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CNN Live At Daybreak

Fighting Against Debt

Aired August 21, 2001 - 08:39   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL LIN, CNN ANCHOR: With all of this economic uncertainty though, and job layoffs that we heard about today, disappearing corporate profits, consumers are struggling with their own financial problems.

COLLEEN MCEDWARDS, CNN ANCHOR: Those struggles often include credit card debts. But we've actually got some help for you this morning. Todd Mark is a consumer credit counselor. He is right here in Atlanta.

Thanks very much for being with us, Todd.

TODD MARK, CONSUMER CREDIT COUNSELOR: Thank you so much. A great morning to both of you, Carol and Colleen.

MCEDWARDS: Yes, to you too. Now, it seems to me like you can get a credit card as easy as you can get the flu these days. I mean I get a solicitation in my mailbox every day it seems like.

What should you do with those?

MARK: Well, you know if you don't want a credit card, throw them out. If you're looking for a credit card, don't just take what's in the mail, you've got to go out and search for it online, or do the research so that you can find the best deal that you can get, not what they're offering to you.

LIN: But what should you look for if you don't want to rifle through all that fine print?

MARK: Well, best thing to do -- there's a great web site: Cardweb.com. They'll go through all the best offers for you, going by lowest rates, lowest fees. So you can avoid cards that have no annual fees, membership application costs, especially people that are sub par and they've had a little bit of bad credit in the past. They're going to be offered a lot of things where $80 application fee, or maybe there's an annual fee of $100. You don't want to be paying the credit card just to have a piece of plastic.

LIN: Very quickly, if you keep seeing better and better deals, should you be credit card hopping? Should you be taking the next best offer and switching over time and again?

MARK: I'll tell you what, some people do it. You're juggling it in the air, it's kind of a game. But you never know when the game is going to end, because maybe you transfer $20 thousand to a great teaser rate of 3.9, and then after three months it goes up to 21 percent and you think: Well, I'm going to -- I'll put that on another credit card. Well then, maybe you're not going to be offered that 3.9 the next time. So, you've got to be careful.

LIN: About your credit rating.

MCEDWARDS: We've got some e-mails for you, Todd. We've been asking for them all morning, so let's get to them. Angelie Cohen (ph) writes: You always hear commercials for non-profit organizations that claim they can reduce or eliminate late payment fees, help reduce the interest charges on accounts. How are they compensated and what is the downside for the consumer for using these kinds of services?

MARK: By all means there are a lot of competitors out there. We at CCCS of Atlanta offer free budget counseling and debt management plans, where we'll negotiate with the creditors on your behalf, lowering interest rates and in some cases wiping out fees in the past.

Is this a mark on your credit report? Yes, it is; but you know what, if you're calling us, your credit's probably in pretty bad trouble already. This is a lot better than the next step, which is bankruptcy. You want to stay away from that. So it's really good.

Creditors like that you come to us and you want to pay your bills, because if not you're going to be calling an attorney saying: You know, I'd like to wipe it out. Especially, bankruptcies are on a record pace this year, we're at 1.6 million because of the Bankruptcy Reform legislation. It's going to be a lot harder. People might have to pay their bills. Oh, my gosh. Go figure.

MCEDWARDS: Right, right.

LIN: Daniel of Saratoga Springs, New York, has a good question here. He says he's starting a new business and: have applied for credit cards to run my life and things more efficiently, but have a slightly checkered past and minimal credit history, included some bounced checks, always paid later.

What's a savvy entrepreneur to do to get good credit?

MARK: Well obviously, if he's had bad credit in the past he can start establishing by getting a secure card where you pay up front, and you'll put $500 into the card...

LIN: And then you spend it down, on the card.

MARK: ... exactly, you spend it down. That way you can build a credit history, and then over a year you'll start getting legitimate offers, not the ones that will go up to 24 percent, but real good offers.

Now, if he's a businessperson, we've seen a lot of people at CCCS where they've run up their credit card bills for business expenses. You know, with the downturn in the economy, people are trying to do anything to keep their businesses going.

LIN: Right, and it's an easy line of credit if you can't get a business loan at the time.

MARK: Do you know, something horrible, Carol and Colleen, somebody called us last week: $240 thousand in debt. It was all because of their business. It was a dot.com...

LIN: On a credit card?

MARK: ... a dot.com failure, and they were able to leverage it through their credit cards. They were like, what do I do?

MCEDWARDS: Well, Todd, here's somebody else who's not in that kind of trouble, but this is serious too. Terry in Florida rights: When should someone consider bankruptcy as an option to high debt? I owe more than $80 thousand on my credit cards.

MARK: Well, let me tell you, there's no set formula that says, I owe one thousand, I owe 80 thousand, that you've got to declare bankruptcy, because it all depends on your situation of income. Somebody that makes six figures, $80 thousand is really doable. You can pay it off on your own within a couple of years if you're smart and you're throwing money to those high credit card rates first.

On the other hand, somebody who's maybe making minimum wage, five thousand dollars could be insurmountable. And they might have to go speak to an attorney. So there's no, well this is the right number to go see CCCS, there's no right number to go to see a bankruptcy attorney.

MCEDWARDS: So for him, I guess it's as if he thinks it's manageable, based on his other income, whether he thinks he can realistically pay down $80 thousand at that kind of interest rate?

MARK: Absolutely, and you've got to check what his interest rates are. He could have great rates of like 3.9 or 6.9, or he could be paying 21 percent.

LIN: But you know what, you could also say: $80 thousand, forget about it. I'm going to walk away, and in seven years my rating is going to be clean.

MARK: Well remember, if it's a Chapter 7 that's 10 years, and it's really hard during those 10 years getting good credit offers in the mail, whatever. It's difficult to make it through with a bankruptcy on your credit.

LIN: All right, let's see if we can take one more real quick.

MARK: Sure.

LIN: From Tallahassee here: Are those consolidation loans and second mortgage deals that promise lower monthly payments, lower interest rates and faster elimination of your credit card debts worth it? Do they really help? Are the offers that come, blah, blah, blah. MARK: Oh, my gosh. Something very scary. Don't hawk your house, OK. Nothing is worse than -- people have been doing cash out refis, where the values of homes have gone up in the last few years, so I'll take out $100 thousand. And think about it, your home is your greatest asset in most cases. Don't take the money, don't rape your equity that you've built up over the years to pay for credit card debt.

Because, do you why? You'll do that, and have you changed your spending patterns at all?

LIN: No.

MARK: You'll go right back and start spending them again.

LIN: But it's acceptable and it's an easy fix. You've got equity there.

MARK: Sure, but then what happens if they start doing it again? Then, all of a sudden their mortgage payments every month are a lot higher, and a lot higher, and this is what we've seen in the economy the last 10 months. People did cash out refis, they've got higher mortgage payments, and then there's a layoff. How do you make your house payment? And we're seeing foreclosures going up at a really high rate. I mean, could you imagine, what would be worse than losing your home?

LIN: Yes, absolutely. Thank you much.

MCEDWARDS: Todd Mark, thank you.

MARK: No problem. I wish everybody the best.

MCEDWARDS: Great to have you here.

LIN: Time really flies.

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