ARE YOU A YO-YO DEBTOR?

Controlling your liabilities and then splurging again are signs you do not have your spending under control, but there are ways to break the cycle

Debt loads, like our waistlines, tend to expand as we approach middle age and then gradually diminish as we get older. Some people, though, are yo-yo debtors, fighting an ongoing up-and-down battle with debt. They pay it off, or come close, only to find themselves battling bills once again. But there are ways to break that cycle.

By the age of 21, Chris Browning of California had accumulated US$5,000 in credit card debt – mostly from eating out and trying to impress his then-girlfriend, who is now his wife. “I guess it worked,” says Mr Browning, an accountant.

After several failed attempts, Mr Browning, 30, made and stuck to a budget.

He cut back on expensive meals, looked for free entertainment and slowly paid down the balances until he was debt-free four years later in April 2012.

That didn’t last. As the couple prepared for their wedding that November, debt crept back in.

“By October 2012, we had over $14,000 in credit card debt. Then from there things just snowballed,” Mr Browning says.

“Between finding a new place to live, school costs, medical bills and just poor decisions, our debt grew to just under $27,000 by November of 2014.”

The vast majority of American households –roughly eight out of 10 – carry at least some debt during their working years, according to the Federal Reserve’s Survey of Consumer Finances. The median amount owed peaks when the head of household is between the ages of 45 and 54 and diminishes afterward. The mix tends to change, with younger households more likely to have student loans and older households more likely to have mortgages and credit card balances. More than a third of households headed by people under 55 also have auto loans.

Owing money isn’t necessarily a crisis unless you consistently live beyond your means, putting you at risk of a lower standard of living as most of your income will be swallowed up by debt repayments. Signs that you are living beyond your means include the following:

Your debt payments, including mortgage or rent, eat up more than 40 per cent of your gross income.

You are struggling to make the minimum payments required by your credit cards or loans

Your net worth – what you own versus what you owe – is shrinking rather than growing over time.

Your debt prevents you from saving for important goals, including retirement and emergencies.

Not having any savings can also contribute to the yo-yo phenomenon, where people pay off debt only to face a big unexpected expense or job loss that causes them to reach for credit cards again.

Careening back into debt can be deeply discouraging and stressful. That’s why debt experts, like weight-loss experts, recommend a slower, steadier approach to vanquishing debt. Among the most important principles:

Don’t be in a rush to pay off low-rate mortgages, student loans or secure personal loans. Focus first on toxic debt, such as credit cards, that erode your financial security. Make saving a priority even as you’re repaying debt. That means having at least a small amount stored in an emergency fund. Start with a few hundred dirhams until you have the equivalent of half your salary saved, and then build up to a whole month’s salary. Keep going until you have the ideal, which is three to six months’ worth of your monthly salary.

Aim to make lasting changes in the way you spend instead of trying quick fixes, because big lifestyle changes such as downsizing your home and choosing a low-cost supermarket can really make a difference. Mr Browning and his wife, Vina Gainer, 29, tackled their debt from both ends: by cutting their spending and increasing their $60,000 household income. Mr Browning found a job that paid $1,200 more a month and experimented with a few side gigs, such as selling unwanted possessions online at eBay. Ms Gainer, a college student who works in her mother’s day care centre, started doing her own hair and shopping at thrift stores rather than the mall. The couple also devoted time to planning – and discussing – how they spent money.

“We weren’t really talking about what we were spending. We just spent it,” Mr Browning says. Both say the lifestyle changes were hard at first, and Mr Browning says it helped him to seek out other people who were paying off debt, in real life and online, for support. “I think you can forgive yourself a little more when you realise that you are not the only one that has made mistakes and that there are others who have accomplished what you hope to,” Mr Browning says.

The couple paid off their last credit card bill in February and they are on track to have a sixmonth emergency fund by the end of the year. Being in debt “was just too stressful,” Mr Browning says. “I don’t ever want to go back to that place.”