Susan Tompor: Are you playing too close to the edge with finances?
—And credit card debt? What’s a sign that your debt is about to hit the ceiling?
Are you always charging $300 a month to fill up your gas tank but only paying $75 or so each month to meet the minimum on a credit card with a $3,000 balance?
Katie Moore, financial counselor for GreenPath Debt Solutions in Detroit, said a clear sign that a consumer is heading for a financial mess is when he or she is constantly borrowing even what seem like small sums.
“There’s a credit card wall,” she said. “You are overspending if you’re charging more than you’re paying off each month.”
Trying to use a credit card to meet everyday bills — such as groceries, gas, going out to lunch at work — can drive up debt and cause a consumer to hit the maximum credit limit quickly.
Paul Traub, a business economist with the Federal Reserve Bank of Chicago’s Detroit branch, said one concern is that income growth has been so slow that some consumers could be using debt to support consumption. The recent increase in the use of credit could be an issue if it is used to offset slow income growth and balances aren’t paid off each month.
What’s key to understand, Traub said, is that consumers will have added even more pressure on their finances if they maintain balances on their credit cards and then face higher rates on that variable rate debt, as interest rates start to rise.
Financial problems only build, of course, if the consumer loses a job, faces a reduction in income or must deal with other unexpected costs, such as medical bills.
The one positive sign out of the recession, Moore said, is that credit card companies are not regularly rolling out outlandish credit limits on cards. Consumers cannot easily obtain credit limits of $30,000 or $50,000 as Moore said she once saw in the past.
“People are having to face the reality of their budget maybe in ways they hadn’t in the past,” Moore said.
HOW TO AVOID HITTING YOUR OWN DEBT CEILING:
—Turn to cash instead of plastic. Budget for your expenses. Do not shop or find other ways to spend money out of boredom.
—GreenPath Debt Solutions has webinars on Wednesdays to address financial challenges. See www.greenpath.com. At noon Oct. 23, the topic is bankruptcy basics. At noon Oct. 30, the topic is how to improve your credit score.
—The Consumer Federation of America offers information about credit and debt at www.consumerfed.org/consumer-info#credit. The site includes a brochure on “Managing Your Debts: How to Regain Your Financial Health.”
SOURCE: Detroit Free Press research
ABOUT THE WRITER
Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at firstname.lastname@example.org.
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