there was a real craving for knowledge.
BE: What would you say was your biggest credit mistake of all time?
HARZOG: I think the dumbest thing I bought with my credit card was a cruise to Mexico. I had about 10 cents in my bank account, but I thought I needed a vacation. It took me a long time to pay that trip off. Another mistake I made was that I didnâ€™t pay my bills on time.
BE: What advice would you give to someone who is a recovering credit card junkie?
HARZOG: If youâ€™re still in recovery, stay away from the cards until you know youâ€™re capable of not carrying a balance. Also track your spending and stick to a budget.