Americans are truly addicted to debt and borrowing. The definition of addiction is needing something so badly that it controls your rational thoughts. I think that accurately describes it. We love our credit cards and getting stuff now. We are Credit Crackheads!
Here are some statistics about our credit crack habit from Debt.org:
- More than 160 million Americans have credit cards, averaging 3, with over $15,000 of debt
- Total U.S. consumer debt is $11.4 Trillion, which includes mortgages, credit cards, car and student loans
Some people’s debt load is much worse than the average. These are people who are addicted to debt, or what I call Credit Crackheads. Are you one?
Here are five signs that you may need help:
1. You only make the minimum payment on your credit cards. This is a sure sign you are in over your head, and probably already addicted. Credit card companies, just like drug pushers, want you to keep coming back for more. So they allow you to pay a small minimum payment or even increase your credit limits. They’re payoff – more interest over a long period of time. If this is where you are with minimum payments, seek help immediately!
2. You often transfer balances from card to card. Credit card companies are always offering these addictive special rates and balance transfer offers. I will always counsel people to reduce their interest rates, but balance transfers should be about paying down the debt, not keeping it going. Pay attention to the Credit Crackhead hangover, it’s that 3% balance transfer fee!
3. You regularly extend loans. Loans are great for getting things that you cannot afford to pay for all at once. However, extending loans through refinancing to lower the payments for a longer period is really a bad addiction. This is the equivalent of extending the party without having to get back to reality.
4. You always take the max term on loans. It makes sense to borrow longer term for a car or mortgage to buy a home. I think it’s a bad idea however to borrow for 7 or 8 years on a car that is a depreciating asset! If you can’t pay for the car in say five years, then you really can’t afford it in the first place. When you extend loans longer, you will pay more interest and the purchase will cost you more. You might be a Credit Crackhead.
5. Borrowing beyond the life of a purchase. What I’m talking about here is borrowing for years to pay off that wide-screen TV or a vacation. You are definitely going down a dark path when you are paying for something like a vacation that lasted a week, and your payments extend for years. This just means you are living beyond your means.
You must kick your addiction to borrowing. Unfortunately, there are Credit Crackhead pushers in every store you walk in, and every online merchant you visit. Heck, Kroger and Wal-Mart have credit cards!
Keep this final fact in mind. We are in a low-interest rate environment currently. When rates do rise, and they will, the credit cards, student loans, and adjustable rates will rise along with them. Costing you far more than they do today.