Debt loads that catch the unwary. Common sense dictates your limit

ANOTHER day older and deeper in debt.'' If some banks and other lenders have their way, the time frame on that tune could be cut down to an hour.

Almost every day, it seems, the mails deliver another chance to get yourself deeper in debt and, for many people, make it that much harder to climb out of the hole.

While it's no longer legal to send unsolicited credit cards, that hasn't stopped the flood of ``pre-approved'' credit-card applications, where you can add to your credit-card collection by providing nothing more than your signature. You became eligible because a quick credit check said you've paid your bills more or less on time.

If you're a homeowner, you probably receive dozens of offers each year to ``tap the unused equity'' in your home. Radio and TV ads echo the theme.

Other lenders, meanwhile, are sending out offers of several thousands of dollars in credit lines that can be used simply by writing a check. Again, these pre-approved loans are based on nothing more than how you paid your bills in the past, not whether your income can support this extra debt.

Piling on the debt is so easy, financial experts say, that many consumers aren't aware of how much credit they can have, or how easy it is to get in a hole. They need to arm themselves with both information about what the lenders want -- profits from interest -- as well as how and why to borrow.

``It is true that American consumers borrow more than any place on earth,'' notes Mark Obrinsky, an economist with the United States League of Savings Institutions. ``We've become accustomed to a certain prosperity and an increased standard of living. We've gotten impatient. We see things produced and we want to have them.''

On the other hand, there are times when borrowing the right amount of money at the right time and for the right reasons makes sense.

``If you're borrowing for an appreciating asset, it can be useful,'' says Marilyn Capelli, a financial planner with Forrest Financial Advisers in Naperville, Ill. ``Even if you have savings, it can be better, as long as you borrow at a fixed rate.''

The problem is, many people don't use borrowing as one tool in the execution of an overall financial plan. They just borrow. Or they charge. Or they tap the equity in their homes. Money management tool

``Borrowing can be used as a tool for good money management,'' Mr. Obrinsky agrees. ``Or it can be used as a tool for bad money management.''

``We've been subject to the hard sell of `buy now and pay later' for decades, says Grace Weinstein, a financial writer and author of ``The Lifetime Book of Money Management'' (New American Library, $19.50). ``Borrowing took off in the last decade when everyone was buying now and paying off in cheaper dollars.'' Inflation made this not only possible but, in some cases, advisable, since the interest rate on the loan was less than the rate of inflation.

For example, says Christopher Croft, a financial planner with Bailard Biehl & Kaiser in San Mateo, Calif., assume you took out a loan for 9 percent in the mid-1970s. Assume the same 9 percent rate for inflation. If you were in the 50 percent tax bracket, your effective interest rate was 4.5 percent. After inflation, that came to -4.5 percent for the actual cost of your loan. Even if you were in a lower bracket, you could still end up with an effective rate at or near zero in those days, Mr. Croft points out.

``No wonder a lot of people have a financial hangover from that time,'' he says.

But with a 4 percent inflation rate, that kind of thinking doesn't make sense anymore; yet people continue to borrow and charge, even though unsecured personal-loans rates are running about 16.4 percent, bank-card rates average about 19 percent, and car loans, 12.6 percent.

Between 1980 and October 1985, disposable personal income rose 48.6 percent, according to Federal Reserve figures. At the same time, consumer debt increased 61.4 percent. This does not include home mortgages, mobile-home loans, car loans, or gasoline charge-card balances. It includes just ordinary loans and credit-card charges.

``While debt has increased faster than income, overall wealth has increased, too,'' says Mickey D. Levey, vice-president and chief economist at Fidelity Bank in Philadelphia. ``But many people are overextended and it wouldn't take much to throw them for a loop.'' Debt load not `that scary'

Not everyone believes Americans are overloading on debt. ``I'm not sure that a lot of debt is being pushed on people,'' says William Miller, a vice-president at Trust Company Bank of Georgia, in Atlanta. ``A lot of people do have a lot of equity built up in their homes, for instance.''

``If you look at the debt burden relative to assets or wealth, it doesn't look that scary,'' concurs Stephen McNees, an economist with the Federal Reserve Bank of Boston. Because home values have appreciated so rapidly in recent years, while the stock and bond markets have also gained handsomely, many people do indeed have untapped wealth. While a heavy debt burden may not be a very efficient way to manage money, these untapped assets can be used to prevent bankruptcy in case of financial difficulty.

With all the dangers and burdens of debt, is there a good time to borrow, then?

``Ask yourself, what is the debt for?'' Ms. Weinstein cautions. ``Are you borrowing to meet current bills or to buy something that's going to be used up soon?'' In either case, she says, these are not good reasons to borrow or charge.

If credit is used to get ahead, that is, to buy an appreciating asset such as a house, home improvements, an education, or even some investments, then it may be a sensible use of debt. If you'll still have use of the item by the time the final bill comes due (like an education, but not a vacation), then consider a loan or some other type of credit for it.

But if you don't expect to be able to pay the bills easily out of current income, then don't borrow. Don't assume, Weinstein cautions, that just because a creditor gives you credit, he knows your ability to repay. Your credit standing is based on your past record of paying bills, she says; only you know whether you'll be able to pay them off in the future.

``Bankers don't ask about your job security or the future of the industry you work in,'' Croft adds. ``You have to do that yourself.'' Know your debt limits

How much can you borrow? Again, Weinstein recommends setting limits. Most of us, she says, can handle debt payments that equal 10 percent of our take-home pay. This doesn't include mortgage payments. If your nonmortgate debt payments get to 15 percent, you should start looking at your borrowing and charging habits, and 20 percent or more should be considered a danger area.

Of course, this assumes a certain level of mortgage or rent payments. If your mortgage payments are fairly low, you may be able to support a little more debt for a short time. On the other hand, if your mortgage payments are quite high, you should probably avoid borrowing or charging whenever possible.

Some people may not even be comfortable with a 10 percent debt limit. If you find yourself getting anxious about money if your loan payments go over 5 percent of your take-home pay, don't go over it.

Also, look at your savings. If you have no savings, you should probably have no debt, apart from your mortgage. But if you have some savings built up, then you have a resource that can be used in an emergency without having to take your credit card to the bank and charging cash. A common rule is that savings should equal four to six months' take-home pay.

While you're setting debt limits, include a credit-card limit. If you can't charge more than $100 a month without being able pay off all your credit-card bills in full, don't go over that limit. Also limit the number of cards you haul around.

``I don't have more than one type of credit card,'' says John H. Mullen, national director of personal financial planning at KMG Main Hurdman, an accounting firm. ``I only need one to do the things I need. I sugest people choose either MasterCard or Visa and stick with that.''

``I use it as a convenience,'' Croft says of his charge card. ``If you're looking at it as a way to manage debt, it's not very efficient.''

This is a good rule to remember the next time you get a pre-approved solicitation for a credit card, which may be tomorrow: If you already have a Visa or MasterCard -- or both -- you don't need another. Even if the new card has a lower interest rate, you should be avoiding finance charges anyway.

You can exchange one card for another, however, if the new card has a lower membership fee or doesn't start charging you interest as quickly as another. Some cards start toting up the interest as soon as they get the bill from the merchant; others have kept the 25- to 30-day grace period.