Interesting artcle on credit card debt

Chicago526

<font color=red>Any dream will do...<br><font colo
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I saw this article and thought I'd share with all my budget minded Dis friends! How do people sleep at night, living on the edge like this? Well, the wife in this story couldn't sleep, I guess!

http://abcnews.go.com/Business/PersonalFinance/story?id=2832725&page=1

Digging out of Debt
One Family's Struggle to Stop Spending and Stay Afloat Financially
By LEE HOFFMAN, JONEIL ADRIANO, and JESSICA HORNIG

Jan. 19, 2007 — Meet the Petersons. Matt is a software engineer and Suzie works mostly at home raising their three daughters: Julianne, 12, Rachel, 11, and Caroline, 9.

They live in an upscale California neighborhood in a 4,000-square-foot home with a pool, a huge walk-in wine cellar and even its own movie theater. They drive nice cars and own a second home and two vacation time shares.

How do they do it? They're in debt up to their eyeballs.

"I know that we don't make ends meet each month, and to make ends meet, we use credit cards, and then the credit card payments start increasing, and you just can't make ends meet even doing that," Suzie said.

Their monthly household income of $8,750 isn't enough to cover all of their expenses, which total $15,000 a month. For over a year, the Petersons have relied on credit cards to keep afloat financially.

Using one card to pay off the other, their credit card balances eventually ballooned to $60,000. Their Bank of America Visa alone has a balance of $19,000, at an interest rate of nearly 33 percent.

The burden of their debt is something that keeps Suzie up at night. "I woke up at 2:30 a.m. this morning because yesterday we went to the diner and tried to use the debit card and it didn't work."


An Epidemic of Debt

The Peterson's financial situation may sound shocking, but they are not alone. Nationally, credit card debt is growing — almost tripling since 1989. Today, American consumer debt is over a trillion dollars. More than half of all cardholders don't pay their cards off each month and carry an average balance of around $2,000.

Ironically, families like the Petersons — who struggle to make the minimum monthly payments — are more valuable to credit card companies than customers who pay in full every month. According to the Government Accounting Office, credit card issuers make 70 percent of their profit from the interest payments made by cardholders who carry a balance every month.

Still, credit card companies insist they are not banking on customers' inability to pay.

"Credit card issuers are concerned about people who are only able to make the minimum payment because those people are at significant risk of not repaying the loan in the short term and that means the bank loses the money," said Nessa Feddis, a lawyer with the American Bankers Association, an industry trade group.

For that reason, Feddis says, credit card companies are constantly adjusting their policies to minimize the number of customers paying only the minimum amount.

Read the Fine Print

Elizabeth Warren, who teaches bankruptcy and commercial law at Harvard University, disagrees. "Credit card companies have a special word for the customers who pay in full every month. They're called deadbeats."

Nothing helps the credit card companies' bottom line more than the fees and high interest rates they earn from consumers who are struggling with their payments. For example, one of the Petersons' credit cards charges a $39 fee for going over the spending limit or being late on a payment.

And even if the Petersons always pay their bill on time, the bank can still increase their interest rate to 32 percent if the Petersons are late with a car or mortgage payment, or any other payment to a creditor. That's because a "universal default" clause is buried in the fine print of the Peterson's credit card agreement, the terms of which can be changed by the credit card company "at any time for any reason."

"There's no contract like that anywhere else in America," said Warren, a contract law expert who admits that even she has trouble understanding some of the terms of credit card agreements. "They're deciding all the rules."

"We agree that the disclosures could be better," said Feddis. But she also argued that some responsibility has to fall on the consumer. "Pay off at the end of the month and pay no interest. Every cardholder has that opportunity. They make that choice."

They Never Stopped Spending

In the Peterson case, a series of bad choices contributed to their massive debt. Six years ago, Matt lost his job and spent more than a year out of work. During that time, Suzie decided to open two scrapbooking stores. When her business folded last year, they ended up losing about $200,000 — most of it borrowed money. There were also some bad real estate and stock investments.

Even as their financial situation worsened, however, the Petersons continued to spend. Last year alone, they took three vacations — a cruise through the Carribean, a trip to Whistler, Canada and another to Hawaii.

The cruise was a contest prize, while other expenses were covered by their time shares. But all together, those vacations still cost the Petersons $4,000.

Matt concedes the vacations may have been unwise, given their dire finances. "OK, we need to be punished, I guess," he said.

Suzie, however, has no regrets. She saw the vacations as a way to bond with her daughters. "The cruise was my gift to my family."

'The Ship Is Starting to Go Down'

To help them dig out from under all of their debts, "20/20" introduced the Petersons to financial planner Robert Pagliarini, author of "The Six-Day Financial Makeover," a step-by-step guide to transforming your financial life.

After reviewing the Petersons' financial records, Pagliarini calculated that they were about five months away from bankruptcy. All of their debts translated to a loss of $200 each day.

Pagliarini, the president of Pacifica Wealth Advisors in Los Angeles, likened the Peterson's situation to the Titanic.

"You've already hit the iceberg," he explained. "The ship is starting to go down. That's the bad news. The good news is you still have a small window of opportunity to make some changes."


Taking Action

Pagliarini devised a six-month action plan to rescue the Petersons from economic ruin. First, he advised them to dump their expensive time shares, even though this will mean the Petersons will lose $46,000 on their investment.

Pagliarini hopes they can recoup some of those losses by also selling their home and their second rental property. He believes those transactions will net the Petersons about $113,000.

Pagliarini then wants the Petersons to use that money to pay off their $60,000 credit card debts. If they take all of these steps, Pagliarini believes, the Petersons will actually have a few thousand dollars leftover to save and invest.

The catch? It's an all or nothing proposition. "Do all the big things or do none of them, because if you just do one, two or three, it's not going to work," said Pagliarini.

Matt Peterson is excited by Pagliarini's plan. "We can't wait. I mean we literally can't wait," he said.

Suzie was less enthused, saying, "We have no place to live and $3,000."

Digging Out of Debt

But by getting rid of all of their real estate, the Petersons will also unload expensive tax bills, mortgage payments and maintenance fees — drastically cutting their monthly expenses.

When all the dust settles, Pagliarini believes the Petersons will be able to afford to rent a house in their neighborhood on Matt's current salary, and still have about $1,200 extra cash every month to save and invest. Compare that with the $6,250 the Petersons are now losing every month.

Pagliarini told them, "At the end of the day, after the cameras are off, it's you two. And you really have to decide, 'Are we willing to make these kinds of changes?'"

In the last week, the Petersons have begun contemplating some of those changes. They spoke to a real estate broker about listing their house and rental property. Pagliarini says he is always a phone call away to offer support, but whether this family can dig out from all that debt is now up to two people — Matt and Suzie Peterson.
 
Suzie is an IDIOT!!!

The "cruise was a gift to my family" and "bonding" She has "bonded" her way to bankruptcy and she doesn't get it.

I don't feel the least bit sorry for them. Until the idiot acheives the mental age of her children they are doomed! Even if they follow the advice they have been given, give her a few years and they will be RIGHT back where they are now. She feels "entitled" to all those things she can't afford!
 
Suzie is an IDIOT!!!

The "cruise was a gift to my family" and "bonding" She has "bonded" her way to bankruptcy and she doesn't get it.

I don't feel the least bit sorry for them. Until the idiot acheives the mental age of her children they are doomed! Even if they follow the advice they have been given, give her a few years and they will be RIGHT back where they are now. She feels "entitled" to all those things she can't afford!

Yeah, she's not too bright. One vacation, that I could understand. It still wouldn't have been the right thing under the circumstances, but at least one trip is within screaming distance of reason. But three in a single year? When they are already spending more than they earn? :sad2:
 
Wow situations like this are so far from my realm that I have a hard time even imagining that people get into them. Geez a monthly income of $8750, I can't imagine having that much money coming in a month and it not being ENOUGH!! I would be sooo rich!!
 

wow...i can see buying the real estate in "better times" and then having issues with the mortgage/maintenance etc but...new cars, dinner at the diner, vacations, etc plus being in the negative for over a year at least. How can you see a $6000 defecit each month and not doing anything about it. Serious denial going on. :confused3 I don't have a serious quicken budget like some of the folks on the boards but i do a simple month end calculation and if more goes out of the checking account than in, i take a hard look at why!!
 
Wow situations like this are so far from my realm that I have a hard time even imagining that people get into them. Geez a monthly income of $8750, I can't imagine having that much money coming in a month and it not being ENOUGH!! I would be sooo rich!!


Well keep in mind the housing costs where they live. Salaries tend to be higher, but it's not like you actually have more money! LOL!

Even starter homes (Not like the one described here) cost EXTRAORDINARY amounts. I looked at homes in parts of CA once for a job. The same size house that I had in Nashville cost over twice as much and was NOT near as nice (i.e 20 years old fixer upper as opposed to new construction!)
 
Wow, they're spending double his monthly take home! It's good he sounds all for it but I bet she doesn't want to give up all of her "status" items. I hope they post an update on them. I'm really curious if she agreed to sell their homes. My guess is that it will be embarrassing to be a renter in their neighborhood after putting on such an act for so long.

Wonder how many other stories are out there like this with all of the interest only loans & creative financing in the last few years.
 
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the thing that gets me about articles like this -- they are such an extreme case.

I mean the house with the movie theatre etc etc makes for dramatic reading, but I don't think it really helps people relate their own situations to the story.

I think people read it and think "well i don't have a house with a movie theatre and wine cellar and i don't take 3 huge exotic vacations a year while paying 33% on my credit cards, so I must be ok!'
 
Denial...it's not just a river in Egypt.

I don't know anyone quite this bad, but I have two friends who are like this one a lesser scale. One has student loans of over 120K that she just doesn't pay. She told me she thinks their forgiven because they haven't come after them yet.:confused: She is in for a rude awakening one day.

The other is just impulsive to a shocking degree. If she wants it, she buys it. She has never balanced her checkbook. If she calls the bank and has money in the account, she assumes she can spend....even though she may 20 checks that haven't cleared yet.

It is an unreal way to live to me...I think I worry about their situations than they do.
 
Miss Suzie needs an attitude adjusment, that's for sure. All this woe when he's making a six-figure salary - what if he lost he lost his job again? Suzie needs to learn she wasn't "to the manor born" and get a job at Wendy's or something.
 
Wow I can't believe how much debt they have! Suzie needs to get a job! She needs to really learn to live within her means and I would say that Matt isn't helping much because he is letting it happen!

What would worry me most though is what it is teaching the 3 children!! All they are learning right now is if you want it get it and don't worry about how you are going to pay for it.
 
Suzie, however, has no regrets. She saw the vacations as a way to bond with her daughters. "The cruise was my gift to my family."
I hate to say this, but I'm unsurprised by this-how many threads do we see about people who want to morgage their house/go into debt for a Disney Vacation/DVC?
 
I hate to say this, but I'm unsurprised by this-how many threads do we see about people who want to morgage their house/go into debt for a Disney Vacation/DVC?

you know what though in the end its all money and money is nothing compared to the memories of their child. IM imagine if the mom died right now the kids memories of disneyworld will be there. Granted its wrong to put yourself in debt but you know what having the disneyworld vacation was only a small debt vs what they did with the other money which was probably less memorable. To be honest im putting some of my DW on credit cards I applied for the disney card to get some discounts among other things the card will get used on at disneyworld would be memorable....hopefullya I can pay it back in a year LOL....
 
sorry, I totally disagree.

Millions of children every year develop loving memories of their Mother without the aid of Disneyworld.

One of my best memories of my Mom was on a camping trip where i hid from her behind the bushes and she decided that I must have fallen into the outhouse hole and was ready to issue a search party. :rotfl2:

ok, maybe not the best example, but you get the idea. Children love their Mothers because of who their Mothers are day by day and minute by minute. Not because of where they vacation.
 
the thing that gets me about articles like this -- they are such an extreme case.

I mean the house with the movie theatre etc etc makes for dramatic reading, but I don't think it really helps people relate their own situations to the story.

I think people read it and think "well i don't have a house with a movie theatre and wine cellar and i don't take 3 huge exotic vacations a year while paying 33% on my credit cards, so I must be ok!'


I totally agree with you here. I have two friends at work who are both in bad financial situations, one much worse than the other. The one with less debt looks at the other family and pretty much says "well, at least I'm not in it that bad" and continues to do nothing about his own debt and financial problems. :headache:

It makes for interesting reading and no doubt a little pick-me-up for 99% of families not in such an extreme situation, but I don't know how helpful it is.

For those of us on the board who are budget minded, most any CC debt is an issue- $60K or $1K. For those not as serious about money, this serves an example as to how things might not be "that bad."
 
you know what though in the end its all money and money is nothing compared to the memories of their child. IM imagine if the mom died right now the kids memories of disneyworld will be there. Granted its wrong to put yourself in debt but you know what having the disneyworld vacation was only a small debt vs what they did with the other money which was probably less memorable. To be honest im putting some of my DW on credit cards I applied for the disney card to get some discounts among other things the card will get used on at disneyworld would be memorable....hopefullya I can pay it back in a year LOL....

Not true. The "benefit" of a vacation is nothing if the rest of the time you are worried about your house being foreclosed upon or you can't put dinner on the table. Money is money and I agree that piles and piles of it sitting in a bank with no plan for ever being used isn't making your money work for you. But a lack of money permeates all aspects of life and kids *do* pick up on that. If the mother were to drop dead tomorrow I can just about guarantee that before the kids remembered a single vacation out of many they would remember how mom was always stressed and how mom and dad fought all the time or how life always just seemed strained. Doing it for the kids is a cop out. There are a million things you can do for the kids without going into debt. I can also see floating a once in a lifetime (not a once a year) trip for a few months if you don't have any other debt. But a vacation isn't going to fix the other 51 weeks out of the year and can actually make them more painful.
 
These people -- if they chose to do so -- could get themselves out of trouble pretty easily. They have plenty of fat that can be trimmed from their budget. He makes a very good salary, and she could start working full-time; it might not be her first choice, but when your family's in this much trouble, you don't always have the luxury of choices. Her kids no longer need day care, so she'd be able to make a good profit, even if she doens't make a large salary.

Toby's Friend -- I agree that extreme cases like this sometimes make other people think, "Hey, I'm okay -- after all, I'm not extravagant enough to have a movie theater in my house!"

I also agree that three expensive vacations in one year is foolish when the family's in this deep trouble. Family memories can be made anywhere -- denial, that's the word.
 
Not true. The "benefit" of a vacation is nothing if the rest of the time you are worried about your house being foreclosed upon or you can't put dinner on the table. Money is money and I agree that piles and piles of it sitting in a bank with no plan for ever being used isn't making your money work for you. But a lack of money permeates all aspects of life and kids *do* pick up on that. If the mother were to drop dead tomorrow I can just about guarantee that before the kids remembered a single vacation out of many they would remember how mom was always stressed and how mom and dad fought all the time or how life always just seemed strained. Doing it for the kids is a cop out. There are a million things you can do for the kids without going into debt. I can also see floating a once in a lifetime (not a once a year) trip for a few months if you don't have any other debt. But a vacation isn't going to fix the other 51 weeks out of the year and can actually make them more painful.
Well-said.

We all need down time, we all need rest, we all need time to bond with our families . . . we don't need to travel to do these things. That's a luxury -- something that's nice if you can afford it.
 
ah I see no one who posted watched this show. This article is a summary of the ABC 20/20(?) show that was on a few weeks back. It was incredible, really incredible how much debt they had. And their house...was a disaster! A messy, trashed disaster. The wife sat there rolling her eyes at the thought of selling it all off and basically starting over.

And then they switched over to the family of no debt. The show picked the 2 extremes and I think really did a poor job of getting across the real point of money management. The no debt family also looked horrible! There cars were scary yuck, their house was in desperate need of updating...and no you don't need to update to keep up with ppl but appliances have improved even if just for energy efficiency. They were dressed in very old out of date clothes. It was a real turn off (ykwim!) for me as a budget minded consumer. They even have a website...pay site of course ;) and a book as well. Many of their tips and tricks they said weren't what most 'tightwads' would really recommend either.

Anyway it was an interesting show even if only for the gasping horror of how much debt that family had! LOL
 
ah I see no one who posted watched this show. This article is a summary of the ABC 20/20(?) show that was on a few weeks back. It was incredible, really incredible how much debt they had. And their house...was a disaster! A messy, trashed disaster. The wife sat there rolling her eyes at the thought of selling it all off and basically starting over.

And then they switched over to the family of no debt. The show picked the 2 extremes and I think really did a poor job of getting across the real point of money management. The no debt family also looked horrible! There cars were scary yuck, their house was in desperate need of updating...and no you don't need to update to keep up with ppl but appliances have improved even if just for energy efficiency. They were dressed in very old out of date clothes. It was a real turn off (ykwim!) for me as a budget minded consumer. They even have a website...pay site of course ;) and a book as well. Many of their tips and tricks they said weren't what most 'tightwads' would really recommend either.

Anyway it was an interesting show even if only for the gasping horror of how much debt that family had! LOL

no i didnt see the show, but yes shows usually do that show extremes, but they dont show the average family I dont know why....I wish they would put my family on 20/20 or something and analyze us.......(as long as they pay for my time around 10K :cool1: )
 

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