The Seven Deadly Sins That Lead to Debt

Bankrate.com

Financial sinners won't have to wait for the afterlife to be punished for their various misdeeds. Plenty of consequences await in the here and now.

Presented with choices daily, human beings can lead chaste and charitable fiscal lives. Or they can succumb to fleeting temptations and fatal traps.

So choose to commit these deadly sins -- or work to bring a little temperance into your spending.

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7 deadly debt sins:

Envy
The rich and famous luxury items are accessible now more than ever -- and without the wealth they once implied. With more and more people sporting expensive goods, it's easy to feel left out and far behind.

"The income disparity has gone up considerably, and what has happened is that it has changed our consumption patterns," says Ronald Wilcox, professor of business administration at the Darden School of Business, University of Virginia and author of the upcoming book, "Whatever Happened to Thrift? Why Americans Don't Save and What to Do about It."

Envy colors our perceptions. "What we decide is reasonable to consume is what we view being consumed around us," he says. "But because income disparities are so incredibly unequal, what we view around us really is beyond our ability to afford."

Consumers can get caught up trying to keep up with the Joneses or the upper-middle-class families they see on TV, believing they should own the same things others own.

"The problem with this scenario is that living like the rich doesn't last that long. And if you consider appearing in bankruptcy court as being famous, then you have achieved half your goal," says Terry Rigg, editor of Budget Stretcher, a Web site for the frugally minded.

Forget that pride goes before a fall
Pride can get in the way of preparing for worst-case scenarios.

People tend to feel overly optimistic about their ability to pay back debt, stay out of harm's way and maintain perfect vehicular performance indefinitely.

All human beings suffer from overconfidence -- but Americans more than anyone, says Ronald Wilcox, author of the upcoming book, "Whatever Happened to Thrift? Why Americans Don't Save and What to Do about It," and a professor of business administration at the University of Virginia.

"Our nation has seen great benefits from the confidence to take risks. Risk-taking built Manhattan. But there is a dark underbelly," he warns. "There are some winners and they do great things, but there are a lot of losers. And one of the risks that people take is spending all their money now and not saving for a rainy day."

Incredible though it may be, cars do sometimes need repairs, cavities need to be filled and surgeries may be required that insurance doesn't completely cover.

"We hear it all the time, but everyone has got to have an emergency fund. It's not if it happens, but when," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling.

Be slothful with finances
Finances tend to be complicated and require some mental manipulation of the most dreaded of all things: numbers. Failure to pay attention to loan terms and due dates can have severe consequences.

A survey for Bankrate.com's Financial Literacy series last year revealed that 34 percent of homeowners had no idea what type of mortgage they had -- whether it had a fixed or adjustable rate.

"I like to use the term 'financial complacency' to describe people that never really take the time to get the big picture of their finances," says Terry Rigg, editor of Budget Stretcher Web site and newsletter.

We prefer the term "sloth."

Avoidance is easy; paying attention is hard, especially when confronted with unpleasant facts like a hefty credit card bill or struggling to learn something new like investing basics just to enroll in a company-sponsored retirement plan.

"Americans don't really understand parts of those plans," says Wilcox. "This is probably due in part to Americans' reduced interest in mathematics relative to the rest of the world. Americans don't study it as intensely and they don't really understand the benefits of compound interest."

Get greedy when borrowing
Why buy an economy car when you can get a loan for twice as much and ride around in style?

Over-buying (read: greed) is a trap into which consumers can easily stumble.

A dollar is not always a dollar in our minds, says Ronald Wilcox, professor of business administration at the University of Virginia and author of the upcoming book, "Whatever Happened to Thrift? Why Americans Don't Save and What to Do about It." Some days a dollar will be more valuable to you than others.

Often when making big purchases, the price seems so overwhelmingly high that smaller add-ons or upgrades start looking like great deals in comparison.

"What you're doing is pairing the smaller purchase with the bigger number and all of a sudden it looks reasonable in comparison when on any other day you would recognize this as a really bad deal," says Wilcox.

"Marketers are aware of that, so they will add on lots of small items -- like warranties for instance -- things that have huge margins that they can make a lot of money on," he says.

Rationalizations could include, "Well I'm already borrowing $10,000, so what's another $3,000?"

"Learn not to buy on impulse and plan every purchase carefully. If you don't have the money now -- save until you do," says Terry Rigg, editor of Budget Stretcher, a Web site and newsletter.

Feel wrathful at everyone but yourself
Blame others for your own financial missteps. That way you never have to learn anything new.

To the peril of individuals, lenders won't cut you off when you've had enough. Criminal nondisclosure of loan details aside, lenders aren't in the business of making sure you save money and don't overspend.

"The savings crisis and the household debt crisis are directly related to each other," says Ronald Wilcox, author of the upcoming book, "Whatever Happened to Thrift? Why Americans Don't Save and What to Do about It," and professor of business administration at the University of Virginia.

"We wouldn't see foreclosures go up as quickly if people had a cushion of savings."

So wrath, when targeting others, is often misdirected. Developing a strategy for your finances is a personal responsibility, says Wilcox.

"On the corporate side of things, companies can do things that can make it easier for people to figure out how to save and save in an effective way," says Wilcox. "And the same goes for the government. They can make it easier for people, but can't force anyone to do anything."

For instance, companies can automatically enroll their employees in their retirement plans, but participation in a savings plan can't be a condition of employment. Similarly, the government provides tax incentives for saving in retirement accounts such as IRAs, but you can't be thrown in jail for not taking advantage of it.

To avoid messy situations, develop a budget with both savings and debt pay-down strategies -- and stick to it.

"It's much easier to tell yourself and your kids 'no' if you know what the spending limits are. Everyone in the family should know that they can't get everything they want because the money is just not there," says Terry Rigg, editor of Budget Stretcher, a Web site and newsletter.

Be gluttonous
You deserve that cookie so go ahead and eat it and maybe a couple more for good measure. While you're at it, buy the bedroom set you can't afford but deeply desire.

As a nation, the United States is both plainly fat from eating too much and overstuffed in the materialistic sense. The message from society in general can sometimes be: You work hard, so splurge.

It's very possible to have a house full of stuff and no money. It's also possible to be extremely overweight and ingest no healthy nutrients.

Just like eating food for no good reason other than the fact that it is set in front of you, people buy stuff just to buy it.

"It's so easy when you're in a mall to start buying things on impulse. They're very attractive and all shiny and new -- especially when they're on sale," says Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

"People will react to a sale item -- 60 percent off -- and buy it when they don't need it or want it."

Big-box stores are vast dens of temptation, offering lots of everything at sale prices.

"People buy huge amounts of stuff and think they're saving money. But what happens is that it just takes up space, takes years to use up or it just spoils," Jones says.

Let lust lead you into spending
What can a little coveting hurt if no action is taken?

Lust can take many forms. Stereotypical but true, it would be hard to find more than a handful of women who hadn't longed for a particularly fetching pair of shoes or other frippery on occasion.

As for men, one need look no further than the swimsuit edition of a popular sports magazine or the covers of various lad mags and other even more risqué publications that grace the newsstands.

That particular facet of lust was so vexing in centuries past that it was widely believed the afflicted would suffer greatly in the afterlife.

That facet of lust often does contribute to debt -- a contemporary hell -- in the modern day.

"Pornography is a very large industry, but it is hidden," says Stuart Vyse, author of "Going Broke: Why Americans Can't Hold on to Their Money."

"The fact that it is hidden makes it hugely popular because you can engage in it without anybody knowing."

And the Internet has made it very easy for people to indulge with little immediate consequence.

According to Vyse, it's estimated that Americans spend between $10 billion and $13 billion on adult entertainment.

That's a lot of money that might be put to better use in retirement accounts across the country.

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