Contributors: Richard Barrington and Lorie Konish
KEY POINTS
- As consumer debts rise, many individuals are struggling to achieve the standard of living they would prefer.
- Maintaining a certain lifestyle and a compulsion to shop can become addictive for some.
- Here’s how turning to Debtors Anonymous helped two women curb their excessive spending and change their lives for the better.
What is debt addiction?
Debt addiction is not the same as a shopping addiction, though the two issues often go hand in hand. A shopping addiction usually involves trying to fill a personal void with material possessions. Debt addiction is about using borrowed money to finance a lifestyle (properties, vacations, material goods, leisure experiences) you could otherwise not afford.
Often when one form of debt is no longer usable (reached credit limit, loan funds run out, etc.) an individual addicted to debt will immediately apply for new accounts to keep the flow of money going. Lenders see these people as a progressively higher lending risk, so each new account usually comes with higher interest rates and stricter repayment terms.
Those with debt addictions will initially strive to keep minimum payments up to date to avoid any accounts going into collections. However, as the issue becomes more severe, we commonly see people using debt to repay debt and ultimately going insolvent.
Signs you have a problem
If you feel compelled to lie about your spending habits, that is a red flag you have a problem, according to Terrence Shulman, founder and director of The Shulman Center for Compulsive Theft, Spending and Hoarding.
“Lying and deception often is a real thing with any type of addiction,” Shulman said.
Watch for other warning signs, such as avoiding credit card statements, or your loved ones expressing concern about your behavior.
“Take an honest look,” Shulman said. “Are you spending more time, more energy, more money? Any of those are problematic.”
Debtors Anonymous provides a series of 15 questions to assess whether you are a compulsive debtor. If you answer affirmatively to at least eight of those questions – which include whether your debts distract you from your daily life or have impacted your family’s welfare – chances are you have a problem.
Are you addicted to debt?
Here are some telling signs that you may be forming a debt addiction:
- The thought of not having a credit card leaves you sleepless at night
- You’re constantly applying for new cards or loans
- You use credit for purchases knowing you won’t have the cash to pay it off
- You keep your debt a secret from family and friends
- You avoid looking at your banking and credit statements for fear of discovering how bad the situation has become
5 Signs You’re A Borrowing Junkie
Is addiction too strong a word for America’s dependence on debt? Given that addiction means needing something so powerfully that it overwhelms rational thought, the description fits the borrowing habits of many Americans too well.Here are some facts about this borrowing addiction:
- In the 67 calendar years since World War II, U.S. consumer credit outstanding has decreased for just two years.
- Adjusted for inflation, U.S. consumer credit outstanding has increased by more than 3,000% during that period.
- This total debt now stands at about $2.8 trillion, or $11,547.51 for every adult in the United States.
That debt burden is often much worse than the average because some Americans take on a disproportionate share of the total debt. These are the people who may be addicted to debt. Are you one of them? Here are five signs you might be:
1. You regularly make only the minimum payment on your credit cards. Credit card companies allow their customers to make monthly payments that are only a small percentage of the debt outstanding. They’re not doing it to be nice. Minimum payment amounts are designed to keep you borrowing money for as long as possible, so you pay the maximum amount of interest. If you think you are managing your credit card debt well simply because you routinely make the minimum payments, you are fooling yourself.
2. You consider yourself skilled at juggling your credit card balances. Credit card companies facilitate this behavior by offering special rates on balance transfers. However, while reducing the interest you pay is a good move, balance transfers should be part of a strategy to pay down debt, not sustain it. It may be an especially false economy if you don’t watch out for balance transfer fees.
3. You are regularly rolling over loans. Loans are fine as temporary financial measures, but if borrowing becomes a permanent staple of your lifestyle, you’ll never get around to saving any money.
4. You always take the maximum term on loans. Consumers are typically presented with a choice of how long a loan’s repayment term will be. Taking the longest term available may make your monthly payment lower, but it also means you will pay more interest over the life of the loan. Opting for shorter-term loans can help keep your borrowing in check.
5. You borrow beyond the useful life of a purchase. Borrowing for a mortgage or a car generally makes sense because these are assets you will get to use for many years to come, so it makes sense to also take years to pay them off. However, the more you find yourself borrowing for things like vacations or consumer electronics that don’t have such a long lifespan, the more you are building an unsustainable lifestyle.
To a large extent, historically low interest rates have encouraged people to become more addicted to borrowing. Ironically though, those same low interest rates make this an especially dangerous time to expand your borrowing habit — it can mean that you are building a borrowing-dependent lifestyle that you won’t be able to afford when rates rise to more normal levels.
As with any addiction, it is usually better to quit over-borrowing of your own accord, rather than wait for circumstances to force you to go cold turkey.
How to take control of debt addiction:
First, you need to acknowledge there’s a problem. Even experiencing one of the signs above could indicate you need to re-think your relationship with debt. Next, you need to change your relationship with your debt and likely with credit in general.
Make a list of your current debt and balances owing – Check all your online banking accounts for current balances. Also, pull a free credit report from Equifax and TransUnion to make sure you’ve included every debt on your ledger.
Stop using credit altogether – Cut up your credit cards, cancel your overdraft, and freeze any lines of credit you have. Only use cash going forward. This may require creating or revising your budget to realign your new lifestyle with your true income and financial obligations.
Tackle one debt at time – Your budget also needs to include the minimum payments on all your debts. Choose either the debt with the highest interest rate or lowest balance and budget an extra amount to pay down the principal. Keep doing that until you eventually pay each debt off.
Be realistic – You need to set achievable goals to avoid getting discouraged. If you have already adjusted your spending with no further room to take further steps, it may be time to look for outside support and assistance.
Who can you turn to?
You’re not alone. There are many options to support and assist in getting your debt under control. Some options to consider include:
Talking to your financial institution — There may be different financing options available to you. For example, a consolidation loan may allow you to combine all your debt into one payment at a lower interest rate.
Contact a credit counsellor or your creditors directly — They may offer options to make payment arrangements or re-negotiate your balance or interest rate.
Speak with a Licensed Insolvency Trustee (LIT) — LITs offer Free Confidential Consultations to assess your financial situation and identify opportunities for a financial fresh start. They can advise you of all your options, including a government regulated Consumer Proposal and Bankruptcy, and will provide an unbiased opinion on the best solution for you.
Don’t wait. The sooner you can confront your debt addiction and change your habits, the sooner you can get the relief you need.
When Kate lived in New York City, she used to shop every day.
If she went to shop for designer hand bags, she wouldn’t just buy one. She would buy three. If she went shopping for designer shoes, she would buy six pairs at a time.
In order to find room for her purchases, she used multiple storage units in various locations outside the city. In between seasons, she would take a car service to those spaces to switch out her wardrobe.
Kate’s spending didn’t end there. She would set costly goals – such as visiting all seven continents – and pursue them just to say she had completed them.
Kate, now 52, felt that she deserved the reward. She has a lucrative career in financial services and consistently earns a six-figure, occasionally seven-figure, salary.
“I could afford it, but it was excessive,” Kate said.
Kate reached a crisis point 12 years ago and turned to Debtors Anonymous. “This program saved my life,” she said.
Debtors Anonymous first started in the late 1960s when some members of Alcoholics Anonymous started holding separate meetings to discuss issues they were having with money.
Today, the group has more than 500 registered meetings in more than 15 countries.
During the time the organization has grown, personal debts in the U.S. have ballooned.
Student loan debt has reached a whopping $1.5 trillion, while credit card debt has also crossed the $1 trillion mark.
Total consumer debt such as credit cards, auto, personal and student loans – is projected to reach $4 trillion by the end of this year.
As people work to juggle those balances and strive to achieve a certain lifestyle, they can stretch beyond their means.
Anecdotally, those forces have helped send some members, who spoke to CNBC.com with the request that their identity be kept confidential, to the 12-step program.
And many of the impulses that drive them – projecting a certain status, achieving personal goals and seeking pleasure from material goods or experiences – are the same that affect many consumers.
“I came from a middle class family, but not a wealthy family, so I always felt like I didn’t have enough,” Kate said.
She worked to fill that void not just with clothes, bags and shoes, but also travel, education, experiences, spiritual pursuits, yoga and supplements.
“It’s a problem of feeling like you don’t have enough no matter how much you have and always looking for more,” she said.
Members of Debtors Anonymous can often be divided into two groups: those who overwork and those who underearn.
And their issues with money can manifest differently, whether they spend big, rack up huge debts or both.
What they often have in common is ambition and pursuit of a certain dream or status.
Take an honest look … Are you spending more time, more energy, more money? Any of those are problematic.
Terrence Shulman
That was the case for Joan, 47, who got a master’s degree and threw herself into the pursuit of a singing career.
Joan took on debt to fund her graduate education. After school, she spent money on training, programs, pianists and directors.
The problems came when she was not making enough money to support herself.
That led to her depending on others – her parents, relatives and friends – for financial help.
Hitting rock bottom
As with other 12-step programs, it often takes a catastrophic moment for individuals to turn to Debtors Anonymous.
Joan first learned about Debtors Anonymous from actor’s support websites she would visit, where she would see an ad for the program.
That was 15 years ago. It took her eight years to walk into a meeting. She has been faithfully attending sessions for seven.
Remembering where she was before she joined the group gets her a little choked up, Joan said. “It reminds me of the pain I was in,” she said.
THE RISING COST OF CREDIT CARD DEBT*
| 2013 | $74.6 billion |
| 2014 | $76.5 billion |
| 2015 | $78.6 billion |
| 2016 | $84.9 billion |
| 2017 | $93.7 billion |
| 2018 | $103.7 billion |
Source: Source: MagnifyMoney.com *Credit card fees and interest earned by U.S. banks, year ending March 31
She could no longer access any more money on credit cards, which was a problem for her because she was using them to pay her living costs. The last card she took out was to pay her rent for the month. That year, she was also facing a big tax debt.
“I truly felt desperate, and I didn’t know what to do,” Joan said. “I didn’t know where to turn. I didn’t know where the money was coming from. And I had to feel so much shame and pain to be able to go ask for help.”
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Kate also had a similar crisis point, when she realized nothing was ever enough.
“I realized that all of this stuff wasn’t making me happier,” Kate said. “All the money that I made wasn’t making me happier.”
She also lied to her partner. If her boyfriend asked, “Oh, is that new?” Kate would say, “No, you never notice anything about me. You’re so self-centered.”
But the truth was the item he had asked about was new and she was lying. “I was the one who was self-centered,” Kate said.
Working toward recovery
Kate said her life today is unrecognizable compared to how she lived before.
One by one, she got rid of her storage units. And for the past 10 years, she has worn the same dress to every wedding she attended. Prior to Debtors Anonymous, she said she would have had three suitcases with three or four changes of clothes and shoes for each event.
But the main difference has been the spiritual transformation she has undergone, she said.
“I don’t need new stuff all the time anymore,” Kate said. “It’s not about more, more, more. I am so grateful for what I have, and I’m so grateful that I don’t need more.”
Joan has also made dramatic life changes in the past seven years.
She still consults with her sponsor or another member of the program before she makes any purchase.
Credit card negotiation
And she has also taken responsibility for her financial life.
Joan closed all of her credit cards and now only uses a debit card.
She made a career change and now works as an administrative assistant. The job provides the benefits she needs and enables her to pursue her singing on the side.
Getting control of her spending has helped her to be a better daughter, sister, friend and significant other now that she pays her own way.
“Everybody in my life who’s close to me knows about all of that,” Joan said. “Everyone has seen this dramatic change in my life.”
*Names have been changed to protect their anonymity.
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