Credit Advisers In Hot Demand
When a divorce ended his 20-year marriage, Dewey Paris agreed to take on the family's $20,000 credit-card debt plus child support for his six offspring. Trying to pay off the loans and maintain two households, however, resulted in "some significant financial distress," says Mr. Paris, a computer technician in Pasadena, Texas.Skip to next paragraph
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That distress drove Paris to a Houston branch of the Consumer Credit Counseling Service (CCCS), which began negotiating with the card companies so Paris could reduce the debt load.
Paris is not alone. Debt advisers are in hot demand. The National Foundation for Consumer Credit in Silver Spring, Md., reports its 1,200 members are experiencing about 20 percent more business this year than last year. In some regions, business is even stronger.
"We're up about 70 percent," says Boston-based Mel Stiller, executive director of the Massachusetts branch of CCCS.
At the same time as their offices are filling up, however, counselors are finding many of those coming in are already financially over the brink. "Traffic is up, but more people are too far gone to help," says Michael Staten, director of the Credit Research Center at Purdue University in Lafayette, Ind.
One sign of this financial squeeze is in the bankruptcy statistics. According to the Administrative Office of the US Courts, a record 1 million Americans filed for bankruptcy in the 12 months ending June 30. For this calendar year, predicts credit-card giant Visa USA Inc., about 1.2 million Americans will file for bankruptcy.
Causes of debt trouble
Surveys point to several reasons for the financial troubles. In a study by the Bankcard Holders of America (BHA) in Washington, 53 percent of respondents blamed "uncontrolled spending" for their high debt levels.
Other reasons for financial problems, Mr. Stiller says, are corporate downsizing, medical problems, divorces, and lost overtime. "Often it's a combination of things," he says.
Debt counselors encourage consumers not to wait too long before seeking advice. Early warning signs include falling behind on mortgage and utility bills or using a line of credit to pay another credit line, Stiller says.
Visa, based in San Francisco, is now programming its computers to try to anticipate when an individual is beginning to use a card in a pattern that might lead to bankruptcy. The computer will look for atypical behavior, such as heavy cash advances and the purchase of luxury goods. "We want to give the issuer an alert so they can investigate as soon as possible," says Kenneth Crone, a Visa vice president.
What happens next concerns some consumer advocates. "What credit-card issuers have chosen to do is to penalize people for bigger balances than last year, for paying late, or charging over their credit limit," says Ruth Susswein, executive director of nonprofit BHA. "They will only get so much out of someone before the credit goes bad."
She suggests the bank-card company "contact the consumer to say, 'We think you are having a problem,' and then possibly freeze that person's credit line."