Selection 6: Managing Your Debts
(health and fitness)

1. A sudden illness or the loss of your job may make it impossible for you to pay your bills on time. If you find you cannot make your payments, contact your creditors at once and try to work out a modified payment plan with them. If you have paid your bills promptly in the past, they may be willing to work with you. Do not wait until your account is turned over to a debt collector. At that point, the creditor has given up on you.
2. Automobile loans present special problems. Most automobile financing agreements permit your creditor to repossess your car anytime you are in default on your payments. No advance notice is required. If your car is repossessed and sold, you will still owe the difference between the selling price and the unpaid debt, plus any legal, towing, and storage charges. Try to solve the problem with your creditor when you realize you will not be able to meet your payments. It may be better to sell the car yourself and pay off your debt than to incur the added costs of repossession.
3. If you are having trouble paying your bills, you may be tempted to turn to a company that claims to offer assistance in solving debt problems. Such companies may offer debt consolidation loans, debt counseling, or debt reorganization plans that are "guaranteed" to stop creditors' collection efforts. Before signing with such a company, investigate it. Be sure you understand what services the company provides and what they will cost you. Do not rely on verbal promises that do not appear in your contract. Also, check with the Better Business Bureau and your state or local consumer protection office. It may be able to tell you whether other consumers have registered complaints about the company.

Warning Signs of Debt Problems

4. Bill Kenney, in his early 30s, has a steady job with an annual income of $40,000. Bill, his wife, and their two children enjoy a comfortable life. A new car is parked in the driveway of their home, which is furnished with such modem conveniences as a new microwave oven, a new freezer, an electric washer and dryer, a videocassette recorder, and a large-screen color television set.
5. However, Bill Kenney is in debt. He is drowning in a sea of bills, with most of his income tied up in repaying debts. Foreclosure proceedings on his home have been instituted, and several stores have court orders to repossess practically every major appliance in it. His current car payment is overdue, and three charge accounts at local stores are several months delinquent.
6. This case is neither exaggerated nor isolated. Unfortunately, a large number of people are in the same floundering state. These people's problem is immaturity. Mature consumers have certain information; they demonstrate self-discipline, control their impulses, and use sound judgment; they accept responsibility for money management; and they are able to postpone and govern expenditures when overextension of credit appears likely. Overextension of credit is the second most common reason consumers are unable to pay their bills on time.
7. Referring to overindebtedness as the nation's number two family financial problem, a nationally noted columnist on consumer affairs lists the following as frequent reasons for indebtedness:

   1. Emotional problems, such as the need for instant gratification, as in the case of a man who can't resist buying a costly suit or a woman who impulsively purchases an expensive dress in a trendy department store.

   2. The use of money to punish, such as a husband who buys a new car without consulting his wife, who in turn buys a diamond watch to get even.

   3. The expectation of instant comfortamong young couples who assume that by use of the installment plan, they can have immediately the possessions their parents acquired after years of work.

   4. Keeping up with the Joneses, which is more apparent than ever, not only among prosperous families but among limited-income families too.

   5. Overindulgence of children, often because of the parents' own emotional needs, competition with each other, or inadequate communication regarding expenditures for the children.

   6. Misunderstanding or lack of communication among family members. For example, a salesperson visited a Memphis family to sell them an expensive freezer. Although the freezer was beyond the means of this already overindebted family and too large for their needs anyway, the husband thought his wife wanted it. Not until later, in an interview with a debt counselor, did the wife relate her concern when she signed the contract; she had wanted her husband to say no.

   7. The amount of the finance charges, which can push a family over the edge of their ability to pay, especially when they borrow from one company to pay another and these charges pyramid.

   The Serious Consequences of Debt

8. Just as the causes of indebtedness vary, so too do the other personal and family problems that frequently result from overextension of credit. Loss of a job because of garnishment proceedings may occur in a family that has a disproportionate amount of income tied up in debts. Another possibility is that such a family is forced to neglect vital areas. In the frantic effort to rob Peter to pay Paul, skimping may seriously affect the family's health and neglect the educational needs of children. Excessive indebtedness may also result in heavy drinking, neglect of children, marital difficulties, and drug abuse. But help is available to those debtors who seek it.

Consumer Credit Counseling Services

9. If you are having problems paying your bills and need help, you have several options. You can contact your creditors and try to work out an adjusted repayment plan yourself, or you can check your telephone directory for a nonprofit financial counseling program to get help.
10. The Consumer Credit Counseling Service (CCCS) is a local, nonprofit organization affiliated with the National Foundation for Consumer Credit (NFCC). Branches of the CCCS provide debt counseling services for families and individuals with serious financial problems. It is not a charity, a lending institution, or a governmental or legal agency. The Consumer Credit Counseling Service is supported by contributions from banks, consumer finance companies, credit unions, merchants, and other community-minded organizations and individuals.
11. According to the NFCC, every year millions of consumers contact CCCS offices for help with their personal financial problems. More than 225 CCCS offices opened in 1996, bringing the total number of locations to about 1,300. Now more than 90 percent of the U.S. population has convenient access to CCCS services.
12. To find an office near you, check the white pages of your local telephone directory under Consumer Credit Counseling Service, or call l-800-388-CCCS. On the Web, you go to their website, www.nfcc.org. All information is kept strictly confidential.

Source: Jack Kapoor, Les Dlabay, and Robert J. Hughes, Personal Finance, 7th ed. New York: The McGraw-Hill Companies, Inc., 2004, pp. 214-19.

Writing Prompts

Directions: Type your responses to the items below.

1			What was the most interesting new information you learned in this selection?
2			In paragraph 7, the author lists several common reasons for indebtedness. If you found yourself deeply in debt, which of those factors do you think would have contributed to that happening?
3			If your roommate or best friend confided in you that he or she was several thousand dollars in debt, what advice would you give them to solve the problem?
4			Describe someone your know or know about who became deeply in debt. (Do not use the person's real name.) How did it happen? What effects did it have on the person and others close to him or her? How did he or she solve the problem?

To the Web

Consult one or more of the following websites that pertain to the topic of the reading selection. Then answer the questions based on information obtained from the websites.

www.credit-ed.citibank.com

Citibank offers excellent information about credit and money management for young adults.

5			Under Interactive Tools, click on "Know When to Stop" and then watch this short movie. Next, click on the "Spend Wisely Challenge." Answer the questions. Report your score and tell which category your score put you in. Based on your score, tell whether you think you need to know more about money management and your reason for thinking this. Write a paragraph telling what you learned that was new to you or important.
6			Click on the "Credit Card ABCs" tab. Then click on "Your Credit History," and choose "10 Healthy Credit Tips." (If you prefer, you can go directly to "10 Healthy Credit Tips" by typing in the address http://www.citi.com/us/cards/cm/student/ccabc02.htm. Of the ten suggestions presented, select three that you think would help you keep your credit from "crashing and burning." Explain why you chose those three and how you think they could help you.
7			Under the "Credit Card ABCs' tab, select one of the subtopics. Read the information about it and then summarize it or make a concept map of the information.
8			Under the "Be Protected" tab, select one of the subtopics. Read the information about it and then summarize it or make a concept map of the information.

http://www.debtsmart.com/pages/article_tywooccd_excerpt.html

This website presents a selection from Talk Your Way Out of Credit Card Debt.

9			Why does the author say it is a "great paying job" to spend time looking into all your credit options?
10			For what reasons does the author view consumers as being "in control" and having the banks at their mercy?

http://www.debtsmart.com/pages/article_10_things_rigg.html

This website presents a selection entitled, "10 Things You Should Know about Credit Card Debt."

11			Of the ten things mentioned, pick three things that are new to you that you think are important or, if you were already familiar with them, describe the three you think are most important.

http://www.fool.com

This website is a financial advice website run by two brothers who call themselves the "motley fools." (They are both highly intelligent, well educated, and have sense of humor.) If you go to the homepage first (it's worth exploring), look for the heading "Tools and Resources." Beneath it is a link entitled "Get Out of Debt." Click on it and go to "Lesson 2: Six Steps for Eliminating Credit Card Debt." If you prefer, you can type in the following address and go directly to Lesson 2:

http://www.fool.com/seminars/sp/index.htm?sid=0001&lid=200&pid=0000

12			Explain the benefits described in the lesson of carrying only one of two credit cards and paying off the balance each month.
13			Evaluate the organization of "Lesson 2: Six Steps for Eliminating Credit Card Debt." Do you think it is well organized? If so, what features do you find helpful? If you do not think it is well organized, explain why.

http://www.centredaily.com/mld/centredaily/news/6264395.htm

This article is entitled, "Home Is Where the National Debt Is." As the title suggests, it is about the national debt, the total amount of money owed by the U.S. government.

14			When was this piece posted?
15			What was the nation's debt at the time this selection was posted?
16			Give the two reasons William Greenwood believes the country is capable of wiping out the national debt.
17			Why does economist Leonard Lardaro believe that the national debt is not necessarily a problem?