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Have we become a nation of debt junkies? That's a harsh word but if you look at the average American’s debt load, you have to wonder if the answer to this question isn’t yes, we’ve become addicted to borrowing.
Proof that this may be true
Here are a couple of facts that support this answer. First in the 67 years since the end of World War II, the outstanding amount of consumer credit has decreased in just two of those years. Second, if you adjust the numbers for inflation, outstanding US consumer credit has increased by more than 3000% in that same period.
The signs that you may be debt addicted.
There are five signs that you might be a debt junkie. The first is do your regularly make just the minimum payment on your credit cards?. In fact your entire business model is built around people like you who make only the minimum monthly payments. These payments are in fact design to keep you borrowing for as long as possible so that you end up paying the maximum amount of interest. In other words, if you think you're doing a good job of managing your credit card debts because you regularly make the minimum monthly payments, you're kidding yourself.
Do you regularly roll over your loans
Using a loan as a temporary financial measure can be okay. But if getting loans becomes a permanent part of your lifestyle, the odds are that you'll never be able to save any money.
Are you taking the maximum term on your loans
When you take out a loan, you're generally given a choice of how long you will take to repay it. If you take the longest possible term, it will make your monthly payments lower but it also means you'll pay a lot more interest over the life of the loan.
Borrowing beyond the practical life of an item
If you borrow money to buy a home or a car, this generally makes sense. In fact, some financial experts call this "good" debt in comparison with bad debt. The reason for this is that you're borrowing money to buy assets that will have a very long lifespan. So, it makes sense to take many years to pay them off. But if you find that you're borrowing money for things that have a very short lifespan, such as a big-screen TV or a 10-day vacation, you may be creating a lifestyle you can't sustain.
Do you think you're really good at juggling your credit card balances?
The credit card networks are currently offering 0% interest balance transfer cards. While this can be a good strategy for paying down your debt, you must be careful that you don’t use a transfer to sustain debt. You also have to watch out for balance transfer fees and, if at all possible, pay off your balance before your interest-free introductory period expires.
Historically low interest rates
One factor that has compounded the problem and cause people to become even more addicted to debt is today's historically low interest rates. While borrowing money now might make some sense it's important to make sure you're not creating a lifestyle that you will no longer be able to afford when interest rates increase to their normal levels, which is bound to eventually happen.
Break the cycle
You've probably run into the old, "you may be a redneck if…" Well, you may be a debt addict if … you found yourself answering yes to three or more of these questions. When this is the case, it's important that you get to work, break the cycle and start paying off your debts before they spin completely out of control.