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Credit card debt grows deeper

Published Sep. 9, 2005

Experts see a surge in family financial problems brought on by high credit card debt and say it's a major factor in personal bankruptcies.

Paying off ballooning credit card debt is a growing problem for Americans, with no end in sight.

"Credit card debt has always been the No. 1 cause of (financial) problems," said Richard Call, executive director of the Consumer Credit Counseling Service of Northwestern Ohio. "It seems like more and more of us are putting debt on credit cards to complement our lifestyles."

Even worse, he said, many consumers view credit cards as extra income, at least until the economy goes into a tailspin and they begin to worry about being laid off. Then they have no extra cash because it's tied up paying off debt.

When the counseling service opened 11 years ago, about 60 percent of its clients were swamped by credit card debt, Call said. Now it's closer to 75 percent.

Others in the industry see the surge in family financial problems brought on by high credit card debt. There was a tremendous increase in people nationwide seeking help since October, said Dan Borkowski, a counselor with Credit Counseling Centers of America, which has offices nationwide.

Non-profit credit-counseling groups try to set up payment schedules so overburdened consumers can take care of their obligations over a period of years, typically five but sometimes longer.

Consumer debt is a major factor in personal bankruptcies. Bankruptcies in the United States peaked at 1.4-million in 1998, then dropped to 1.3-million in 1999 and 1.2-million last year. The major causes cited were heavy credit card debt or health care expenses.

Americans rang up $1.2-trillion in credit card purchases in 1999, the latest year for which statistics are available, according to the Federal Reserve Bank of Cleveland. Consumers carry an average balance of $5,800 month to month, the agency said.

For a consumer making the minimum payment each month, it would take 30 years and $15,000 in interest to pay that off, the Fed said. However, about 9 percent don't make even the minimum monthly payment.

Consumers inundated by credit card debt often have a choice between credit counseling and bankruptcy. Sometimes, it's not an easy choice, Call said.

Although most bankruptcies are Chapter 7 liquidations, many consumers file Chapter 13 plans that allow them to settle their debts through court-structured payment plans _ typically involving reduced interest, extended terms, and sometimes forgiveness of part of the debt.

Credit counseling, funded by creditors, aims for 100 percent payment to creditors through negotiated terms.

"We get concessions," Call said. "On certain things, Chapter 13 might be a little better from a dollars-and-cents (standpoint), but it stays on the credit record seven to 10 years and is a big red flag for (future creditors). Our program is voluntary, a nonpublic action. You and your creditors work it out."

Call said he has had clients with $30,000 to $60,000 worth of credit card debt establish a budget plan and move on. But if someone is not fully committed to it, he or she will end up in bankruptcy court, he said.

He said he is aware of hundreds of people whose hopes and aspirations were ruined by credit cards.

"They had to put things on hold to pay debt so they can start hoping again," he said.