Credit Card Debt

Credit Card Debt
Experts Say Must Wield Fiscal Discipline to Thwart Financial Siren

By Alicia Korney, Public Relations Associate

With the average American carrying around $9,000 worth of credit card debt, and the average person in the tri-state area carrying almost $20,000 in similar debt, the Manhattan-Bronx Chapter wasn’t surprised to see a healthy audience turnout at their Jan. 26 Credit Card Debt Seminar.

Hosted with the Society’s Public Relations Committee, the two-hour seminar focused on reducing debt, repairing credit and, as a last resort, exploring bankruptcy options.

Ginger Broderick, of Broderick & Company CPAs PC, started the evening by discussing many of the common reasons why people go into debt. She said it’s not uncommon for students leaving college to have thousands of dollars in debt beyond their loans. Many start-up small businesses, which may not be considered creditworthy by banks, can ring up to $100,000 in debt on four or five cards as they launch their new enterprise.

Broderick said when a person finally realizes the time has come to face his debt, the first key is to sit down and calculate, in entirety, how much is owed, before developing a budget. She said many of her clients often are ashamed of the extent of their debt, which she’s seen spread across as many as 30 credit cards. The highest-rate cards need to be paid off first, suggested Broderick, and card owners should look into whether banks and credit card companies are willing to negotiate a lesser rate for their customers.

Ultimately, Broderick said, for those determined to get out of debt, it will take a change in lifestyle to start making a dent in credit cards. The rule of thumb for her clients has been that the number of years it took to get into debt is usually equal to the number of years it will take to get out of it.

Alan N. Franklin, president of the nonprofit counseling group American Credit Alliance Inc., focused his part of the evening on debt consolidation. His group’s 501 plan (www.501plan.org) consolidates a person’s credit cards into one monthly payment, and they can often negotiate better interest rates and fee charges than can an individual consumer. The plan, which still permits one card to be kept for emergencies, offers a way out of debt by avoiding credit damage.

Franklin also recommended that all consumers make a point of understanding their credit card rating and checking their consumer credit rating annually, both services included with his company’s 501 plan.

Attorney Steven Jurista, of Wasserman, Jurista & Stolz, told the audience that in 2004 more than 2 million people filed for bankruptcy. Unlike early in his career, when triggering events, such as a business failure, a medical problem or the loss of a job, resulted in clients filing for bankruptcy protection, Jurista said people now turn to the code for much smaller liabilities.

While he believes bankruptcy should be a last resort, Jurista said the court process can be a fresh start, acting as a demarcation line distinguishing a person’s old financial life from his new financial life. The bankruptcy process can stay on record for at least a decade, Jurista said, and can have a long-lasting impact on someone who wants to eventually start a business or buy a home or car.

Jurista said in recent years he has observed credit card solicitations growing out of control, sometimes even targeting the formerly bankrupt, as well as a general lack of financial discipline and financial knowledge in the population. He also advocated for debt consolidation as an alternative to bankruptcy, and said it’s often unrealistic to expect someone who has racked up the debt to be able to single-handedly put themselves back on track.

“Unfortunately, many people file [for bankruptcy] for no reason better than they’re too disorganized to figure out what else to do,” Jurista said. “To really fight the trends I’m seeing, there has to be more understanding of basic financial concepts and less chasing of status symbols.”