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.

Directions: Questions 1-5 are objective questions that are based on the information in the selection. Answer them by clicking on the correct answer. You may refer to the selection as you answer the questions.

1	Defaulting on automobile loan payments is a special problem because
	A)	your creditor may be able to repossess your car any time without any advance notice.
	B)	if your car is repossessed and sold, you will still owe the difference between the selling price and the unpaid debt.
	C)	if your car is repossessed you owe any legal, towing, and storage charges.
	D)	all of the above
2	The main reason people are in debt is
	A)	personal and family problems.
	B)	their own immaturity.
	C)	alcoholism, marital difficulties, and drug abuse.
	D)	sudden illness or loss of a job.
3	The Consumer Credit Counseling Service (CCCS) does which of the following?
	A)	provides debt counseling services for families and individuals with serious financial problems
	B)	makes loans to families and individuals with serious financial problems
	C)	provides legal advice to families and individuals with serious financial problems
	D)	all of the above
4	Individuals can use CCCS if they
	A)	have a referral from a bank.
	B)	declare bankruptcy.
	C)	simply contact a CCCS office.
	D)	pay a small fee based on their income level.
5	People who are considering using a company that claims to offer assistance in solving debt problems should
	A)	report the company to the Better Business Bureau.
	B)	arrange for debt consolidation.
	C)	investigate the company and read any contracts carefully.
	D)	ask for a debt reorganization plan from the company.

Vocabulary Questions

6	If you find you cannot make your payments, contact your creditors at once and try to work out a modified payment plan with them. The Senate did not like the first version of the proposed bill, but eventually passed a modified version of it. modified
	A)	severe; harsh
	B)	accelerated
	C)	slightly changed
	D)	popular
7	His current car payment is overdue, and three charge accounts at local stores are several months delinquent. Because he lost his job and has not been able to find another one, my roommate is delinquent on his phone bill and on his half of the rent. delinquent
	A)	pertaining to antisocial behavior
	B)	with unpaid sums of money due
	C)	neglecting a duty
	D)	pertaining to breaking the law
8	Unfortunately, a large number of people are in the same floundering state. Because Dominic did not take algebra in high school, he is floundering in his college math class. floundering
	A)	having serious problems and being close to failing
	B)	making clumsy movements while trying to regain balance
	C)	absurd; ridiculous
	D)	barely making a passing grade
9	There is an 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. Under the terms of the installment plan, we will pay $30 dollars every month on for the next two years in order to buy a new washer and dryer. installment plan
	A)	buying something by paying a series of payments that gradually decrease over time
	B)	buying something by paying a series of payments at regular intervals
	C)	buying something by paying a single lump sum
	D)	buying something after first renting it
10	Loss of a job because of garnishment proceedings may occur in a family that has a disproportionate amount of income tied up in debts. In many states, employed "deadbeat dads" face garnishment until they catch up on the overdue child support payments they have missed. garnishment
	A)	imprisonment
	B)	public humiliation
	C)	financial transactions related remarriage
	D)	taking wages of a debtor in order to pay off a debt

Applied Reading Skills Questions

Directions: Questions 11-15 test your ability to apply certain reading skills. Answer each question by clicking on the correct answer. You may refer to the selection as you answer the questions.

11	The story about Bill Kenney is included as
	A)	an example of a person who sought credit counseling.
	B)	a case study of a person whose car was repossessed.
	C)	a typical example of a person who is deeply in debt.
	D)	an example of a person who opted for the installment plan.
12	Based on information in the selection, the authors are likely to agree with of the following statements?
	A)	It is important for people to educate themselves about debt.
	B)	People should avoid buying things on credit.
	C)	The use of money to punish is the primary reason people end up in debt.
	D)	Being in debt is not as great a problem as it is perceived to be.
13	In paragraph 7, item 4, the authors use the phrase keeping up with the Joneses to mean which of the following?
	A)	buying things just so that it will not appear that others have more than you do
	B)	buying exactly the same things as the Jones family
	C)	going every place the Joneses go
	D)	moving at the same pace as someone else
14	Based on the selection, it is logical to conclude that young adults
	A)	have a lack of communication with their family members regarding money.
	B)	do not understand how greatly finance charges can contribute to being in debt.
	C)	who overspend and go into debt have emotional problems.
	D)	would benefit from changing their expectation that they can have all the possessions they want as soon as they want them.
15	Which of the following represents the main idea of paragraph 8?
	A)	Just as the causes of indebtedness vary, so too do the other personal and family problems that frequently result from overextension of credit.
	B)	Loss of a job because of garnishment proceedings may occur in a family that has a disproportionate amount of income tied up in debts.
	C)	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.
	D)	Excessive indebtedness may also result in heavy drinking, neglect of children, marital difficulties, and drug abuse.