With the recent financial turmoil, it is clear: Our country has a lot of credit junkies. This is not synonymous with people who may have a shopping addiction, which I’ve written about. You don’t have to crave Gucci in order to have a credit problem.
To some people, credit is a means to an end. They have a problem and they see an easy solution: credit. Others may not have a problem, but enjoy having access to extra cash (which explains why HELOC – Home Equity Line of Credit – loans became so popular).
There are different kinds of credit users. There is the person who refinances their home and uses the extra cash to pay off debt that charges a higher interest rate. They are responsible credit users. Then there is the person who refinances to buy a new plasma TV. They are irresponsible credit users.
Telltale Signs of a Credit Addict
If you see someone participating in these kinds of activities, they are acting as a drug addict would. They are doing something irresponsible for the immediate pleasure it brings regardless of the future ramifications.
Refinancing
As mentioned above, with the housing boom came the abuse of refinancing. Great interest rates, sky rocketing housing values – it was the perfect storm.
Refinancing should be done as primarily a financial decision. Does it make sense, financially? What are you going to do with the savings? If you plan on buying a depreciating asset or other material good, is that the best decision? If you plan on buying an appreciating asset or paying off debt that charges a higher interest rate, this is probably a good idea.
Someone who rushes into the decision and is lured by the quick riches is succumbing to their thirst for easy credit.
Maxed Out Credit Cards
I get credit card offers in the mail on at least a weekly basis. Many (probably most, but I don’t pay attention) of them are pre-approved. But I filter them out right to the trash. If I need, or want, a new credit card, I want to do it on my own terms. I will research the perks and find what is right for me. I don’t need them mailing me teasers to try and get me to sign up.
If someone you know jumps on the bait consistently just because of the credit limit, they are feening for credit. Are they going out the next day and purchasing a bunch of luxury items? They most likely don’t even know the financing charges they are incurring.
Opening Store Credit Cards
I shop at Best Buy. “Sir, would you like a Best Buy credit card? You can get 0% financing for 24 months on your purchase today!”
I shop at Amazon. I get an e-pitch for the same financing offer.
I shop at Target. “You can save 10% today if you sign up for a Target credit card. Would you like to sign up?”
No matter where I wind up shopping, they want me to sign up for store credit. If you, or someone you know, constantly says yes – you may be a credit addict.
Borrowing, Not Budgeting
I anticipate taking 2 week long vacations every year. At the most, I would spend $1,000 on each (This past year I spent $1,100 on one and $250 on the other!). So, every month I budget $167 towards my vacation. That means I have the cash to pay for every vacation and don’t have to worry about financing them.
Does someone you know borrow money for otherwise unnecessary things, or luxury items? Are they charging a new line of Gucci clothes? Financing their Jamaican cruise? At the root, this is a credit problem.
Cash is an Unknown
I, admittedly, rarely carry cash. I try to charge items as much as possible for tracking purposes using Mint.com. My reasoning is that I am a pretty frugal person as it is so cash wouldn’t reduce my spending… I’m already only buying what I need.
So just not carrying cash isn’t a problem. However, for some people carrying cash is a huge problem. If cash is constantly burning a hole in their pocket, they immediately turn to credit. Once they turn to credit, their is little connection between the spending and the money being used… compounding the problem.
Not using cash isn’t a problem in itself, but watch how the person behaves when they do have cash
It’s Not Too Late
If you are a “credit junkie,” you can change.
- Budget your finances.
- Get your free government credit report.
- Stop using the plastic. Use cash until you are under control.
- Consider a group like Debtors Anonymous.
By doing those two things, you will know the state of your finances and what you can afford.
