Ann Perry

October 20, 2002

"This is probably the most difficult hurdle to clear for most people because they feel that to do so would be an admission of financial failure," says Paul Richard, executive director of the nonprofit Institute of Consumer Financial Education. "The 'real' failure, however, is in not getting help and, instead, digging yourself deeper and deeper into debt."

As an example of the kind of denial he encounters, Richard recalls the case of one man who called who was frantic to come up with $4,000 for his share of his upcoming wedding. But because of his bad credit, he had no way to raise cash.

Despite all the danger signals the situation sent out, says Richard, "he just wanted to clear up his credit record so he could start spending again."

At Consumer Credit Counseling Service of San Diego and Imperial Counties, president and chief executive officer Jack Thompson says it sometimes takes a crisis, like having a boat or a car repossessed, before people acknowledge severe credit problems.

Increasingly, says Thompson, human resources departments serve as a catalyst. They might intervene when employees seek to borrow from 401(k) plans or when payroll departments complain about wages being levied.

In recent months, Thompson has seen a new wave of displaced telecom employees grappling with credit problems.

"The economy is changing really rapidly," he says. "There's a whopping amount of underemployment."

Telecommunications and high-tech workers who had been making $85,000 to $100,000 a year have been laid off and have found jobs at $40,000 – losing 35 percent to 40 percent of family income. They're trying to save their cars and homes.

"Their tools for dealing with credit are limited," he says. "These folks find themselves almost in a foreign country." By the time they come in for help, they are usually in big trouble.

Here are some of the most dire financial warning signs:

You use your credit cards regularly, but find it difficult to make the minimum payment. But this is a "one-way" road to disaster, warns Richard, as simple mathematics would indicate. An increasingly higher debt load will make it impossible one day to make even the minimum payment.

You are often or always late on regular monthly bills and frequently forced to pay late fees. If you find that you are regularly getting a new bill before you've paid off the previous one, says Richard, then you just don't have control over your finances. Your monthly bills represent your basic needs and you should be able to pay them without a problem.

You buy necessities like food and gas with a credit card. Use credit only for emergencies or to pay for important items that you intend to pay off quickly. If you can't repay within 90 to 100 days, like at the holidays, don't charge it. Credit spending does not promote comparison shopping, Richard says.

You argue frequently about money with your spouse, partner or roommate. This is a good indicator that you and your partner are feeling stressed about your finances.

However, this is not the time to indulge in blaming one another, says Thompson. "Husbands and wives really need to support each other. They will not live as well if they try to run two households on the same amount of money."

You have no idea what your total debt is. If you can't estimate it within $500 or $1,000, or if you've stopped looking at your monthly statements, your debt is probably spiraling out of control.

You use your credit card for cash advances. This is an extremely expensive way to get pocket money or to pay a monthly bill, because card companies charge a high rate of interest, plus a fee, with no grace period.

When things go bad, says Richard, sometimes people will blame one particular event. "They will say, 'Everything was fine until my wife got laid off.' "

But the truth is, he says, that they were living close to the edge before the layoff. Those who have their financial acts together can withstand a layoff of several months without triggering a crisis.

Of course, repairing major credit problems will require some lifestyle changes. That can be difficult, however, for those who regard their "visible holdings" as a sign of their success, Thompson says.

Once they overcome that and begin to master their finances, he says, they begin to feel a sense of pride. Some become so adamant about avoiding debt they are like reformed smokers or drinkers.

Consumer Credit Counseling offers financial counseling, education and debt management. For more information call (619) 497-0200 or visit the Web site at www.cccssdic.org.

The ICFE offers a free one-page spending plan work sheet on its Web site at www.icfe.info, as well as information on mending spending, increasing savings and using credit wisely. The work sheet is also available to anyone who sends $1 and a self-addressed, 60-cent stamped envelope to ICFE, Money Helps, P.O. Box 34070, San Diego, CA 92163-4070.

Copyright 2003 Union-Tribune Publishing Co.