Holidays not the only factor in consumers’ massive debt struggles
Ho, ho, ho may lead to owe, owe, owe, but Madeline Innis said holiday debt isn’t the only financial ball and chain encumbering consumers.
“Holiday debt is part of a much bigger picture, one piece of a large, complicated puzzle,” said Innis, a caseworker with Community Action Southwest, a social services agency dedicated to alleviating poverty in Washington and Greene counties. “Debt nowadays is inevitable.
“Not having debt and living credit-free are a lot harder to imagine today than it was 30 years ago. Gone are the days when you could go to a car dealership, slam cash on the desk and leave with a new car – stories that a grandfather will tell.”
No, this is not your grandfather’s, or father’s, world of finance. Holiday debt, credit card debt, college debt, car loan debt, mortgage debt – and a lot of each – are commonplace nationwide, and growing.
According to the website nerdwallet.com, the average U.S. household (including those that are deeply indebted) owes $15,270 on credit cards; $149,925 on its mortgage; and $32,258 in student loans.
That’s $197,453 per household in any economy, and that doesn’t include car payments.
It’s daunting, challenging and embarrassing to many, to the point no one in this seeming abyss responded to Observer-Reporter requests to be interviewed for this story.
A month after Christmas, many are fretting the bills they incurred shopping for family, friends and associates. In reality, this was a weak retail season – shortened by a Nov. 28 Thanksgiving, the latest that holiday can fall; comparatively low consumer demand; a marked increase in online shopping, leading to a dramatic drop in store traffic; shipping issues; and people simply being more frugal.
Still, a number of checkbooks and cards were battered.
Regardless of individual circumstances, holiday debt was, and probably will continue to be, a mere puzzle piece. And it’s a puzzle fewer and fewer are tackling successfully.
Community Action Southwest is a nonprofit with offices in Washington and Waynesburg. It was formed in 1965, a byproduct of President Lyndon Johnson’s War on Poverty, in which a community action organization was established for every county nationwide.
CAS serves more than 16,000 annually in the two counties, offering 50 programs in early childhood services, nutrition services, senior services and family economic success.
The agency’s mission, according to its website, caswg.org, is to “mobilize public and private resources to deal with the causes of poverty, not just its impact.”
Innis, of Canonsburg, is essentially an economic adviser in the Washington office, where she teaches financial fitness classes and counsels clients on an individual basis.
A number of those clients are lower-income residents of Washington County who, Innis said, mostly have greater financial issues than credit card debt. They come to her agency for guidance on budgeting and other money matters because it’s difficult to acquire elsewhere.
“Where do people learn financial literacy?” Innis asked. “It’s hard to learn from our parents. The way things were then were very different. My parents worked at summer jobs to pay for college. Now you pay for college 20 years after your graduate.
“And it’s hard to learn in schools.”
Financial education is, indeed, lacking or severely underseved at many public and private schools.
Innis preaches basic tenets to her clients about handling what she regards as inevitable.
“It’s more about understanding there is good and bad debt,” she said. “Having a mortgage is a lot different than credit card debt. A mortgage appreciates and you have something to show for it. A credit card is not appreciating and you have nothing to show for it.
“You can be smart and have debt and a good credit score. It’s how you pay back. My clients feel they can’t take on debt, but they have to learn to deal with it and learn the type of debt they can take on.”
Americans, she said, live in a culture that encourages spending. Innis does not discourage her clients, but advises that they apply the reins to what could become runaway debt.
“You see ads every day to spend. We are overspenders in general, so I educate people on setting boundaries on how much they can spend before it affects them.
“I’ve seen a survey that 45 percent of people spend more than they make. When you do that over time, it can become unmanageable.”
The Waynesburg office of Community Action Southwest also offers financial fitness classes, taught by Tiffany Huffman. She was unavailable for comment.
Mary Loftus is well aware that debt is in the cards for many consumers.
Credit card debt is one of her specialties at Advantage Credit Counseling Service Inc., a nonprofit agency based locally on Pittsburgh’s South Side. Her clients come from many areas of Southwestern Pennsylvania, and the amount many of them owe is formidable.
“We provide counseling and education,” said Loftus, vice president of agency services at Advantage, which is located in 49 states and expecting to be licensed in Kansas within a month.
“Consumers typically call us if they’re struggling to make a credit card payment, or they’re current with their credit card payments but don’t see a light at the end of the tunnel.”
She said the credit card debt of her agency’s clients “is much higher than average” – $20,547. The average credit card debt for Pennsylvanians with a credit report, according to the New York Federal Reserve Bank, is $2,650.
Loftus offers more than a half-dozen recommendations to curb, even end, reliance on plastic, including setting up and adhering to a spending plan, paying monthly into an emergency fund and shopping more judiciously. All are based on wisdom.
“One of the biggest things we see with people getting into trouble with credit cards,” she said, “even if they have a good understanding of handling a mortgage or car payment, is they don’t track their spending as well for items like pizza, lunches, groceries. They use a credit card more than they planned.”
But Loftus does see sunshine amid these proverbial storm clouds.
“Over the past couple of years,” she said, “we have seen a reduction in the number of consumers we’re providing credit counseling to. There are a lot of reasons, but the trend is consumers are not putting as much on their cards as in the past.
“People are a little more concerned with finances, especially with the economy, unemployment and such. Creditors now put on statements how long it will take to pay a credit card balance if you pay only the minimum, and that concerns consumers. Creditors also are not issuing the amount of credit that they had in the past.”
Debt has many Americans feeling as if they are in a wrestling ring, getting choked and pummeled by a notorious tag team in an endless Texas death match. And that there will be numerous rematches.
According to November figures from nerdwallet.com, U.S. consumers owed $7.93 trillion in mortgages, $1.049 billion in student loans and “only” $856.9 billion on credit cards.
That student loan number was 11 percent higher than November 2012. Welding anyone?
Credit card debt actually declined 0.18 percent from November 2012, a promising trend … perhaps.
Nerdwallet.com reports that “credit card debt is holding fairly steady – but whether that’s a good thing is up for debate. On the one hand, higher consumer spending puts the economy on a positive track. Higher spending leads to more jobs and higher incomes, which in turn lead to higher spending. However, if wages and employment are improving at this sluggish pace, this might well be an indication that families are borrowing to make ends meet rather than a reflection of a well-founded increase in consumer confidence.”
The total of those three categories was $11.36 trillion, which likewise was a decrease from the previous November, of 0.1 percent.
The economy is improving, unemployment is declining and the debt is being reduced. But for so many, it’s still – and maybe always will be – owe, owe, owe.
Jessop Community Federal Credit Union