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Everyday Cheapskate: Danger Signs You're Headed Into the Debt Trap

Mary Hunt on

Debt. It's a four-letter word and certainly not ideal under any circumstances. Being debt-free is always better than being in debt. But not all debt is created equal. Generally, debt comes in two flavors: secured and unsecured.

Secured debts are collateralized. That means the borrower pledges something of value to the lender that acts like a security deposit. If the borrower defaults, the lender gets ownership of that valuable asset. A home mortgage is probably the best example of reasonably safe, secured debt. In a mortgage, the property becomes the collateral. The lender can take it if the borrower doesn't perform as required.

Unsecured debts, on the other hand, are wild and crazy because there is no security. Even worse, invariably, this kind of debt comes with double-digit interest rates. All it takes is the borrower's signature and the deed is done. This kind of debt is not safe, in fact it is toxic.

Unsecured debt can ruin a life. Credit card debt is the best example of toxic debt. It looks so harmless. It offers so much convenience and flexibility. And nothing could be further from the truth. Unsecured consumer debt is like a steel trap armed with attractive bait to lure you in. Then, once you're in, it slams shut. Now you are its prisoner.

I've been in the debt trap. It's a horrible place to be. It took me 13 years to gnaw my way out of a six-figure load of unsecured, toxic debt. My husband (a man of both of both long-suffering and integrity) and I didn't file for bankruptcy. We repaid every dime including interest, penalties and fees.

I didn't get into the debt trap against my will. I did it to myself, naively and stupidly. I nibbled at that delicious bait. I chose to ignore the signs warning that I was heading for trouble if I didn't change my ways. I paid a terrible price for acting so foolishly.

 

These are the warning signs I ignored:

No. 1: Living on credit instead of cash. I regularly used credit to pay for things because I didn't have enough money. And I couldn't pay the statements in full every month because, as I said, I didn't have enough money! I didn't see my lifestyle as the problem. My problem was that I didn't have enough money to support the lifestyle I wanted. Credit was the bridge between what I had and the lifestyle I so richly deserved.

No. 2: Unable to pay the balance in full. While this is a huge warning sign for you, it's "mission accomplished" for your credit card issuer. Once you cross the line where you opt to pay the required minimum monthly payment, the company goes into full-on party mode. They did it! They got you over the line into "permadebt," and chances are pretty good you'll remain there until you die -- always owing, never able to pay the ever-growing balance in full.

No. 3: Delaying payment or paying late. Juggling was my way of life. I'd count on next month's income to pay this month's bills. I was always behind and often paid late.

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