Digging Out Of Debt

I was watching Kare11 News last night and Mike Pomeranz did a story about consumers digging out of debt that I found quite interesting. He interviewed a girl that went to the U of M who fell for every trick those nasty credit card companies dealt her. I think my generation was the first to experience this. They offer free water bottles and towels if you sign up for a card. They sit in the student unions where the highest traffic is, it’s like they are preying on our young college students.

This new college student not only used it to make clothing purchases but she spent over her means, paying rent, traveling, paying for gas, paying for groceries and many other items. She made her minimum payments just as she thought she was supposed to do. When she graduated, she had racked up $3,000 in credit card debt. I guess that’s not too bad considering the national average in 2004 was $8650 according to The Plastic Safety Net.

Now that she was out of college and had to start paying back her student loans, she couldn’t afford to make her minimum payments on her credit cards any longer. She tried to negotiate with the companies on her own but they were just too tough on her.

Now, not everyone who carries credit card debt has racked up their bills because of extravagant spending or living beyond their means. A lot of them are in over their head because of medical bills, job loss or divorce. They are trying to live paycheck to paycheck and trying to find a way to lower their overall debt.

No matter which category you fall under, the offers coming flooding in from every nook and cranny to help bail you out. Some even promise to do it for next to nothing. One such company called Ameridebt was sued by the MN Attorney General’s office for cheating Minnesotans out of nearly $1 Million.

"They basically promised people that they would help consolidate and payoff their credit-card debt, only to charge the people significant amounts of money in up front fees. And then on the back end they failed to pay the creditors. So they would pocket the fee money to pay themselves," Minnesota Attorney General Lori Swanson explained.

Mike went on to talk about rolling over some of your debt into your mortgage. I was very grateful since I’m in that business that he didn’t say it was all bad. He was sure to point out that you will get a much lower interest rate then what you are paying on your credit cards, you can write-off some of the interest and expenses at tax time as well. If you can afford to make the payments, this might be the right thing to get you out of your pickle.

You need to make sure that you can afford the payments though!! Should I say this again? If you sign up for a very short 1 year ARM where your payment is fixed for only a year, well, that really doesn’t do you much good now does it? Because in a year, your rate is going to start fluctuating and as a result, your payment will undoubtedly go up as well. If you do get your self into a “band aid” loan so to speak, make sure the term is long enough to get you into the clear again, get you back on your feet so that you can re-finance into a fixed product or when the payments do start adjusting, you can afford them.

When working with a credit counseling service, you should try to work with someone local so that if you have a problem, you can actually go to them and look them in the eye!! There are so many to choose from, I’m not going to go into the many different places here. Besides the fact that I personally do not have any experience with them so I would not want to endorse anything I nor any of my clients have had any experience with. If you have, please let me know so that I know where to advise my clients to go!!

The gal that Mike Pomeranze interviewed that left college with the $3,000 in debt, where is she now? Well, she had all most finished up her credit counseling, she only had about $600 left so she thought she could do it on her own and she left her credit counseling program. She got a fantastic job, a great new apartment and started her spending all over again. She’s now up to $10,000 in credit card debt, (she lost the fantastic new job) and she’s back into credit counseling.

My problem is this, why aren’t we teaching our kids anything about credit cards and bills in general? Why aren’t there mandatory programs in high school and college about this? I went to college for business and never once was credit or credit cards or paying bills on any class list. Thank God I’ve been in the finance industry so that I could learn by other people’s mistakes but what’s the rest of the world to do?

I could blog about all of the things I’ve learned and all of my trade secrets but if people aren’t looking for this specific information, they aren’t going to find it. I educate all of my friends and my family and every customer that I can and that’s all I can do for now. I think as people in the Real Estate profession, we should take the time to inform the people within our sphere of influences of these same things because as a nation, we aren’t doing well!!

Beth Riegger
To find out more information on how to increase your credit score, click here.