How serious are your debt problems? The spectrum of possibilities ranges from negligible to severe. The fact that you bought this book indicates that debt is something you are concerned about. As you read this chapter and review the most common signs of debt problems, consider that the more signs that apply to you, the more serious your situation is.
Where Have All the Dollars Gone?
The first sign that debt is becoming more of an issue in your life than it should be is the incredible shrinking bank balance. Although you make enough to pay your regular bills, more and more of your monthly income goes toward servicing your rising debt. It gets to a point where money is tight, and you feel like you are choking because there is never enough money. Unfortunately, this situation creates a negative domino effect upon the rest of your financial life.
But I Still Have Room on My Card
The first to fall is the credit card domino. Your lack of funds causes you to begin to take cash advances to pay your minimum balances or basic living expenses. You know that your gold card still has about $5,000 left on it, so you begin to use it to live on. Or, even worse, you begin to accept all of those credit card offers that come in the mail, and before you know it, you have 10 open credit cards.
You take out $100 here and $500 there. "No big deal," you think. After all, you are used to paying off your cards, or at least paying enough that the debt has not, so far, seemed burdensome. You begin to rationalize. You tell yourself that you're just in a temporary cash crunch, that this is why credit cards were invented. Feeling better, you take out another $500.
Money Talks
When you use your credit cards to withdraw cash, extra fees kick in. Cash advances carry an upfront fee of up to 4 percent of the amount advanced. There is a higher interest charge for cash advances than regular card charges, and many issuers also require you to pay down the balances for purchases before you pay down the higher-interest cash advance balance. Finally, cash advances carry no grace period; interest charges begin to mount as soon as the ATM spits out the money.
The Balance Transfer Shuffle
"Not to worry," you tell your spouse or yourself. You have a plan. These stupid credit cards can't outfox you. You will just transfer your balances from the card with the high balance or the high interest rate to a different card. You are smarter than the credit card companies.
Not only do you transfer balances, but you start to use those convenient checks the credit card companies are always sending you. You begin to pay one card with another card. In the meantime, not wanting to upset your precarious financial balance, you begin to use your cards more to pay for everyday things such as food.
The bills grow. Whereas you used to be able to pay more than the minimum, now the minimum is more than you can pay. In an effort to conserve your rapidly dwindling cash reserves, you decide you have no choice but to save money-by using your credit cards more!
Money Talks
Debt got you down? Consider these rules penned by Thomas Jefferson: 1. Never put off till tomorrow what you can do today. 2. Never trouble another for what you can do yourself. 3. Never spend your money before you have it. 4. Never buy what you do not want because it is cheap; it will never be dear to you. 5. Pride costs us more than hunger, thirst, and cold. 6. Never repent of having eaten too little. 7. Nothing is troublesome that we do willingly. 8. Don't let the evils which have never happened cost you pain. 9. Always take things by their smooth handle. 10. When angry, count to 10 before you speak; if very angry, count to 100.
Relief is in sight. Using your cards more and not spending your precious cash to pay off these credit card balances gives you a (false) sense of security. Your money situation is not that bad. For a few months, things seem back to normal. Anyway, those tiny classified ads you are going to start running all over the country are going to make you rich, and then you will pay off all of your cards, and this situation will be something to laugh about in five years.
Then the card with the low interest rate jacks up your rate to 18.9 percent. You have a $10,000 balance on that card! It's OK. Stay cool. You still have two more cards with room on them. All the while, you are getting deeper and deeper in debt.
What do you do? Eureka, you have a solution! You can apply for more cards, get some more low "teaser" rates, and transfer some more balances. So you do, and so it goes. Sound familiar?
Dog Logic
Soon, the mailman becomes your enemy; all he brings is bad news. Maybe you're not smarter than the credit card companies after all. Every bill you get from them now is shocking. You can't afford to pay them. So you start to only pay some of the bills on time.
Paying some of the cards late frees up some cash, but now you are incurring late fees and extra finance charges because of your ever-increasing poor bill-paying habits. The problem is, you are so far in over your head that all of your bills begin to look like messages from the enemy. Soon, you start to create a pile of unopened bills.
In order to make it through until payday (if only that little ad had generated some phone calls!), you start to pay your other bills late. Late fees pile up on late fees. You begin to get threatening letters from your creditors. Soon, you get letters from collection agencies.
Finally, you become a juggler in a three-ring circus of your own making. The cable is about to get turned off, "I'll run down and pay it today!" "Yes, I know, I understand I am behind; I'll drop a check in the mail tomorrow." "Maybe," you think to yourself, "they won't get it until next week, and it won't hit my bank until next Friday." That's the ticket!
The small brushfire that began back home is beginning to burn out of control. The next indication that things are getting out of hand financially relates to your bank accounts.
Bye-Bye Savings
You might have entered this period proud of the fact that you had some money in the bank. Maybe you were saving for a rainy day or maybe for a special trip that you wanted to take.
Money Talks
Fee-mania is all the rage at banks. According to Ed Mierzwinski, consumer director of the U.S. Public Interest Research Group, customers are charged a fee for almost everything now. There are fees for opening an account, moving cash from one account to another, for not using your account enough (inactive account fees), missing a signature, inquiring about your balance, and depositing a bad check. In a final attempt to gouge you, banks have now started to charge you for closing your accoun
Sadly, by this point, your savings are probably long gone. Despite the penalties, your IRA or 401(k) have probably been raided, too. Equally bad, your previous valiant efforts to do the right thing and consistently save some money have probably gone by the wayside as well. With money as tight as it is, you don't see how you can afford to begin to save some money again. Your pride is hurt, and your ego is wounded. You might begin to feel depressed over the sad state of your financial affairs. That rainy day has come.
What's My Balance?
Your checking account is in even worse shape. Maybe you've gotten into the habit of bouncing a couple of checks here and there. More likely, you have figured out how to just skate by.
It could be that you go to pay the phone bill at the last possible moment on Friday afternoon, knowing that the check won't get to your bank until probably Tuesday of the next week (but hopefully Wednesday!). That will work, because you get paid next Wednesday. Even if the check doesn't clear the first time, the phone company always puts a bounced check through a second time, so it will only cost you a $25 bounced check fee to keep your phone for another month.
Maybe you do what Tom does. When things get really bad, he pays the bills on time, but "accidentally" puts the check for the phone company in the Visa envelope and vice versa. By the time the mix-up is fixed, two weeks have gone by, and he's gotten paid again.
He fixes the problem and makes it through another month.
Or, like Jessica, you just stop balancing your checkbook altogether. What's the point? After all, when you go to the ATM, you check your balance! Jessica can't bear to figure out how much she owes to whom and refuses to keep track of her ATM withdrawals, so she just continues to write checks and take out money, keeping a rough balance in her head and hoping that it will be all right. This is the next signpost on a debt-end road: evading, avoiding, and ignoring the truth of the situation.
How to reduce your ATM charges:
1. Keep your checking account at a bank that doesn't charge you for using its ATM machines.
2. Don't use an ATM machine belonging to an institution where you don't bank.
3. Consider using a credit union. Its ATM fees are usually lower.
4. If you use an ATM regularly, withdraw larger amounts of money to reduce the number of times you are charged a fee.
5. Avoid ATMs that surcharge.
6. Use a teller instead of an ATM, especially when lines at the bank ATM are long. Be certain, however, that you won't be charged a teller fee!
End of the Line
Creditors are now starting to close your accounts. Credit card companies, once your good friends, want nothing to do with you. Your accounts have been assigned to collection agencies. Sadly, they do want to talk to you. You stop answering the phone. You get caller ID. Finally, you change your phone number, get an unlisted number, and give it out only to your friends.
At this point, you have a chronic debt problem. You know it, too, but you would rather ignore the problem or explain it away:
1.?You are concerned only about today. Although your debt problems are now constant, and every month is as bad as the month before, your only concern is this month. Getting the rent paid, paying back dad, and keeping the heat on are your concerns. The fact that you have the tax bill or insurance payment due next month is of no concern to you today. You will solve that crisis when you get to it.
2.?You have lost track of how much you owe. You don't even bother to look at the balances on the statements you get; you can't pay them anyway. If you do have any credit cards left, you don't care what the interest rate is; all you know about your cards is how much room you have on any one of them with which to charge.
3.?You have become the king or queen of rationalizations. You refuse to take a good hard look at your financial affairs and instead have reasons for why things are the way they are. "The divorce killed me." "I'm too busy with my novel to worry about something as mundane as my bills." "I'm no good with numbers." "I'll deal with it after the first of the year."
4.?You are in a state of constant worry, but do nothing. You may be frozen with fear. The problem looms so large that you don't know where to start, so you start nowhere.
Your Money or Your Life
What began as an isolated skirmish in the outback of money country has now spilled over to the rest of your life. It could be affecting your health, your job, your relationship, and even your life.
Marriage and Money
Money troubles are the leading cause of divorce in this country, and now you know why. Your debt issues are now beginning to affect your relationship.
Your mate is angry with you, scared about the well-being of the family, and concerned that your
problems will affect his or her financial life as well.
Here are some signs that you're in drastic debt:
1.?Your mate is afraid to apply for credit with you for fear that your problems will spill over.
2.?The constant phone calls from creditors cause pain and anger in your mate.
3.?The constant worry about money takes its toll on your sex life.
4.?Your mate is worried that the boss will find out.
Money Talks
Of all married couples, 66 percent have only one checking account, a joint account; 22 percent have a joint account and two separate checking accounts; 8 percent have two completely separate accounts; and 4 percent have no checking accounts at all. Finally, you resolve to do something and face your money demons. Congratulations, buying this book is an important first step.
Test Yourself
As we said at the beginning of this chapter, debt issues can range from mild to severe. Take the following quiz to see how serious your debt situation is:
Are your debts making your home life unhappy?
Do your debts make you careless with the welfare of your family?
Are your debts a source of constant friction with your mate?
Two Cents
Before they walk down the aisle, couples should have a money session to avoid surprises down the road. From student loans to car payments to credit card bills, it's best to come clean on every "I owe" before saying "I do."
Are your debts affecting how people view you?
Do your debts affect how you view yourself?
Do your debt problems distract you from your work?
Do you fear that your employer, family, or friends will learn the extent of your total indebtedness?
Have you ever lost a friend because of your money habits?
Have you ever lied in order to obtain credit?
Do you expect a negative response when you apply for credit?
Have you ever borrowed money without considering how you will pay it back?
Have you ever borrowed money without considering the interest rate?
When faced with a difficult financial situation, is your first thought to go deeper into debt?
Have you ever lied to your creditors regarding payment of a bill?
Does the pressure of your debts cause you difficulty in sleeping, or cause you to overeat, undereat, or smoke, or otherwise affect your health negatively?
Has the pressure of your debts ever caused you to drink more than you should?
Do you think about your money problems a lot during the day?
Do you justify your debts by telling yourself that you are superior to the "other" people, and when you get your "break," you'll be out of debt overnight?
Have you ever developed a strict regimen for paying off your debts, only to break it under pressure?
Have you seriously considered bankruptcy?
Scoring:
1-5 yes answers: Your debt issues are not bad and are easily resolvable.
5-10 yes answers: Your debt issues are more serious, but not out of control.
10 or more yes answers: Your debt problems are very serious and deserve your immediate attention. You must begin to take corrective action now.
You see that you need to take action to resolve your debt situation, which is good news. Consider these ideas:
1.?Continuing to run from the problem will only get you in deeper trouble.
2.Respond to your creditors and show them that you have an interest in working thins out. 3.?Acknowledge to yourself that you have made some irresponsible decisions.
4.?Get professional counseling if it is warranted.
5.?Share your problems with a close friend or your spouse.
6.?Know that there is a way out and that this process and a debt-free destination are probably a better experience than the stress in your life today.
Today is a turning point in your life. There is plenty you can do to turn this situation around, and it may not be nearly as difficult as you think.
The remainder of this book helps guide your way.
The Least You Need to Know
1.?The first signpost on the road to indebtedness is a lack of money and an increase in money worries.
2.?When you begin to have problems with your bank accounts, things are getting more serious.
3.?Evading and avoiding the problem make the matter worse.
4.?When your home life is affected by money troubles, it is time to take action.
