Question: It feels so good to spend, it really does. And when I am short of cash, I just use my credit card. How do I know that I am in over my head when it comes to borrowing money?—asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.
Answer: There are many telltale signs that you may have borrowed beyond your capacity to repay. Here are some of them.
- Opposite voice pitch syndrome. It is typical for people who have over borrowed to miss out on some of their payments. When lenders call to look for delinquent borrowers and follow up, in answering the phone, women turn into baritones while men sound like sheepish little girls.
- A house of cards. Overspending will always lead to borrowing. The rule is that monthly debt payments should amount to no more than 36 percent of gross monthly pay. To avoid the risk of falling past due, debt-saddled people go through a series of refinancing moves that merely transfer debt to another creditor without any concessions. With only debt holding it up, the household literally transforms into a house of [credit] cards. And one false move can send this house of cards tumbling down.
- Ease in borrowing. Contrary to common belief, borrowing gets easier for the debt-saddled person. This is because the over-borrowed get fearful and desperate; fearful that they might not be granted new or additional loans by the large, licensed lenders; desperate because the over-borrowed are led to rely on lenders with minimal documentation and fast loan releases. Unfortunately, these convenient sources of loans carry extremely high interest rates that can reach up to hundreds of percent.
- Self-exemption from “number coding.” Ideally, only two credit cards should be kept at most. If one is not accepted at an establishment, at least the consumer can try his luck with the other. This practice is akin to the number coding program for vehicular traffic in the country. People who borrow too much exempt themselves from this number coding system for spending and maintain too many credit cards that make their folded wallets feel as solid as brick.
I may be making light of over-spending and excessive borrowing. But make no mistake about it, debt is [financial] death to those who abuse. Debt itself is not bad. But just like grass, if left unattended, financial weeds grow with debt and become the source of more and sometimes extremely difficult money problems.
It is also one thing to get out of debt; it is another to stay out of it. If you truly want to stay debt free, you may also need to get a buddy to help you out. This buddy could be your close friend, spouse, children or even professionals.
This is not to exaggerate but my company has had clients who had entered the thought of ending their life because of their crushing debt. To this we say that if someone is at the height of pessimism, he just needs to get the “H” from height, the “o” from of and the “pe” from pessimism to know that there is hope, for there is always life after debt.
So, if you are experiencing any of the symptoms I just enumerated, it is time to mow your loans. There’s nothing like the smell of freshly cut debt!