Could you go from struggling with credit card debt to being millionaire in one fell swoop? Believe it or not, the mechanism for getting mired in credit card debt and becoming a millionaire is the exact same—with just one small twist.
While a little more than half of card users follow the basic of credit card mantra and pay off their card in full each month, almost half carry a balance forward. And within this group, almost two out of five each year get so far in over their head in credit card debt that they end up walking away from it.
Ouch. Not just is it uncomfortable to get harassed by collections calls and possibly get taken to court to get one’s wages garnished, a credit history of unpaid debt can continue to hamper a person’s financial prospects for years to come.
No one, of course, sets out to get into credit card debt. For most, it just creeps up little by little over time. Anyone struggling with credit card debt might take heart in the fact that they are in famous—and infamous—company. A surprising number of celebrities bringing in tens of millions every year are underwater in credit card debt and other types of debt.
Here are some of the more noteworthy celeb excesses:
Lindsay Lohan –Enough already! We’ve all heard aplenty about the jail term and credit card debt disaster of Lindsey child-star-turned-femme-fatale Lohan. (How do credit card issuers let anyone get away with accumulating $600,000 in credit card debt anyway?)
Courtney Love—True or false? Did identity thieves take out American Express credit cards in Love’s name and then proceed to charge 352K to the cards? That mystery is for lawyers to work out. And rest assured, by the time it’s all over, the lawyers’ bill will be as high as Love’s credit card bills.
Tori Spelling—Being Hollywood royalty and the daughter of a billionaire didn’t prevent this former Beverly Hills 90210 star from accumulating hundreds of thousands in credit card debt while the show ran, avoiding bankruptcy by a hair before she finally wised up.
Teresa Giudice – Wasn’t so smart. This Real Housewife had to file for bankruptcy in June to get out of the unreal 104K in credit card debt and $11 million in other debt she and her husband managed to accumulate before their debtors caught up.
So what gives? How do people earning tens of millions one day find themselves so deeply mired in debt that they’re forced to file for bankruptcy the next?
No matter what the particular circumstances of each celeb, it all came down to the same thing: they spent more than they earned. Even as these girls were living it up in the fast lane, they were on a fast track to nowhere, for this simple little reason: they were keeping up a glitzy lifestyle beyond their means.
So, what does all this have to do with that Secret to Becoming a Millionaire we promised you in the opening to this piece? Well, the mechanism for becoming a millionaire is the exact same as for getting into credit card debt—just in reverse:
Earning lots of money isn’t the secret to becoming rich, spending less than you bring in, and stashing away the rest is. Here are a few tips to help you on your way:
• Live below your means: In their book, The Millionaire Next Door, Thomas Stanley and William Danko describe the habits of self-made millionaires. The most prominent characteristics of all? They were frugal to the point of being tightwads.
• Get your spouse involved: According to Stanley and Danko, most millionaires have wives who love to budget and plan.
• Forget about keeping up with the Jones: Pretending to be rich can be really expensive. According to Dr. Thomas Stanley, author of Stop Acting Rich, people who live in communities where their neighbors earn more money find it hard to build their net worth.
• Find your latte factor: Finding the small things you spend your money on every day and putting that money into savings instead can make the difference between accumulating credit card debt—or wealth, according to David Bach, author of Start Over, Finish Rich.
• Make a habit of investing: Millionaires on average invest almost 20 percent of their after-tax household income each year.