Sunday, January 17, 2010

Debtors Who Are Clueless--And Scary

I just saw a television show called "Til Debt Do Us Part." Two episodes, back-to-back. What amazed me, really floored me, was how casually two different young women approached their debt. They claimed they did not know why they had no money. And on salaries of $45k a year, not including their men's incomes, they felt entitled to spend on anything and everything they saw or wanted. One of them was even living rent-free, but still managed to get deeply into debt. Even after family paid off her debts, she racked them up again.

This is crazy behavior. But the frightening thing was that both of these women behaved in pretty much the same manner: as if a credit card was their license to spend. And they were unapologetic about it. There was very clear self-will at work. Both women also browbeat their husbands, keeping them from exercising any decision power over how the household money was spent. The host took the men to task for using domestic peace as the excuse for enabling their women to overspend. But in my opinion, the women were the ones who needed a sharp dose of reality.

How can people be so clueless about their own money that they do not notice they spend thousands more per month than they bring in? What part of the brain shuts off to allow this craziness? And how can we turn it back on and save these people and others from an endless cycle of debt and rescue, debt and rescue?

I’m asking because I don’t have the answer. People with chronic debt problems must wall off their fears, their shame and guilt, from their daily lives and thoughts. How else can a person with $100,000 in debt dare to charge another unnecessary $20? You’d need a powerful firewall, but more and more, it seems as if people in our society have just that. Perhaps they feel no shame at all. Perhaps they believe that they will always be rescued by others, or by new legislation, or by bankruptcy, or by windfalls. Perhaps their future plan is to win the lottery. I don’t know.

What is obvious to me is that too many people are brazenly selfish even while behaving in a self-destructive manner. What the host pointed out was that if these people continued to spend as they did, within a few years they would owe hundreds of thousands of dollars. More than a house costs, and yet they would not have a house. They are ruining their future while indulging their todays. Big time. They’re all living like the grasshopper in the fable. But winter does eventually come, and where is the preparedness we need to survive tough times?

Don’t we all have moments when we are these silly people? When we know we’re behaving foolishly with money and credit, but we do it anyway? Yes, and that’s what is scariest of all. You don’t have to be perpetually in denial as these two women were to be in scary, intractable debt. All you need to do is have flashes of ignoring your reality. A few minutes here and there, and you can throw away another few hundred or thousand dollars without even noticing.

It’s got to stop. We’re the richest country in the world, with more individuals having significant money beyond a bare subsistence living than in any civilization that ever existed. And we’re throwing our wealth away on trifles.

Sunday, January 10, 2010

New Year, Same Old Debt

Someone I know is in credit card debt again. The person was in a similar situation several years ago. At the time, I was able to help the person get out of it. I also tried to model the habit of making the regular, on-time payments that creditors like. I stressed this as the number one rule. But it did not stick. My friend’s credit score (FICO) is very low, so a car loan has been denied—which is bad, considering those are secured loans and they could just come get the car, so what’s the risk? My friend is flummoxed. But unrepentant, I suspect.

I wonder how many of us really change our disastrous financial habits for better ones? Or, after we recover from a dangerous low period, do we limp along, much in the same manner as before, slowly but surely ramping up our mistakes? Worst of all, paying little or no attention to what others want from us? The friend is indignant about the car loan, citing having paid off a car loan from that very bank a few years ago. But that was then, and this is now. Missing scheduled payments is one of the classic signs of shaky financial stability. The bank fears that the car loan will not be paid back, and the bank does not need a car; my friend does. The bank is understandably wary of lending in this scenario.

Of course this situation would be different if my friend had a good, steady job. (Pause to laugh hysterically.) Right. Like that’s happening anytime soon. So what can be done? Does my friend even have enough money to make regular minimum payments? And assuming so, how quickly can my friend’s credit score be rebuilt—again!—in this rocky economy? Would six months of perfect, on-time payments make a difference? Or will it take a year or more to climb out of this pit? And to what lengths must my friend go to fix things? Sell something major that would be painful to part with? Live without a car for a year? Or two?

Or is this simply an organizational issue? Some adults have serious attention deficit issues. Serious. They collect too much paper and they can’t seem to open their bills promptly (or even their bank statements) and they never are able to put everything in one place neatly so they can find it again. My friend is but one of thousands, if not millions, of these people. They’re more likely to buy a new set of storage containers or get a new checking account than to put all documents in one place or balance their existing checking account. And these people, these thousands if not millions, are walking around as supposed functioning adults. They’re being allowed, even encouraged, to sink deeply into debt through systems that work for people like me (Little Miss Organized), but never work for them. Unless they are very lucky, their chronic inability to cope makes them the financial dupes of the banks and every other financial transaction.

Some of these people are married to spouses who can handle money sensibly. Or even to spouses who can’t, but who earn enough to keep everything covered. But some people are alone and trying to deal with words on papers from financial institutions that they simply do not understand. They don’t understand the words. Or the banks. Banks don’t really care about your payment record of ten years ago. They care about your recent payment record. They’d also prefer that you have substantial income and assets—and that you do not need the loan you want. That’s right: banks prefer to lend to people who don’t actually need their money. If Warren Buffet asks for a loan, he’s going to get it. Or Bill Gates. You and me? Not so much.

The bottom line with financial hassles always comes back to paying attention. My friend will now have to enter into a penitent period of being very careful to make all scheduled payments on time. I’m sure my friend will do it, too, because the danger and excitement of this situation will be a constant reminder. For a while. And then, the ennui with paying attention to numbers will rise again. And the trouble will start all over.

I don’t know the answer to this one. Spend less money than you earn? Sure, but if you don’t pay your bills on time, that’s irrelevant. Pay cash for everything? That plan does not get the electric bill paid on time. Go off the grid? Okay, now you’re just being silly. The buy-in for going off the grid is very steep. Who has that kind of money—without getting a bank loan?