It’s hard to put a public face on debt. It’s a club many people belong to but no one wants to join.
People who find themselves at watershed moments in their lives — whether realizing there is nowhere to go but bankruptcy court or finding their house is being foreclosed upon — don’t want to talk about it. They’d prefer to stay in the shadows and endure their fate privately.
“There is a fear about admitting financial difficulty even if you didn’t bring it upon yourself,” said Sara Allen, executive director of Consumer Credit Counseling Service of northern Colorado and southeastern Wyoming.
Allen is one who sees the human faces behind the numbers of those facing economic peril, and those numbers are increasing.
Nationwide, the average household credit card debt is $7,200, more than double what it was a decade ago. In 2000, overall household debt was more than 18 percent of disposable income for the first time in two decades, while the savings rate for the average American is somewhere around 1 percent.
Even Alan Greenspan has expressed concerns lately about some of the nation’s economic trends. In remarks Thursday at the opening of an annual Federal Reserve conference in Jackson, Wyo., he said, “Our reluctance to place fiscal policy on a more sustainable path (is) threatening what may well be our most valued fiscal policy asset: the increased flexibility of our economy, which has fostered our extraordinary resilience to shocks.”
As reported by The Associated Press, Greenspan said maintaining that flexibility is crucial to dealing with he called two of America’s current economic imbalances: the trade deficit, which hit a record $688 billion last year, and the housing boom. Referring to the latter, Greenspan has previously cited the “speculative fervor” gripping certain local markets.
Are these trends simply blips on the radar, or a real danger to the long-term economic health of the country?
As reported earlier this month, bankruptcy filings in Colorado are at an all-time high and we are now fifth in the nation in the number of filings — despite ranking 22nd in population, according to 2004 U.S. Census data.
In the first quarter of 2005, there were 6,971 bankruptcy filings in Colorado, according to the American Bankruptcy Institute, and that number is ramping up. In July alone, 2,659 cases were filed in U.S. Bankruptcy Court in Denver, a 14.2 percent increase over July 2004.
Part of the increase is explainable by the new bankruptcy law signed by President Bush in April. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will make it more difficult for consumers to file for bankruptcy, and a lot of people who are facing hardship are filing now to beat the October deadline, when the law takes effect.
But well before the law was even a bill, Colorado was seeing a steady increase in filings, beginning in 2000. That year, there were 15,558 filings in the state, and 98 percent of them were consumer filings. By 2002, that number had jumped to 21,359, and last year there were 28,169 total filings.
There are other signs of trouble, too. Foreclosures in the state continue to rise even as the unemployment rate in Colorado has been on the decline.
Read the fine print
There are many reasons people come into Consumer Credit Counseling Service, Allen said. Sometimes it’s as simple as needing to learn to live on a budget, but other times it can be something more serious, such as a job loss or a dramatic dropoff in income.
Even though layoffs have stabilized, she said, “almost half the people we (saw in 2004) still tell us they came to us for that.”
The nonprofit counseling agency, which has an office staffed part-time in Longmont, saw 2,100 first-time clients last year, 312 of them in Longmont.
Ironically, Allen said the numbers of people coming into CCCS has been relatively stable over the past few years, but she doesn’t think it’s because fewer people in her region are experiencing money problems. She suspects it’s the competition her group faces from out-of-state outfits that may or may not be scrupulous.
The stigma of having money problems could cause a lot of people to be more comfortable calling a 1-800 number, but Allen cautions consumers to be careful.
“We’ve heard lots and lots of stories of people ending up filing for bankruptcy because they couldn’t get out of debt with these companies,” she said. “The Federal Trade Commission had to get involved because some of these companies were abusing their 501(c)3 status.”
Beware of easy money
Speaking of abuse, you can’t turn on a television or radio these days without seeing or hearing an advertisement that begins something like, “Want to buy a home but have bad credit? No problem!”
Boulder County Public Trustee Sandy Hume said he doesn’t have a problem with legal but questionable lending practices, such as interest-only home loans. They can be a benefit to certain people, he said, but being an educated consumer is critical.
“They can be a useful tool but not always,” Hume said. “It can sometimes be a slippery slope and you just can’t stop sliding. But it’s really up to the individual. The advice is, if you’re borrowing money, make sure you know what you’re doing.”
Home foreclosures in Boulder County are on pace to set yet another record this year.
Through July, there had been 351 foreclosures in Boulder County for the year, compared with 306 for the same period last year.
Boulder County in 2004 saw 523 foreclosures, an increase over 487 and 291 in 2003 and 2002, respectively.
It should be noted that “record” is a relative term. The oil bust of the 1980s still remains the high-water mark for foreclosures for most Denver metro-area counties.
But while Hume acknowledges the number is on the rise, he points out that the number of houses built in recent years has also increased. And he feels that, because of a couple of factors, Boulder may be faring better than other counties in the state.
“One is that we do have a remarkably strong university and government base,” Hume said. “We have a high density of government employment, and I think because of that we don’t have the volatility that some of the other counties do.”
Another reason Boulder County is faring better than elsewhere, he said, is that land-use policies in the county — particularly regarding open space — have prevented urban sprawl and led to stability in market prices. Instability in the market, Hume contends, would lead to more foreclosures.
Hume said a couple of changes on the horizon should benefit consumers. For one, the Colorado attorney general’s office is taking a closer look at so-called predatory lending companies that target homeowners in foreclosure.
“Homeowners who are desperate ... are very vulnerable to people who make an offer that sounds too good to be true, and often it is,” Hume said. “It’s those kinds of renegade practices that the attorney general is hoping to rein in.”
Let the consumer beware
But Allen warns of a credit card-related change coming that could hurt some consumers. Urged on by the U.S. Office of the Comptroller of the Currency, three of the largest credit card companies soon will be raising their minimum monthly payments, which currently are about 2 percent of a card’s balance.
Those rates are expected to double, and Allen believes that when they go up, a lot of people are going to take a financial hit.
And, Allen points out, making only the minimum payment on a credit card bill each month is a recipe for disaster.