Counseling Helps Debtors Ease the Runaway-Credit-Card Blues

What’s a shopper to do when the holiday gift list and the checkbook balance look like they belong to two different people--one with unlimited dreams and the other with quite limited means?

The easiest remedy is to reach for a credit card--charge it today and worry about it tomorrow.

But that is often the riskiest remedy, personal finance experts say.

Consider Tom and Laura Hunter of Huntington Beach. In 1982, their middle son, then 8 months old, contracted bronchial pneumonia, complicated by recurring bouts of asthma.

For the next 6 years, the family debts mounted, fed by medical bills from the boy’s chronic illness and pushed to the limit by automobile trouble and overuse of credit cards. Laura, who stayed home with her three children, said their medical coverage and Tom’s salary could not cover their financial liabilities.

For a while, the Hunters--who asked that their real names not be used--continued to make regular payments on their credit accounts, Laura said. But in 1985, she discovered that Tom was soliciting new credit cards from financial institutions throughout the country.

“I didn’t realize he was sending away for those to pay off the other cards,” Laura said. “I found out when the creditors called.”

Before Laura knew it, she and her husband had 21 cards--dangerous pieces of plastic representing accounts that ranged from the Broadway department store to Visa. They owed $43,000 on their credit cards alone.

“When we came down to the holidays, we didn’t have much money available to us,” Laura said. “All we had were credit cards. That’s mainly how we spent for Christmas--credit cards, whether we had the money or not.”

Earlier this year, Tom and Laura Hunter signed up for credit counseling, and they are now living on a strict budget. They are sending most of their income off to their creditors and live “day to day, week to week.”

“We filed our tax return late and have some money coming,” Laura said. “I’ll save some from that hopefully to pay for Christmas and for the creditors. Otherwise, it will be really rough.”

According to the Federal Reserve Board, the amount of outstanding credit card debt nationwide was $179.1 billion as of Sept. 30, the most recent month for which statistics are available. That number is directly tied to the estimated 800 million credit cards in circulation throughout the country. About 186 million of those are bank cards; the rest include department store and gasoline credit cards.

Although the Federal Reserve Board does not calculate consumer debt by county, credit experts contend that heavy debt problems are increasing in Orange County and throughout the nation.

The National Foundation for Consumer Credit, based in Washington, counsels debt-plagued families nationwide. According to Ken Scott, foundation spokesman, the average family who comes to his organization for help is $10,000 in debt.

In contrast, Orange County’s higher incomes and standard of living push the average debt for a family seeking help closer to $20,000, said Carl Lindquist, president of the foundation’s local chapter, which is called Consumer Credit Counselors of Orange County.

“It’s higher for my clients here than in San Diego or Los Angeles,” Lindquist said. “The average income here is higher than almost anywhere else.”

In 1986, the Orange County median family income was $41,537, while the median family income nationwide was $29,458. In 1987, the Orange County figure rose to $43,264; recent national statistics were not available.

Through more than 300 offices nationwide, the National Foundation for Consumer Credit helps families figure out how much they owe and to whom and assists those families in working out a budget.

There is no charge for counseling. A small fee--based on the client’s ability to pay--may be charged if the foundation devises and administers a debt-repayment plan. Appointments can be scheduled at the Santa Ana office by calling (714) 547-8281.

In fiscal 1985, the foundation’s member offices counseled 126,714 families throughout the nation and helped them return $117.2 million to creditors through stringent repayment plans, Scott said. In fiscal 1987, the number of families helped jumped to 176,714, and the amount of money returned rose to $186.5 million.

Lindquist’s Orange County office counseled 1,533 families in 1985 and helped them return $1.5 million to creditors. By 1987, the number of families rose to 2,230, and the amount of money returned more than doubled to $3.1 million.

While the telephone book is filled with pages of financial advisers, the only nonprofit help available in the area is the local branch of the National Foundation for Consumer Credit, Lindquist said.

For the consumer with little discipline and no personal financial plan, credit cards and holidays mix about as well as drinking and driving. Even the most responsible credit-card users can go a little crazy come December.

“Owners of credit cards do a very good job monitoring themselves--95% of them do,” says Gregory Bjorndahl, managing partner of the West Coast Group, an Irvine market research firm that specializes in credit-card use. “But the tendency to over-shop, at least in . . . studies of spending patterns, happens in the last 2 weeks before Christmas when you get into indulgent spending.”

You’re invited to one extra party, and you don’t want to go without a gift for the hostess. A colleague for whom you baked brownies presents you with an unexpectedly lavish gift, and you feel you must reciprocate. You have finished your carefully planned shopping, but the tree looks, well, so lonely.

At that point, there’s only one thing to do, according to Bjorndahl: Just say “no.”

“Resistance--the last little bit--makes a difference,” he says, in maintaining relatively good financial health throughout the holiday season.

If, however, you’ve already said “yes” to every holiday whim, you still can keep from committing financial suicide by working now for a more fiscally sound holiday season in 1989.

The first thing to do is figure out if you are in financial trouble. Every person’s finances are as unique as his or her fingerprints, and few financial advisers agree on the level of debt an individual can carry.

There are, however, a few clear signs that trouble is brewing.

“You know you’re in trouble when you can’t afford your monthly credit-card bills, but then it’s too late,” says Simon R. Pearlman, a Costa Mesa-based accountant with Arthur Young & Co., the Big Eight accounting firm.

Some earlier indicators center on what Bjorndahl calls “abnormal uses of credit cards.” He says when your financial behavior starts to show the following signs, it’s time to sit down and rethink money matters, particularly if holidays are looming:

* Using the credit card as a source of cash and being unable to pay back the cash.

* Acquiring a second credit card because the first card company won’t raise your line of credit.

* Depleting your savings.

* Disagreeing with your bank over how much credit you can handle.

* Being unable to pay the minimum on your credit-card bill 2 months in a row.

If you notice several of these danger signs--especially because of holiday spending--the best thing to do is start pumping the brakes.

Pearlman, for example, espouses one of the “simpler” methods of credit-card control: “My own view is that unless it’s an extraordinarily large purchase . . . or unless it’s an unusual, unexpected situation where you need an appliance and you’re not able to save, I would think people should avoid carrying over a monthly balance of credit-card debt.”

In other words, if you’re not in debt, don’t get into debt; if you’re already there, don’t get in any deeper.

Can’t manage such austerity? Not many people can, and some credit-card experts contend that such an approach is unrealistic in today’s society.

“We’re a consumption-oriented society, and within certain bounds, that’s just fine,” Bjorndahl says. “What’s too many cards? For some, 2 or 3. For others, 8, 10 or 12. It depends on what cards they are and what they’re used for.”

If you can’t muster enough impetus for some major change in your personal finances on your own, the Internal Revenue Service offers some incentive. According to the Tax Reform Act of 1986, when you file your 1989 income tax return, you will be able to deduct only 20% of the interest you paid on your credit cards. Before the reform act took effect, 100% of consumer interest was deductible; that dwindles to zero in 1991.

Still not convinced that austerity is the way? Then try common sense, say Bjorndahl, Lindquist and Pearlman. The most sensible precaution at any point in the year is a budget.

Today is Dec. 9, and there are 15 shopping days until Christmas. Sit down with paper, a pencil, the checkbook and your financial records. Figure out how much money you have coming in between now and Christmas Eve. Then itemize your expenses. Subtract the expenses from the income, and what you’re left with is discretionary money.

Now figure out whom you have to shop for and what you want to buy. Be realistic. If your discretionary income can cover those gifts, you’re set. If not, pare down the list. Then, if you need to charge gifts, figure out your January budget and how you’re going to pay for those items before you charge them. Next year, start shopping earlier. It’s much easier to absorb a little bit of Christmas spending every month than to bomb the budget with it all in December.

And finally, have a plan. Surprisingly, Bjorndahl says, most people do.

“Our study showed that there is a real strong mind-set in connection with credit cards,” Bjorndahl says. “Many people set aside one card for all their Christmas purchases. And you see those cards rapidly pay down after the first of the year.”