Mar 15, 2024
With the rising cost of essentials, it’s easy to assume most Americans would be scaling back on their spending.
However, in reality, consumption has barely slowed, leaving consumers plugging the gap between how much they earn and what they actually spend with borrowed capital.
Advertisement
Karis, a 33-year-old geographic information systems analyst from Waco, Texas embodies this trend. Before her recent raise, nearly 50% of her income was dedicated to rent. Now, it’s closer to 41% of $4,120 monthly take-home pay. However, that hasn’t stopped her from splurging online on clothes and makeup — made possible by multiple credit cards.
“[This] is one of the most insane things I've ever seen,” Caleb Hammer told her while reviewing her statements on a recent episode of his YouTube show Financial Audit. “Do not try to justify it because you know it’s bulls—. You did not need this many brand new pieces of clothes.”
Unfortunately, Karis isn’t alone in her bad habit. And untamed consumerism is pushing a growing number of Americans into a similar debt trap.
Consumer debt boom
American consumers added nearly $130 billion in credit card debt to their accounts in 2023. Overall, their credit card debt burden is now worth $1.13 trillion, according to the New York Federal Reserve’s latest Quarterly Report on Household Debt and Credit.
Nearly half (45%) of credit card users said they used their plastic more due to inflation, according to a recent survey by Debt.org, while 55% say a credit card helped them pay for a financial emergency. And a significant 35% say they’ve maxed out their credit card in recent years.
However, Karis seems to be using credit cards to fund unessential, non-emergency items such as clothes, weekly vapes, shoes, beauty products, eating out, lingerie and makeup. While this is clearly discretionary spending, Karis refuses to see it that way and justifies every item as necessary, a time-saver or essential for her work.
Given the fact that she works from home, Hammer is unconvinced by any of this. “I don’t think you know what essentials are,” he tells her.
In fairness to Karis, her compulsive behavior could be a sign of oniomania or a shopping addiction. Researchers estimate that approximately 5% of adults have some form of compulsive buying disorder. Although Karis denies having this disorder, her spending patterns have clearly put her in financial trouble.
Advertisement
In the previous month, Karis spent $2,115 on online shopping, more than her rent and nearly half (51%) of her monthly income. Her minimum monthly payments on all her debt is $768, according to Hammer’s estimates.
Fortunately, Hammer believes Karis has many levers at her disposal to shift her financial situation quickly.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Multi-pronged strategy
Hammer prescribes a four-step solution for Karis’ financial troubles.
The first step is to lower her rent payments. Karis shouldn’t be spending 41% of her income on rent and she doesn’t need to. She currently lives alone in a two-bedroom apartment because she believes she needs her remote office set up in one of the rooms. “I worked from home a lot and until I saved up enough money to purchase a place I never had more than just a room for myself,” Hammer tells her.
Being remote should also allow her to stop spending so much on clothes and makeup. “The insane thing about the clothes thing is that SHE WORKS FROM HOME,” says one of the comments on the video.
With these two simple changes, Karis can reduce her monthly expenses drastically. After that, Hammer encourages her to take up multiple jobs or gig work to boost her income and use either the avalanche or snowball methods for reducing debt over time.
The combination of lower rent, lower discretionary spending, debt repayment and more income could change Karis’ financial trajectory in a matter of months.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
