How Debt Makes Slaves Out of Consumers

Like millions of credit card users, Michael Mihalik didn't see it coming.

It started when he was in college. He didn't buy a lot of stuff, but he did charge a few things here and there - some meals, a few books, some clothes over the years - without realizing that meeting his minimum payments on his cards only paid the interest on his balance.

Mihalik, author of Debt is Slavery and 9 Other Things I Wish My Dad Had Taught Me About Money from October Mist Publishing (www.debtisslavery.com), started using credit cards when he was 18.
By the time he was 24, he discovered that credit card debt had crept up on him like a thief in the night, and he found himself so deeply in debt that he was working 50 hours each week just to service his minimum payments. Barely two years later, he had worked himself out of debt. Now, Mihalik wants everyone in debt trouble to learn from his experience, as well as how he got out of debt and how he is able to live comfortably today.

According to the federal government:

• Today's consumer has an average of 13 debt obligations on their credit report
• The total amount of debt owed by Americans is more than $2.5 trillion. $8,500 per person on average.
• 38% of the $2.5 trillion comes from credit card debt
• The average amount of credit card debt per card holder is $12,500
• 74.9% of families have credit cards and 58% of those carry a balance.

Debt has a dramatic impact on people's lives, and Mihalik was no exception.

"When I was trying to pay off my debt, I certainly felt like a slave to my credit cards," Mihalik said. "For more than a year, every penny I earned went to loan payments. I worked 50-plus hours a week and the beneficiary of my labor wasn't me but the banks and credit card companies. Then I discovered that before I could change how I handled my finances, I had to change the way I thought about money."

Once he changed his attitude, he realized his first step toward personal economic recovery was to stop accumulating debt.

"I came up with this idea when I realized that every time I spent money, I was spending the time it took me to earn that money," he said. "For example, let's say I make $10 an hour and I buy a leather jacket for $400. At $10 an hour, it takes me 40 hours to earn $400. Therefore, I just spent 40 hours of my life for that leather jacket. If I think of the price of the leather jacket to be 40 hours of my life instead of $400, I'd definitely think twice about the purchase. Will I get enough enjoyment out of the jacket to justify a week of my life working at a job I may not even like? And it's important to realize that time is more valuable than money. Time, once spent, can never be regained."

Mihalik's lesson is simple: You don't have to charge expensive items on you credit card to get into trouble. Unchecked spending - a few dinners, some clothes and maybe a short vacation - can result in balances you can never pay back on your existing cash flow. The result is that every hour you spend at work, you are actually working for the credit card companies, because they've spent your paycheck before it's cashed. That's how debt becomes slavery. You are now a slave to the bank, with your debt as the ball and chain that binds you."

"You can't get out of debt by simply changing the way you handle your money, or making a savings plan or hiring a credit counselor," he said. "In order for any tactic for getting out of debt to work, you must first change the way you regard money, and understand how to be its master, as opposed to allowing debt to master you."

Michael Mihalik is a successful mechanical engineer who got deep into debt during his college years. Michael has since refined his philosophy about money. He has created a set of ideas and rules for financial security that can be applied at any income level.