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American Morning
Minding Your Business: Do Away With Debt
Aired January 02, 2003 - 07:50 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.
JACK CAFFERTY, CNN ANCHOR: Turning now to money matters. All morning on AMERICAN MORNING, we're going to take a look at your personal financial situation for the New Year.
One of the New Year's resolutions, perhaps cutting back on credit card debt -- something we could all probably do with -- not surprisingly because household debt has tripled -- tripled in the last 10 years.
Andy Serwer and Lauren Young of "Smart Money" magazine minding our business this morning.
Andy...
ANDY SERWER, "FORTUNE" MAGAZINE: Jack.
CAFFERTY: ... it tripled.
SERWER: Yes, I mean...
CAFFERTY: What happened?
SERWER: ... it's truly staggering. The average American family has $8,300 of credit card debt, up from $3,300 10 years ago.
And basically, the way to look at this, Jack, is credit card debt is a reflection of consumer confidence. People take on more debt as they become more confident about the future. And what happened in the 1990s is, as we meandered forward, the economy was improving, people took on more and more debt. Now, as the economy and the stock market has hit the wall, they're going to have to pay the piper.
CAFFERTY: How do I know, Lauren, if I've got a problem, if I've too much debt for my income to handle?
LAUREN YOUNG, "SMART MONEY" MAGAZINE: You can't make those minimum payments, and usually they're pretty low. But the problem is you probably maxed out on a bunch of credit cards, maybe several of them, so you've got a problem there.
Some other problems: If you're using credit cards for everyday purchases, like groceries...
CAFFERTY: Yes.
YOUNG: ... that's a problem. And finally, if you're worried that others are going to find out about your debt levels, you also know you have a problem, because when you start fearing telling other people...
CAFFERTY: Then you know.
YOUNG: ... then you know.
CAFFERTY: It's like that old thing, if you're alcoholic, you know whether you're an alcoholic or not before you go and get diagnosed.
All right, I've got too much credit card debt, I don't want anybody to know I'm maxed out on all of my cards. What do I do, short of declaring bankruptcy?
YOUNG: Well, should you declare bankruptcy? I don't know.
SERWER: Well, bankruptcy is a very radical step. And you know, it's interesting. We've heard about chapter 11 and all of these big companies declaring bankruptcies, but interestingly, 97 percent of all bankruptcies in the United States are personal bankruptcies. That's up from about 80 percent 20 years ago. People are declaring bankruptcy like never before, about a million families per year.
Congress has tried to clamp down on this. You can go chapter 13, chapter 7. They hate it when you go chapter 7, because that means it basically wipes out all of your debts. Chapter 13 means you're going to pay it over three to five years.
YOUNG: But it's a black mark on your credit record for 7 to 10 years. And it really hurts you if you want to get a mortgage, or even get a cell phone.
CAFFERTY: Or a car. You can't go buy a car or finance it or anything.
YOUNG: That's right.
CAFFERTY: So, if I don't want to declare bankruptcy, and I've got all of this debt, what do I do?
YOUNG: Well, one thing you can do is consolidate. There are lots of people out there that will help you consolidate. Be wary. You don't want the ones on at 4:00 a.m. who are advertising on other networks. You want to go to something that's not for profit. The big credit card companies actually help fund these organizations. Switch to a lower rate credit card. Bankrate.com is a great Web site. There's plenty of low interest rates out there. If you're paying above 14 percent on a credit card right now, too high.
Check your credit record, because right now, the credit rating agencies are actually offering services to help you improve your debt. And finally, you want to spill your beans to the creditors. You want to tell them, hey, I've got a problem, can I work with you? Don't throw the statements in the trash can. That is the worst possible thing you can do.
CAFFERTY: And the fact of the matter the law is, they have to work with you, right? I mean, if you call them up...
SERWER: Yes.
CAFFERTY: ... and say, look, you're sending me a bill for $500, I only have $50, but will you take 10 a month? I mean, they have to...
SERWER: Right.
CAFFERTY: ... talk to you.
YOUNG: They want -- believe me, a half a loaf of bread is better than no loaf at all.
SERWER: Absolutely.
YOUNG: So, they are happy to take your money.
SERWER: It's amazing, you know, if you just call these guys up and say, hey, lower my rate, they will. I mean, just pick up the phone...
CAFFERTY: The credit card companies, right?
SERWER: The credit card companies.
CAFFERTY: Yes.
SERWER: It's just amazing. You just make the phone call and ease your payments that way a little bit.
CAFFERTY: What was it? We mentioned if you're making the interest only payment on the cards too, that's another sign you're in trouble. If all you pay is the minimum interest every month.
YOUNG: Right.
CAFFERTY: Yes.
SERWER: Yes, I mean, if you're not buying your niece and nephew a birthday present because you've got too much credit card debt...
CAFFERTY: Yes.
SERWER: ... you know you're in trouble.
CAFFERTY: Yes. What are we going to do next hour?
SERWER: Well, we're going to talk about...
YOUNG: 401(k)s and retirement.
SERWER: ... 401(k)s, getting a job a little later on.
CAFFERTY: All right, and the rules have changed about 401(k)s, you can put more money in them. We'll talk about what the new maximum contributions are, and how you might go about spreading the money around and investing it. Some say the stock market may be better this year. We'll have to wait and see coming off three losing years in a row.
SERWER: Yes.
CAFFERTY: See you guys next hour.
SERWER: All right.
CAFFERTY: All right, Lauren and Andy.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.
Aired January 2, 2003 - 07:50 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR: Turning now to money matters. All morning on AMERICAN MORNING, we're going to take a look at your personal financial situation for the New Year.
One of the New Year's resolutions, perhaps cutting back on credit card debt -- something we could all probably do with -- not surprisingly because household debt has tripled -- tripled in the last 10 years.
Andy Serwer and Lauren Young of "Smart Money" magazine minding our business this morning.
Andy...
ANDY SERWER, "FORTUNE" MAGAZINE: Jack.
CAFFERTY: ... it tripled.
SERWER: Yes, I mean...
CAFFERTY: What happened?
SERWER: ... it's truly staggering. The average American family has $8,300 of credit card debt, up from $3,300 10 years ago.
And basically, the way to look at this, Jack, is credit card debt is a reflection of consumer confidence. People take on more debt as they become more confident about the future. And what happened in the 1990s is, as we meandered forward, the economy was improving, people took on more and more debt. Now, as the economy and the stock market has hit the wall, they're going to have to pay the piper.
CAFFERTY: How do I know, Lauren, if I've got a problem, if I've too much debt for my income to handle?
LAUREN YOUNG, "SMART MONEY" MAGAZINE: You can't make those minimum payments, and usually they're pretty low. But the problem is you probably maxed out on a bunch of credit cards, maybe several of them, so you've got a problem there.
Some other problems: If you're using credit cards for everyday purchases, like groceries...
CAFFERTY: Yes.
YOUNG: ... that's a problem. And finally, if you're worried that others are going to find out about your debt levels, you also know you have a problem, because when you start fearing telling other people...
CAFFERTY: Then you know.
YOUNG: ... then you know.
CAFFERTY: It's like that old thing, if you're alcoholic, you know whether you're an alcoholic or not before you go and get diagnosed.
All right, I've got too much credit card debt, I don't want anybody to know I'm maxed out on all of my cards. What do I do, short of declaring bankruptcy?
YOUNG: Well, should you declare bankruptcy? I don't know.
SERWER: Well, bankruptcy is a very radical step. And you know, it's interesting. We've heard about chapter 11 and all of these big companies declaring bankruptcies, but interestingly, 97 percent of all bankruptcies in the United States are personal bankruptcies. That's up from about 80 percent 20 years ago. People are declaring bankruptcy like never before, about a million families per year.
Congress has tried to clamp down on this. You can go chapter 13, chapter 7. They hate it when you go chapter 7, because that means it basically wipes out all of your debts. Chapter 13 means you're going to pay it over three to five years.
YOUNG: But it's a black mark on your credit record for 7 to 10 years. And it really hurts you if you want to get a mortgage, or even get a cell phone.
CAFFERTY: Or a car. You can't go buy a car or finance it or anything.
YOUNG: That's right.
CAFFERTY: So, if I don't want to declare bankruptcy, and I've got all of this debt, what do I do?
YOUNG: Well, one thing you can do is consolidate. There are lots of people out there that will help you consolidate. Be wary. You don't want the ones on at 4:00 a.m. who are advertising on other networks. You want to go to something that's not for profit. The big credit card companies actually help fund these organizations. Switch to a lower rate credit card. Bankrate.com is a great Web site. There's plenty of low interest rates out there. If you're paying above 14 percent on a credit card right now, too high.
Check your credit record, because right now, the credit rating agencies are actually offering services to help you improve your debt. And finally, you want to spill your beans to the creditors. You want to tell them, hey, I've got a problem, can I work with you? Don't throw the statements in the trash can. That is the worst possible thing you can do.
CAFFERTY: And the fact of the matter the law is, they have to work with you, right? I mean, if you call them up...
SERWER: Yes.
CAFFERTY: ... and say, look, you're sending me a bill for $500, I only have $50, but will you take 10 a month? I mean, they have to...
SERWER: Right.
CAFFERTY: ... talk to you.
YOUNG: They want -- believe me, a half a loaf of bread is better than no loaf at all.
SERWER: Absolutely.
YOUNG: So, they are happy to take your money.
SERWER: It's amazing, you know, if you just call these guys up and say, hey, lower my rate, they will. I mean, just pick up the phone...
CAFFERTY: The credit card companies, right?
SERWER: The credit card companies.
CAFFERTY: Yes.
SERWER: It's just amazing. You just make the phone call and ease your payments that way a little bit.
CAFFERTY: What was it? We mentioned if you're making the interest only payment on the cards too, that's another sign you're in trouble. If all you pay is the minimum interest every month.
YOUNG: Right.
CAFFERTY: Yes.
SERWER: Yes, I mean, if you're not buying your niece and nephew a birthday present because you've got too much credit card debt...
CAFFERTY: Yes.
SERWER: ... you know you're in trouble.
CAFFERTY: Yes. What are we going to do next hour?
SERWER: Well, we're going to talk about...
YOUNG: 401(k)s and retirement.
SERWER: ... 401(k)s, getting a job a little later on.
CAFFERTY: All right, and the rules have changed about 401(k)s, you can put more money in them. We'll talk about what the new maximum contributions are, and how you might go about spreading the money around and investing it. Some say the stock market may be better this year. We'll have to wait and see coming off three losing years in a row.
SERWER: Yes.
CAFFERTY: See you guys next hour.
SERWER: All right.
CAFFERTY: All right, Lauren and Andy.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com.
