If debt is part of the engine that drives our economy and if it’s such a wonderful convenience, what’s the matter with being in debt? What’s the down side?

The “snowball effect” of debt

Part of the problem is obvious. You build debt because you don’t have the money to pay your expenses, and the debt then adds to your expenses for months and years to come. That makes it more likely that you’ll need to borrow even more to pay your expenses in the future. Paying with debt solves the immediate problem, but it creates a bigger problem down the road. Once the debt cycle gets rolling, it takes real effort to turn it around.

The cost of interest

The second problem with debt is that it’s expensive. It would be hard enough to pay back growing debts if you just had to pay the amount you borrowed.

But you actually pay much more than that when you add in interest and latepayment fees.

Let’s look at a typical credit card that charges 18 percent interest and imagine that you have an unpaid balance of $1,000. If you make the minimum required payment of 2 percent each month, that comes to $20. That seems reasonable and manageable.

If you pay $20 the first month, you might expect your balance to go down to $980. Then to $960 the second month. At that rate, you’d pay the balance off in just over four years. But it doesn’t work that way. This kind of calculation ignores the effect of interest.

Actually, your account is charged 1-1/2 percent interest each month (18 percent divided by 12). That comes to $15 the first month. So you pay $20, the bank adds $15 in interest, and the balance drops by just $5—to $995. Instead of taking four years to pay off the balance, it will actually take eight years. And instead of paying back $1,000, you’ll actually pay back $2,000. That’s if you’re on time with every payment and aren’t charged any late fees.

If you’re making just the minimum payment on a credit card that charges 18 percent interest, you’re actually paying twice the price on the label or the receipt every time you buy with that card. So a $60 pair of shoes will actually cost you $120. A $50 meal will actually cost you $100. Try doubling the total next time you pay for something with a credit card and see if it seems like a good value.

The emotional cost of debt

The third cost of debt has to do with your emotional well-being. When your debt total is going up instead of down it can leave you feeling trapped, desperate, and not in control of your life. You can feel that someone else “owns” you, to the point that you deny yourself the breaks and pleasures you need to stay healthy and happy. A debt problem can drain your sense of confidence and self-worth.

It can lead to depression, unhealthy anxiety, and health problems. The emotional effects can damage your marriage and your relationship with your children, friends, and extended family. Money problems are the single biggest factor in relationship problems that end in divorce. Debt problems can affect your performance at work, pushing you to overwork in a “nose-to-the-grindstone” way, and keeping you from contributing with energy and creativity in ways that add value to your employer and lead to bonuses, raises, and promotions.

Debt is clearly a two-edged sword. Used wisely and carefully, it can help bring you greater happiness and prosperity. Used casually and without careful planning, it can lead to economic crisis and intense emotional stress.

We all know, at least at some level, that we should have enough savings to weather a financial setback—the loss of a job, an injury or illness that interrupts or reduces income, or a costly expense. We know that we should be steadily building up our savings—for retirement, our children’s education, or for the down payment on a home. We know that increasing our savings and reducing our debt over time is good for us. Yet the great majority of us don’t behave as though we understand this at all. For the population as a whole, the rate of savings is shrinking, and the level of personal debt is rising.

Why do we often act in irrational and self-destructive ways with our money? A big part of the answer is that we aren’t calculating machines. We aren’t very rational. We’re human beings with complex emotional needs. And access to money and credit plays to our emotions in ways that are hard to control.

At a primary level, there’s the tension between “now” and “later.” Spending brings immediate pleasure. We don’t enjoy the benefits of saving—or the pain of debt payments—until later. We may think of ourselves as mature adults, but there’s still a lot of the two-year-old in each of us. “I want it now” can easily overpower “But think about later.”

The way we behave with our money is also deeply rooted in our experiences, especially in childhood. For example, if you grew up with a parent who was a disciplined saver and never spent money on fun extras, you may find it easy to follow that model yourself. Or you may find yourself behaving in ways that are a reaction against that early experience. At a level you may not even be aware of, you may view savings as an unhealthy form of self-denial and spending as a way to achieve a more balanced and happy life.

If you grew up in a household where there was never enough money, you may find yourself driven to make money, even at the expense of your own or your family’s happiness, or to spend beyond your means in very visible ways. Early experience with money might be driving you to be overly cautious with your money, or to take unreasonable risks.

Behavior patterns with money are also set early in life and can be hard to change. Older people, who established their spending and savings habits before the introduction of credit cards, tend to use credit cards as a convenience and not as a way to borrow. People who started their careers before 1970 are far more likely to pay off their credit card balances each month than are people who entered the work world after 1975. People old enough to have experienced the financial trauma of the Depression tend to be very cautious when it comes to debt and savings and very aware of maintaining a cushion against a possible money setback. And people who entered the work world during the boom of the mid-to late 1990s are more likely to have a freer and more optimistic outlook on their finances than people who have had trouble finding a job during an economic recession.

A good way to get a better understanding of your relationship with money is to talk about it with a trusted friend. Share stories of ways you’ve acted with money and talk about experiences you had with money growing up. If you’re like most people, you’ll find a connection between the two. The more you understand about why you act the way you do with your money, the better you’ll do at noticing and dealing with things you do that may hurt your financial health.

Debt isn’t limited to credit card spending. We give credit cards extra attention in this article because they offer such an easy way to get into debt. But there are plenty of other opportunities, too. Here are a few:

* Loans from parents and other family members to pay for unexpected (or at least unplanned-for) expenses—a major car repair, a plumbing emergency, winter coats and boots for your kids

* Money borrowed from friends to cover lunch or small expenses

* Gas station cards

* Store account cards

* Paying late, or over time, for services such as dental work and car repairs

* Stretching your budget by paying regular monthly bills late (in effect, borrowing from the companies to which you owe money)

* Payday loans (loans to cover expenses just before payday—generally at very high interest rates)

* Advances on wages or commissions from your employer

* Borrowing from a life insurance policy

* Credit reserve or overdraft privileges on a bank checking account

These are all ways to pay for things you need before you have the money to cover the expense. And they’re all ways to accumulate debt.

Credit cards are a great convenience. They let us buy what we need even when we don’t have enough cash. They make it easy for us to shop online, buy meals, and rent cars when we travel. But credit cards also tempt us to spend more than we can afford.

Studies of consumer behavior show that people spend two to three times as much money when shopping with a credit card as they do when paying with cash.

The difference is in the level of impulse shopping. The act of paying with cash reminds us that we have a limited amount of money. We forget that limit—or ignore it—when we pay with a credit card.

When relying on cash, most people are disciplined in their buying and do a good job of ignoring the many impulse temptations they face. Because the cash is hard to part with, they take extra time to find the best bargains. When paying with a credit card, shoppers are much freer with their spending. They pick up those tempting extra items and add them to their carts. They also spend less time comparing prices and looking for bargains.

It goes even further. Credit cards free us to be more generous when shopping for gifts. They make us looser with our money when choosing food and drinks in a restaurant, and when leaving tips. And when we know we’ll be paying with plastic, we rarely buy just the one inexpensive item we were looking for. We add a couple of other things to the cart so we don’t look silly charging a small amount when we get to the front of the checkout line.

Until the early 1970s, credit was available to most people only for significant purchases—a home, car, or big piece of furniture—where the lender had something valuable to recover if the borrower fell behind in the payments. Lenders were cautious about loans and made sure they had an easy way to recover the money if anything went wrong. For most purchases, people saved until they had enough to pay cash.

That changed with the introduction of credit cards in the 1970s. Lenders discovered a huge and profitable new market of borrowers. And we, the credit card spenders and borrowers, discovered the convenience of cash-free spending and the pleasure of getting what we wanted without waiting until we had the cash to pay for it. Sure, some people got into debt trouble and ended up unable to pay their credit card bills. But the money the credit card companies made on the majority of customers who kept up with their payments more than balanced out those losses.

Which leads us to where we are today. We live in an age of easy credit. And that requires a new kind of financial discipline and self-control. Credit makes it easy for us to get what we want. But it also makes it easy to get into serious financial trouble.

When you, and millions of others like you, buy with credit, you’re fueling our economy by increasing the demand for goods and services. Your spending creates work, jobs, and wealth for the people who provide those goods and services—and it brings money in interest payments to banks and other lenders. The money from your spending encourages innovation and invention as people look for ways to design better products and new, more efficient ways to deliver services to sell to you. And that growth and innovation is what moves all of us, over time, to a better life.

That’s the big-picture benefit of debt and credit. At the individual level—yours— credit has immediate benefits, too. Used carefully, it allows you to buy what you need now and pay for it out of your future earnings. Credit in the form of home mortgages is the lever that allows ordinary people to own their own homes and gradually build a valuable investment for their future. Student loans allow people who couldn’t otherwise afford it to attend school and learn skills that increase their earning power.

Credit card debt and other consumer debt are such a common part of modern life that many of us live with pressure on our budgets without realizing we may be entering a financial danger zone.

Are you one of the millions who are digging themselves into money trouble through the use of consumer credit? Are you trying to recover from a financial setback—a loss of income or an unexpected expense—that leaves you looking at a scary financial future? Are you getting by from month to month by building your debt instead of your savings?

Take this quick debt quiz to find out if you can use some help dealing with debt.

I carry credit card balances for a long time and often pay only the minimum amount due.
[YES] [NO]

My credit card balances are growing each month.
[YES] [NO]

I am at or near my borrowing limit on one or more of my credit cards.
[YES] [NO]

I no longer have a savings account, or I am using savings to pay bills I used to pay from my checking account.
[YES] [NO]

I try to manage my money to a budget, but I often come up short when I sit down to pay bills.
[YES] [NO]

I use cash advances from credit cards or the overdraft feature on my checking account to pay bills and basic living expenses.
[YES] [NO]

I borrowed from friends or family when money was tight, and haven’t yet paid it all back.
[YES] [NO]

I juggle payments, paying one creditor one month and another the next so that they are both getting something.
[YES] [NO]

I often transfer balances from one credit card to another because I can’t afford to pay all of my monthly credit card bills.
[YES] [NO]

I have “consolidated” my debts into a home equity loan or a single credit card at least once.
[YES] [NO]

I rely on overtime pay or money from a second job to pay my regular bills.
[YES] [NO]

I don’t have the money to pay irregular bills, like real estate taxes and insurance.
[YES] [NO]

When I come home from shopping, I sometimes hide my purchases or lie about how much they cost.
[YES] [NO]

I no longer pay attention to how much I owe.
[YES] [NO]

I sometimes get notices in the mail or phone calls telling me I’m late with a payment.
[YES] [NO]

My heart rate increases when my credit card is run through the machine because I never know if it will be accepted.
[YES] [NO]

If you answered “Yes” to one or more of these questions, this section of freeinfoz.com is important for you.