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When it comes to the subject of addiction, issues such as alcohol dependence or drug addiction come to mind – and rightfully so. Substance abuse is a very real problem for many individuals and families. Debt addiction, on the other hand, isn’t usually the first thing that comes to mind when we think of addiction.
Nonetheless, debt addiction is a very real problem that needs to be considered and is quite possibly a subject that should be brought more to the forefront within our consumer economy. So, what is debt addiction? And what are the signs that you or someone you know may be suffering from debt addiction? Let’s take a closer look.
What is Debt Addiction?
Like other forms of addiction, debt addiction can begin somewhat harmlessly – but as human beings, we can get into trouble and begin to form addictions when “recreational” use spirals up toward regular use that soon takes the form of a crutch that prevents us from addressing our pain.
Therefore, even debt can become a “substance” – a crutch that shields us from feeling the pain of financial and/or personal problems. Unsecured credit card debt is relatively easy to access – it often is as easy as filling out an application form. Someone receives a credit card and uses it in a pinch for some home repairs, with the simple intention of quickly paying it off in full.
Sounds harmless enough – except for the person who pays just the minimum monthly payment while gradually and steadily adding to the debt balance. A few restaurant visits here and there, the car needs repairs, the dishwasher needs to be replaced. It all goes on the card. We’re now moving from “recreational” debt toward “regular” use, and pretty soon any unexpected expense gets thrown onto the card as the debt pile grows.
The Debt Spiral
Meantime, it becomes important not to bump up against the credit limit on the card – so even though the wise thing to do would be to curb spending and find a way to pay off the debt, the progression toward debt addiction has begun to intensify and leads to the next step of applying for and receiving an additional credit card. It now becomes even easier to grow the debt further – and debt dependence begins to take hold.
Even though the process begins innocently enough, the path from recreational to regular debt usage results in dependence that leads to addiction. What’s important to realize is that just as is the case with drug addiction, no one initially sets out to become addicted to debt. However, when credit cards are regularly used irresponsibly, a progression toward debt addiction becomes somewhat inevitable.
Instead of focusing on long-term financial goals and saving, the debt addicted individual’s focus shifts to merely staying above water and making certain that rising debt payments – along with all other necessary living expenses – are met. The spiral only accelerates as ever-increasing debt payments reduce the amount of available after-tax income and create the necessity to take on further debt to make ends meet.
Signs of Debt Addiction
Because debt addiction is not often discussed, it remains a somewhat abstract concept that requires greater clarity to understand and treat. As is the case with any addiction, the first step toward recovery is admitting the problem.
Therefore it is important to become aware of and recognize the telltale signs of debt addiction and whether a problem may actually exist. One of the more noteworthy signs is when the afflicted individual uses one credit card to pay off another card – and we’re not talking about low interest-rate promotional balance transfer offers here.
When cash advances are taken out at high interest-rates to pay other credit card bills, that’s a problem. Similarly, when debt is taken out without careful consideration of interest rates and the ultimate costs, this is a sign of a problem. Other signs of debt addiction include worrying about whether family and friends will become aware of the debt size or lying on a credit card application in an effort to receive more credit.
And here’s a blaring telltale sign: when an individual has already increased debt balances to the level that additional debt just doesn’t matter anymore because “my debt is so high already and I just don’t care.”
Stay Free of Debt Addiction
When it comes to debt, it is always important to remain fully aware of your balances, interest rates and monthly bills. In short – there really is no such thing as knowing too much about your credit card debt. Next, it is also important to have a clear, written monthly budget that accounts for all sources of monthly cash flow and expenses that can help keep you out of trouble.
The 50/30/20 budget is a good place to start – this framework necessitates that 50% of after-tax disposable income be allocated to necessary expenses (housing, food, transportation, utility bills, etc.), 30% to “wants” (restaurant meals, entertainment, etc.) and 20% to debt repayment and savings. When such a budget is properly designed and adhered to consistently, the spiral toward debt addiction can be prevented.
However, the absence of a budget – or the inability to adhere to one – is potentially yet another sign of debt addiction. If you think you or someone you care about may be struggling with debt addiction, consider looking into a 12-step recovery programs.
About The Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.