Living in a Plastic Palace

• Posted by Stephanie
• 19 January 2012
• Blog, Cash Flow, Debt, Financial Behavior

Are your clients living in a plastic palace? The stats are all over the place, and a recent report from Equifax showed some interesting patterns in my home city. While we see credit card debt going down over all, debt and consumer debt are going up. So what gives?

People have caught on that it’s cheaper on a monthly basis to roll expensive credit card debts into lower-rate lines of credit; however, if this is a continual cycle, the client eventually runs out of cheaper credit. Then they not only carry maxed-out lines of credit or HELOCs but also rack up the plastic with its high rates too!

Are your clients paying down debt or playing the shell game with it? A few important questions to consider adding to your new-client meetings and client reviews:

• “Do you ever move higher-interest debt like credit cards to any of your lines of credit?”
• “When and why was the last time you refinanced your mortgage or used your HELOC?”

Too often, those trying to avoid carrying a high-interest balance on a credit card miss the point. They move the debt to a lower-interest spot but don’t change the spending pattern and so grow the debt. You help your clients make sure their debt moves in the right direction on a regular basis by making sure the topic is part of every meeting they have with you!