The Most Common Forms Of Troubling Debt

CreditPro is a non-profit credit counselor who blogs, and he’s recently posted an article about the most common unmanageable debt situations that he sees in his daily life:

In general, there are two types of individuals who seek out my services: the extremely poor who are in a relatively large amount of debt and the middle class who have leveraged themselves into a whole world of debt.

The poor can’t make ends meet (they fall behind and it snowballs), but the middle class buy their way into debt with luxury cars, private schooling, and huge balances on their credit cards.

To help these people that are swimming in debt, I also offer one-on-one counseling where we discuss which assets can be refinanced, such as a car or a home. Another possible solution for many individuals is to look into a tax-deductible HELOC (Home Equity Line of Credit) with a much lower interest payment than their credit cards. Although many of these problems can be solved by paying off high interest debts and using a little creative refinancing, education is essential to making sure that this issue does not arise again.

This advice seems so elementary, and yet there are so many people like the ones CreditPro describes. Why do people buy things they can’t afford? It is a great mystery of life. —MEGHANN MARCO

The Most Common Credit Problems [CreditPro]

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  1. rachmanut says:

    I think people relate differently to credit and to money in general. It may seem obvious to you or me that you shouldn’t spend money you don’t have but this is not true for everyone. Growing up, I witnessed my stepfather sink our family further and further into debt. He was a target for predatory credit card issuers and would max out one card after another, confident the payday needed to finally get out from under was just around the corner. It doesn’t seem so different too me from the actions of problem gamblers.

    Others may be so addicted to the lifestyles bought by credit, so much so that even though they know it’s all going to crash down, they ignore that reality and keep spending and having a Good Time until they hit rock bottom.

    But there are other, more “legitimate” reasons this happens, too. Reasons like kids or hospital bills or sick relatives. Investments you counted on suddenly tanking. Get a few rainy days at once and you can find yourself in debt. Because I grew up under a cloud of debt I probably overcompensate these days and hold a substantial buffer in my bank accounts…probably too large, as the money is inflation-draining, but I want some liquid just in case.

  2. Coder4Life says:

    I think the problem is that middle income families tend to purchase big fancy things, because they can afford to make the payments and still get by life.

    yet they do not take in account for savings, for those rainy days. There are some people who have no problem paying credit card interestes, until they max them out and are so much in debt that people will no longer give them money.

  3. CustomersRevenge says:

    Trouble with credit in North America is that now you have access to all your future earnings in the form of credit. Some people have a hard time seeing the hazards of this. Thinking only in terms of payments leads people down this path. They should understand that they are really spending tomorrow’s wages and next year’s wages. You have to catch up eventually.

  4. Xkeeper says:

    The poor can’t make ends meet (they fall behind and it snowballs)

    Please remember this. I know someone who often has to work 10-13 hours a day and is having problems getting by.

    Recall that inflation is outpacing wages by a huge margin. A lot of times, people simply can not make enough money to get by.

  5. thrillhouse says:

    Another possible solution for many individuals is to look into a tax-deductible HELOC (Home Equity Line of Credit) with a much lower interest payment than their credit cards. Although may of these problems can be solved by paying off high interest debts and using a little creative refinancing…

    Right, because the answer to troubling debt is… more debt.

  6. shoegazer says:

    @thrillhouse: This is why any refinancing should be done with a reputable independent credit adviser. Not only will they not steer you into more debt than you can handle, but any adviser worth his salt will also ensure the entire amount refinanced goes into reducing the overall debt portfolio.

    That said, a HELOC sounds very much like a last resort thing – it is your HOUSE, after all, that’s secured against the loan.

  7. “Why do people buy things they can’t afford?”

    Around here, we know a lot of people with $300,000 houses, crushing mortgages, and no furniture, because they moved their kids into a decent school district (the one I live in is spectacularly bad).

    I presume that the ones who don’t end up foreclosing eventually start buying to match the lifestyle of the people who can afford to live in that area and end up in debt that way.

    But you do see a lot of people stretching HARD to get their kids into a good district. They tend to either live really frugally and ignore the kids’ whines for designer sneakers, or start buying the way the neighbors all do.

  8. AcidReign says:

    …..Some folks I know with money problems drive very new, big SUVs; have the complete, mega- cable/internet package; cell phones for every member of the family; humongous plasma TV; designer clothes, eat out at expensive restaurants, etc. Then, they’re scrambling to make the mortgage payments… A lot of it is self-inflicted.

    …..I recently met for lunch with a friend who nearly had his truck re-possessed a couple of months ago. I offered to pay for his lunch, but he responded that it wasn’t necessary, he had gotten a new VISA with a $10 grand limit, and now had plenty of money to spend. Just sad. His kids are teenagers, and there’s no way in hell they’ll be able to go to college unless they get some sort of full-ride scholarship. This friend makes about $20k a year more than I do, and I owe nothing but a small mortgage. I do have sympathy for him, but I’m definitely not a bank! I’ve got my own high-school kids…

  9. MeOhMy says:

    If you’ve got problems controlling your spending, putting your home at risk on a HELOC seems like really poor advice.

    If you’ve got good spending habits and are just down on your luck for reasons beyond your control (like medical expenses, perhaps), it may be helpful, but I’d still be very hesitant to assume that kind of risk if I was in that situation.