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EVERYDAY CHEAPSKATE

by on August 18, 2014 10:50 AM

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. There’s something of value in the deal that acts as a security deposit. A home mortgage is a good example of a secured debt — something that most people need, at least with their first home. Both the lender and the borrower can get out of the deal any time by simply selling their interest. The borrower can sell the home and pay off the mortgage; the lender can sell the loan and walk away.

Unsecured debts, on the other hand, are wild and crazy because there is no security. This kind of toxic debt comes with high rates of interest and is widely available on one’s signature alone. Credit-card debt is a dandy example. Think of unsecured debt as you would a steel trap that is armed with attractive bait to lure you in. Then once it has you, 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. I didn’t file for bankruptcy. Instead, I repaid every dime owed 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 warning signs that I was heading for trouble if I didn’t change my ways. I paid a terrible price for acting so foolishly.

Here are the warning signs I ignored:

• Living on credit instead of cash. I relied heavily on credit cards to pay for things because I didn’t have enough money to get through the month.

• 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.

• Unable to give or save. This is the first sign that you’re spending all you earn, plus some you haven’t earned yet. I never had enough to save or to share with others.

• Unable to pay taxes. Don’t ask how I know about this. It’s a painful memory.

• Living an extravagant lifestyle. Guilty, guilty, guilty. At the darkest moment in my financial past, I was driving a new Cadillac complete with 47 more enormous lease payments. Need I say more?

• Looking for get-rich-quick ideas. I was just certain that becoming a world’s next triple-diamond director would make me filthy rich, and I mean like tomorrow. I had to learn the hard way (five times) that there are no get-rich-quick ideas that work, at least not legally.

Do you see any of these danger signs in your life? If so, pay attention! Change your course, get some help — do whatever you must avoid the debt trap.

And if you’re already there, run don’t walk to NFCC.org, an organization of trustworthy, nonprofit, certified credit counselors with offices in every area across the country. You can make contact online or by phone. Do it today.



Mary invites questions at mary@everydaycheapskate.com, or c/o Everyday Cheapskate, P.O. Box 2099, Cypress, CA 90630. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website and the author of “The Smart Woman’s Guide to Planning for Retirement,” released in 2013. To find out more about Mary and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.
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