Susan Tompor: Are you playing too close to the edge with finances?

By By Susan Tompor

Detroit Free Press (MCT)

Published: Monday, Oct. 21 2013 12:51 p.m. MDT

In this May 9, 2012 file photo, a Visa credit card is tendered at opening of the Superdry store in New York's Times Square. Overall, consumers tend to be moving cautiously in part because wage gains are sluggish and the job market is far from robust.

Richard Drew, Associated Press

Enlarge photo»

The government came close to bumping into its debt ceiling, but was saved last week by a last-minute deal to avert a default. Even so, perhaps consumers should consider if they’re edging closer to the brink, too, when it comes to their own finances.

Bickering, much like what we’ve been watching in Washington, D.C., is definitely a clue that you’ve got money trouble. Are you fighting over who gets to pay for dinner? Maybe who should get stuck with all the bills?

On the plus side, several economists say that overall many consumers — with the exception of a group building an arsenal of student loan debt — seem far more on track than before the recession.

“It seems like consumers, on average, they’re taking the right steps,” said David Nice, associate economist for Mesirow Financial in Chicago.

Borrowing to replace a broken refrigerator is one thing, Nice pointed out, but taking on a large amount of credit card debt to simply upgrade all the appliances is another — and many consumers aren’t going that far.

“It’s not like we’re in a boom here with everybody out there buying whatever they want,” Nice said.

Overall, consumers tend to be moving cautiously in part because wage gains are sluggish and the job market is far from robust.

Outstanding consumer credit grew by $13.6 billion in August, but the bulk of the increase is associated with student loans backed by the federal government. The figure does not include mortgage debt; it does include credit cards and fixed lines of credit like student loans and car loans. Total household debt hit $12.9 trillion in the second quarter of 2013.

Mark Zandi, chief economist for Moody’s Analytics, said household debt outstanding is effectively flat — mortgage debt is falling, but student and auto loan debt is rising.

“Bottom line is that households remain very cautious in increasing their borrowing and leverage,” Zandi said.

Plenty of individuals, of course, lost jobs or saw paychecks cut. And many people remain too close to the edge when it comes to debt. So it can help to review the signs, especially as the calendar moves closer to the holidays and many may be tempted to borrow.

—As for college debt? What are signs that you’re playing too close to the edge with your finances?

A really, really big sign is when you have absolutely no idea how much you’ve borrowed in student loans.

“A lack of awareness of the amount of debt leads to a lack of control over spending,” said Mark Kantrowitz of Edvisors.com.

Kantrowitz said there are other troubling signs: Do you need to borrow far beyond what is allowed through federal student loans and tap into private student loans and credit cards, too?

Are you borrowing more than $7,500 a year for undergraduate school?

Will your total student loan debt at graduation exceed your annual starting salary?

Kantrowitz said that about 10 percent of college grads with bachelor’s degrees have total student loan debt in excess of their starting salaries. Roughly 20 percent to 25 percent borrow more than $7,500 a year.

Again, not good signs.

Bad money management also includes using student loan money to eat out, buy concert tickets or buy new winter coats, too. You’re not distinguishing needs from wants.

Or are you borrowing enough money to go to school full-time but only taking a few classes on a part-time basis?

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