5 Signs You’re A Borrowing Junkie

Richard Barrington, Contributor
Is addiction too strong a word for America’s dependence on debt?
Given that addiction means needing something so powerfully that it
overwhelms rational thought, the description fits the borrowing habits
of many Americans too well.Here are some facts about this borrowing
addiction:
  • In the 67 calendar years since World War II, U.S. consumer credit outstanding has decreased for just two years.
  • Adjusted for inflation, U.S. consumer credit outstanding has increased by more than 3,000% during that period.
  • This total debt now stands at about $2.8 trillion, or $11,547.51 for every adult in the United States.

 

    That debt burden is often much worse than the average because some
    Americans take on a disproportionate share of the total debt. These are
    the people who may be addicted to debt. Are you one of them? Here are five signs you might be:
1. You regularly make only the minimum payment on your credit cards. Credit
card companies allow their customers to make monthly payments that are
only a small percentage of the debt outstanding. They’re not doing it to
be nice. Minimum payment amounts are designed to keep you borrowing
money for as long as possible, so you pay the maximum amount of
interest. If you think you are managing your credit card debt well
simply because you routinely make the minimum payments, you are fooling
yourself.

2. You consider yourself skilled at juggling your credit card balances. Credit
card companies facilitate this behavior by offering special rates on
balance transfers. However, while reducing the interest you pay is a
good move, balance transfers
should be part of a strategy to pay down debt, not sustain it. It may
be an especially false economy if you don’t watch out for balance
transfer fees.

3. You are regularly rolling over loans. Loans are
fine as temporary financial measures, but if borrowing becomes a
permanent staple of your lifestyle, you’ll never get around to saving
any money.

4. You always take the maximum term on loans. Consumers
are typically presented with a choice of how long a loan’s repayment
term will be. Taking the longest term available may make your monthly
payment lower, but it also means you will pay more interest over the
life of the loan. Opting for shorter-term loans can help keep your
borrowing in check.

5. You borrow beyond the useful life of a purchase. Borrowing for a mortgage
or a car generally makes sense because these are assets you will get to
use for many years to come, so it makes sense to also take years to pay
them off. However, the more you find yourself borrowing for things like
vacations or consumer electronics that don’t have such a long lifespan,
the more you are building an unsustainable lifestyle.

To a large extent, historically low interest rates have encouraged
people to become more addicted to borrowing. Ironically though, those
same low interest rates
make this an especially dangerous time to expand your borrowing habit —
it can mean that you are building a borrowing-dependent lifestyle that
you won’t be able to afford when rates rise to more normal levels.

As with any addiction, it is usually better to quit over-borrowing of
your own accord, rather than wait for circumstances to force you to go
cold turkey.