Beat the System: This is the simplest money rule of all time: Don’t be a debt zombie

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A previous version of this column was published on July 12. The column has been updated and revised.

BOSTON — When it comes to money, some things are really complicated.

So let’s file this one under “things that are really, really simple”:

• Don’t be a debt zombie.

• Don’t be the consumer version of a zombie corporation. Don’t be the Walking Debt.

• Don’t carry on spending merrily on luxuries if you can’t pay off your credit cards at the end of the month. Don’t borrow on your cards at 10% or 20% or 30% to keep shopping.

What’s the definition of a “luxury”? If you owe money on your cards, it’s “anything you don’t absolutely, positively, desperately need to survive for the next 30 days.”

A new study from the federal Consumer Finance Protection Bureau shows just how bad the situation still is, years after the financial crisis.

Cards are still being widely used as an expensive source of debt, rather than simply as payment methods, CFPB economists Daniel Grodzicki and Sergei Koulayev find. “We find that approximately 82% of outstanding credit card balances are debt, or that they are revolved for a month or more,” they write. The numbers are almost as bad even among those with high credit scores, they report.

And the borrowers aren’t just using their cards to borrow for a month or two. “Of the balances that are debt, about 70% accrues to accounts revolving continuously for a year or more, and 55% to those revolving for two years or more,” they say.

In other words, over half of credit-card balances are part of debt that is being carried for more than 12 months.

The debt zombies borrow for longer than they expect, the CFPB finds. And they end up paying a lot more, too.

Yes, the exciting “introductory” interest rate on your new card may be 0%. But the average rate soon rises to around 15%. And debt zombies end up paying around 28%, says the study.

Ouch.

Oh, and if you’re hoping your wages will miraculously catch up with your rising debts, good luck. Average wage growth for the past decade: 2.5% a year.

If that’s not warning enough, CreditCards.com has released its own timely new survey on the subject. It shows people who carry a credit-card balance from month to month actually spend more on luxuries, on average, than people who can pay off their cards at the end of the month.

D’oh!

The debt zombies spend more on restaurants, clothes, cellphones, streaming services like Netflix NFLX, -1.78% and Spotify SPOT, +1.29% and beauty treatments.

Sure, spending more on luxuries is going to put you more at risk of falling into debt. That much is obvious. But even once they’re in debt, they still carry on spending. Even while paying monthly usury.

And many of them claimed they couldn’t possibly cut back sharply, according to the survey. Households in credit-card debt are spending an average of $1,600 a year on their cellphones, but only one in four said they’d be willing to cut that in half. They’re spending $1,900 a year on clothes, but only a third said they could cut that in half. The average household with credit-card debt is still spending more than $5,000 a year on their cars.

Insane.

Smart shoppers can get cellphone plans for less than $10 per person a month. No kidding.

This is not the first survey that shows how many people struggle to handle their finances, and it won’t be the last.

We’re in the longest economic expansion on record. Unemployment is on the floor. So is inflation. For the past five years the so-called misery index — inflation plus unemployment — has been at levels not seen since the Eisenhower administration. Short-term interest rates have been at historic lows.

Yet for all that, the Federal Deposit Insurance Corp.’s latest banking report says consumers owe twice as much on their credit cards as they did 10 years ago. Charge-offs — debts that are unlikely to be collected — are at their highest rates since 2012, it noted.

Federal Reserve Chairman Jerome Powell says he’s not worried about consumers’ debts. A cynic might say: Of course not. He doesn’t have to pay them.

For those who do: Don’t be a zombie.

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