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CNN Saturday Morning News

Inside America's Debt: Advice on How to Cope With Debt, How to Avoid Debt, and What Some Families Are Doing to Handle Debt

Aired November 27, 2010 - 09:00   ET

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

BRIANNA KEILAR, CNN ANCHOR: Holiday shoppers out in force. But before you go into a gift-buying frenzy, we're giving you the tools you need to buy smart and save smart.

This morning, we're looking at America's dirty little secret, debt. It can be a tough reality to face, right, the load of debt that so many of us are facing? Two-thirds of the nation's economy comes from consumer spending. Millions of us started shopping yesterday, some of us going deeper into debt, and it's just four weeks until Christmas.

This half hour, we'll look at ways to cope with debt, ways not to get sucked in so deeply that you can't get out, and how some families are handling their debt. So let's get started.

One of the biggest shopping weekends of the year is well underway and retailers are optimistic about sales this year. The National Retail Federation predicts a 2.3 percent increase over last year to more than - get this - $447 billion. That is better than 2009 when sales were up 0.4 percent, and a whole lot better than 2008 when sales were down almost four percent this year.

So if holiday sales look like they will be higher this year, does that mean that we are going deeper in debt again to make our purchases? CNN's Sandra Endo is in McLean, Virginia. She's tracking how people are shopping this weekend. What are you seeing? I know things just opened up there at Thiessen's right outside Washington, D.C., Sandy.

SANDRA ENDO, CNN CORRESPONDENT: That's right, Brianna.

But we are seeing a slow trickle of shoppers come in. And they're actually waiting for a lot of these stores to open. I would say the mood here among shoppers is eager. They're eager to spend, but they're also cautious. And these are the signs they really want to see here. Bargain signs, extra 15 percent off, sale. And then you see these stores luring customers to come in and really get those deals.

Deals are what consumers really want because they've gone through this recession, they have a little extra spending cash now. But a lot of shoppers say they have a whole different way of how they're going to go about their spending.

(BEGIN VIDEOTAPE) UNIDENTIFIED FEMALE: I've been able to get pretty much everything paid off. So it's just pay as you go pretty much now.

UNIDENTIFIED FEMALE: I'm watching my budget, you know. I don't - unless we - it's a need, may be a little want, but more of a need this year.

(END VIDEOTAPE)

ENDO: Yes. And cash seems to be king this holiday season. Consumer analysts say that shoppers are really different this year. They have a strategy, they've done their research, they've comparison shopped, and they're really going to go out to the stores with a target approach. They want to get what they want and make sure they're getting the right price for it. They don't want to go back into the debt that you're talking about. But it's really a catch 22, Brianna.

You know it really takes spending to turn the economy around, well, shoppers are really cautious about their spending. So we'll see how it all plays out later this holiday season.

KEILAR: And Sandy, things open up officially at 10:00, but I think I can hear the shoppers sort of I guess outside the stores salivating.

ENDO: Oh, yes. Let's take a look real quick around here. You can see a lot of people are out here waiting for the shops to open. Macy's, I was just in, opened their doors a little bit earlier. But this whole place was open yesterday at midnight yesterday and they stayed open until 10:00 p.m.. So it's a little different in terms of the holiday hours, but there'll be a lot of shopping time for everyone here this holiday weekend.

KEILAR: All right. We'll be checking in with you, Sandy. In the meantime, maybe you can go get gifts for your parents, I think. I think use your time wisely there.

ENDO: All right.

KEILAR: Thanks, Sandy.

OK. First you have to admit, right, that you have a money problem. Then you can get started on fixing it. As part of her series, "Digging Out of Debt," CNN's Christine Romans rounds out some expert tips on how to prioritize those financial obligations. (BEGIN VIDEOTAPE)

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: You're down on the ropes, right?

DAVID FLORES, COUNSELOR, GREENPATH DEBT SOLUTIONS: Mm-hmm.

ROMANS: You've got rent or mortgage, you got a car loan, you've got groceries -

FLORES: Yes.

ROMANS: You've got a student loan, and you can't - you just lost a job. How do you prioritize the basics even? Student loan you get a deferment?

FLORES: Yes, I was going to say you want to take a look at this and say where is there assistance?

ROMANS: Right.

FLORES: Student loan companies typically will help with hardships.

ROMANS: They usually have lower interest rates, too, right?

FLORES: They do. They usually they do. But yes, so putting these into deferment or forbearance can help. So you're eliminating this even if it's temporary.

ROMANS: You've got to get tough on the groceries, you tighten up.

FLORES: You got to get tough on the groceries. On rent or mortgage. Long-term, is your situation going to - do you see it changing?

ROMANS: You might need to downsize.

FLORES: Yes, and this is the hardest part. A lot of times when it comes to rent, downsizing an apartment, people don't want to do that, but sometimes it needs to be done if their situation is a long- term situation, not a short term.

ROMANS: I think bottom line $13,000 of credit card debt, at 29 percent interest, if you paid only the minimum, it would take 35 years to pay it off. Most people don't know that.

FLORES: They don't.

ROMANS: They just don't know it. That is a long time. That's a lifetime.

FLORES: Right. And so that's why if you can afford to make the minimum payment where you can pay off your debt sooner, great. But if you can't afford to pay the minimum payment, you can't - that interest rate, 30 percent, that's a lot. Seeking credit counseling will help to try and get those payments manageable, get that interest rate down to, you know, maybe a 10 percent interest rate, a six percent interest rate, something manageable so that you can pay off that debt without shelling out, you know, a ton of extra money.

ROMANS: David Flores says one of the toughest part of digging out of debt is getting started. Realizing what that number, the balance is. He says once you come to terms with it, start paying down your debt in manageable chunks little by little. After all, little by little is how most people get themselves in debt to begin with. Christine Romans, CNN, New York.

(END VIDEOTAPE)

KEILAR: This time of year, of course, some folks may feel an expectation to give big even if it does mean digging a deeper financial hole. The long-term effects of personal debt cover up, next.

(COMMERCIAL BREAK)

KEILAR: Thanksgiving is over, and you know what that means, the holiday shopping frenzy is on. This weekend millions of people are out at the mall, searching for the best deals and the very perfect gifts. But half of them are already in debt.

As of September 30th, consumer debt was over $11 trillion with a 't' dollars. And with experts saying holiday spending will be up this year, it can only get worse. So I want to bring in our finance guru Clyde Anderson now. You know, the question then is how do people handle their debt? You have a few different ways that people can, I guess, look at as they're spending this holiday season. The first is called the receipt method.

CLYDE ANDERSON, FINANCIAL ANALYST: Yes, the receipt method means keep all of the receipts you get when you're out shopping, get an envelope, put them in an envelope, so at the end of the day when it's time to reconcile you can pull on all those receipts and see exactly what you spent.

KEILAR: The calendar method.

ANDERSON: The calendar method is keeping a calendar and just writing and tracking by the day how much I spent today on breakfast, lunch, dinner, shopping. All those things are going to show up on your calendar.

KEILAR: And the envelope method.

ANDERSON: Envelope method is where you get cash and you say, OK, I'm going to spend $1,000 this month and you put it inside an envelope and this is all I'm going to spend. So when that cash is gone in the envelope, you're don't spending.

KEILAR: And the fourth way is called the checkbook method.

ANDERSON: Yes, this is the old traditional checkbook method. Most of us don't write a lot of checks anymore, but that's that ledger where you keep it there and you've jot down everything that you spend so you have the log of it, running total.

KEILAR: I think I do a combo of the calendar and the checkbook. I actually put my credit card expenses in my checkbook -

ANDERSON: That's good.

KEILAR: And then I balance with my checking account and my credit card.

ANDERSON: That's it. You've got to do what works for you.

KEILAR: Yes. And let me ask you this, you go to a store, you buy something, and especially if you're spending a lot of money, they say you know what? You can get 10 percent off if you open a credit card.

ANDERSON: Yes.

KEILAR: And you kind of go, oh, I definitely want 10 percent off. Should you do it?

ANDERSON: Stay away from it. I say, you know, use your bank credit card. A lot of times those credit card that they're offering, they give you 15 percent discount, but the interest rates are sometimes are 20 percent. So these are considered sub-prime credit cards and if you've got a bank or Visa or MasterCard, use that and stay away from those deals. Those deals aren't really that big and if you don't pay it off that month, you're going to end up paying 20 percent interest and it's going to cancel out the savings that you would have had.

KEILAR: You have to think it's inevitable that some people are going to carry a balance on their credit card through the holidays. So once, you know, it's all over, the revelry, it's January, what do you do to pay down any debt you might have accrued?

ANDERSON: What you have to do is really start with the high interest rate stuff. So if you did go out and get one of those department store cards and has a 20 percent interest rate, pay that off first. Get that high interest rate out of the way, otherwise you're just going to keep paying. It's a perpetual cycle over and over again that you're paying on all this interest. Don't do it. Pay off the high interest, then work your way down and start paying off that debt.

KEILAR: And don't just stick to the minimums.

ANDERSON: No.

KEILAR: Obviously.

ANDERSON: No, please don't stick to the minimums. I mean, we've seen the cases where people are paying for 35 years just ridiculous to pay for 35 years just paying the minimum on a credit card. You've really got to make some chunks and go in and attack that credit card and hit it and get rid of it as soon as possible or you're going to be paying forever.

KEILAR: Yes, you're paying three time what the thing was you bought.

ANDERSON: Exactly.

KEILAR: Or it's broken before you finish paying for it.

ANDERSON: Exactly.

KEILAR: All right. Clyde Anderson, thank you so much. All very good advice.

ANDERSON: My pleasure.

KEILAR: And it's time now to let the toy wars begin. The search for that hot new toy, it moves into high gear today. Put on your armor and we will help you find the deals.

(COMMERCIAL BREAK)

KEILAR: Have you gone shopping for the kid in your life yet? You know then if you have that finding the must-have toy can be like waging war this time of year. You may remember this scene from the holiday movie "Jingle All The Way."

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We don't want it!

UNIDENTIFIED MALE: And by the way, accordance with the laws of supply and demand, the new list price on each figure just doubled.

UNIDENTIFIED MALE: What?

(END VIDEO CLIP)

KEILAR: Yes, there can be frustration and frenzy when it comes to holiday shopping, especially if you're buying for one of this year's top toys. The National Retail Federation says Barbies, dolls, Dora the Explorer, video games and Disney Princesses top the wish list for girls. And boys it's video games, Legos, cars, stuff from "Toy Story," and Hot Wheels. And retailers are, yes, waging war for your business.

CNN's Karen Kiefer (ph) reports let the toy wars begin.

(BEGIN VIDEOTAPE)

KAREN KIEFER , CNN CORRESPONDENT (voice-over): Full steam ahead into the holiday shopping season. The wishes of little people means big business, which means lots of retailers want to be players in the toy game.

SEAN MCGOWAN, TOY INDUSTRY ANALYST, NEEDHAM & CO.: Well, if you don't want to be at this time of year, you don't want to be in it.

KIEFER: The National Retail Federation says nearly 42 percent of holiday shops have toys on their list. And despite an expectation they'll part with more green this year. Retailers still believe price is key.

STEVEN RESTIVO, DIRECTOR OF COMMUNITY AFFAIRS, WAL-MART: We'll actually have more than 4,000 toys on sale at Wal-Mart between our stores and walmart.com and our goal will be the everyday price leader.

KIEFER: At this Wal-Mart store in Alexandra, Virginia, shelves are stocked with items topping early wish lists from "Toy Story" to Legos. Along with their other favorite boxed rivals, they'll have competition from Toys 'R Us. In the toy business year round and after opening 90 seasonal pop-up stores last year, they brought back that concept and then some.

JERRY STORCH, TOYS 'R' US, CEO: We like what we saw, so this year we're opening over 600 express stores in malls and shopping centers. Our objective there is to make it even more convenient to shop with TOYS 'R' US.

KIEFER: As for the season's must-have item, whatever it is, shoppers will go searching.

MCGOWAN: There may yet be that sort of dark horse that comes on and becomes the "it" toy that kids are going to hold their breath and parents are going to pull their hair out trying to get.

KIEFER: Because toy fads come and go, but holiday memories can last forever.

In Washington, I'm Karen Keifer.

(END VIDEOTAPE)

KEILAR: So if you are heading out shopping today, I guess, Reynolds, the question is, what do you wear?

REYNOLDS WOLF, AMS METEOROLOGIST: Well, I would tell you it depends on what part of the country you happen to be. If you were in, say, in parts of the desert southwest, you'll be just fine. If you go into parts of the northeast, you're going to have some issues with some lake effect snowfall.

In fact, you'll get this map behind me, you can see that we've got quite a bit of expected for places like Buffalo, (INAUDIBLE) and Syracuse. Anyone taking a drive on parts of 91, you're going to have some issues. However, you come back to me, one issue you might have is when you head out to the airport, anyone who plans on doing some flying might have delays at the airport. We'll let you know what to expect, coming up. Pretty nice airplane, huh? Yes, sure.

(COMMERCIAL BREAK)

KEILAR: A Black Friday shopper in Buffalo rushed to the hospital after getting caught up in the door buster whirlwind, and it was all caught on tape. Rich Newberg from our affiliate WIBV has the video.

(BEGIN VIDEOTAPE)

RICH NEWBERG, WIBV REPORTER(voice-over): Long before the sun came up, bargain hunters have lined up outside the Target store in north Buffalo for Black Friday's special.

UNIDENTIFIED MALE: TVs, man. Everybody love TVs.

UNIDENTIFIED FEMALE: It's been a crazy night, that's for sure, but it definitely went by fast.

NEWBERG: It was about to get crazier. Just minutes before store manager Ben Gregory went to open the doors at 4:00 a.m., 30 to 40 people had cut in line. And when the flood gates opened, the crowd got out of control. As people rushed in to gobble up the sale items, one of the shoppers, Keith Krantz had gotten pinned against a metal door support and then shoved behind to the ground.

He began screaming out in pain as shoppers stepped over and around him. Shoppers went about their business as Keith Krantz began feeling that his life might end at the Target doorway.

KEITH KRANTZ, BLACK FRIDAY SHOPPER: At that moment, I was thinking I - I don't want to die here on the ground. That's exactly what I thought.

NEWBERG: A security guard and some Target employees had managed to free him from the crowd. Keith who says he suffers from a herniated disk staggered to a counter.

KRANTZ: I remember kind of being hunched over and I was looking for my brother, and I just kind of stumbled away towards the television section to see where he was.

UNIDENTIFIED MALE: He met up with me and pretty much collapsed. And luckily some lady, she called the paramedic.

NEWBERG: Keith was given a CAT scan, X-rays, and pain killers at the hospital.

KRANTZ: I see it as a little absurd. I don't think it's worth standing out there all night to get trampled or trample somebody else.

(END VIDEOTAPE)

KEILAR: You know, today is Small Business Saturday. This is an effort to save mom and pop shops from diminishing as more and more people head to large retailers to do their holiday shopping. And one such mom and pop operation is the "Inside Loop." It's a yarn shop in Washington, D.C. where the owners credit their success to cautious planning and also strong support from the community.

(BEGIN VIDEO CLIP)

JANIE LIPNICK, CO-OWNER, LOOPED YARN WORKS: We have a wonderful land lady who has been incredibly supportive, was willing to work with us, as far as the lease went and really wanted us to be happy and wanted us to be here. Because I think when it seemed when there were no new retail shops opening and a lot are closing -

SUSAN GALBRATH, CO-OWNER, LOOPED YARN WORKS: It's a business, and we're careful about the decisions that we make. And we collaborate on everything. We spent a year just on our operating agreement.

(END VIDEO CLIP)

KEILAR: For those of you who forego the crush of humanity on Black Friday like me maybe you aren't taking part in Small Business Saturday, there is always Cyber Monday. But having the shopping world at your fingertips does present a few dangers of its own.

CNN's Sandra Endo has some good advice for the online shopper.

(BEGIN VIDEOTAPE)

ENDO (on camera): Look out for those restocking fees. That means if you buy something, you don't like it per se, you want to send it back, make sure you're not going to be charged anything for that. And you want to get your full refund back. Now, don't shop using public Wi-Fi. Make sure it's a secure and connected secured line. Don't wire money to pay. Use your credit card. Don't use your debit card. You don't want to get your identity stolen.

And beware of the social network URLs. You want to make sure you're using a legitimate link, not some bogus ones made up out there. And the good news is for all of those international viewers, you have people you want to send some gifts to overseas. Online shopping is a good way to just ship it to them, the store will ship it, you can even gift wrap it. And that way you can cut down on costs and cut down on carrying it around until the next time you see them.

(END VIDEOTAPE)

KEILAR: Sandra Endo for us. And for the millions of Americans out of work, obviously the greatest gift one can receive this holiday season is a job. Tens of thousands of new employment opportunities are becoming available, though. Electronic store Best Buy tells CNN it will hire 20,000 extra workers for the holidays, but plans to keep about 5,000 on permanently after the holiday rush.

And federated department stores which includes Macy's and Bloomingdale's, they plan to add 55,000 seasonal workers keeping on as many as 3,000 after the holidays. Last year, retailers shed almost 70,000 jobs between October and December. And we are keeping our eye on weather right now.

Let's get to Reynolds Wolf. What are we expecting?

WOLF: It depends on where you happen to be. If you're in the northeast, the big thing we're talking about is wind and snow, especially in the Great Lakes. Lake effect snowfall could cause you a few problems. The wind is going to cause some issues at the airport.

Take a look at some of the delays we have. In Boston, all your airports in New York, all the three big ones, you've got over an hour delay that you may expect later on today at your D.C. metros and in Philadelphia. Anywhere from 30-minute to maybe even a 60-minute delay. Up to 30 minute to basically 60-minute delay also in Cleveland due to the snow. And in Orlando, the only issue might be some low clouds and you could be on the ground waiting for about 15 to 30. One of the big reasons we were talking about earlier, for some problems that you have in the northeast is the snow and the combination of the wind. The wind, of course, pulling that moisture off some of the Great Lakes and as it interacts with that cold air, it's going to come down in the form of some snow. And the break you're going to see not only in places like New York or even Ohio and into Pennsylvania, but also into Michigan.

It could stack up. Quite impressively too. In fact, we may have not just one or maybe two to three inches in total, but possibly two to three inches of snowfall per hour. And it's going to stack up in other places, not just in the Great Lakes or in the northeast, but when you head out west, it'll get really interesting. You're going to have wind gusts possibly 60 to 70 miles per hour (INAUDIBLE). The moisture coming in from the Pacific. He's going to give you same snowfall, high aloft in the Sierra Nevada, into the Cascades, and also into the coastal range and farther north, you go up along i-5 near Portland, Eugene and even Seattle, look for rain, right along parts of the coast. But of course in the mountains, it's all going to be different.

The reason we're seeing it out west is pretty simple, we've got this big "L," which of course represents low pressure, you get the frontal boundary, everything's pulling just from west to east. On the Eastern sea board is going to be freezing for you, but still plenty of sunshine for say Washington, D.C., southward into the outer banks. But high pressure is going to be your dominating feature for much of the U.S. and that sinking effect you're going to have with that bid dome pressure, is going to give you a lot of sunshine, but still, needless to say, can certainly some cool temperatures.

This morning people in Dallas and down to Houston, we're waking up with temperatures below the freezing point. But they'll rebound nicely with highs in the 60s. 62 in Dallas, 53 in Kansas City, outside (INAUDIBLE) stadium, 36 in Billings, 42 in Seattle, 57 in San Francisco. 45 in Boston out by Logan airport. 56 in Raleigh and 74 in Tampa, Miami, you lucky devils. 83 degrees, that's going to be the premium spot around the country. Not a bad way to spend a day like today. Cold everywhere, but Miami looking good.

KEILAR: And if you're out west or in the Buffalo area, maybe you delay your departure from grandmother's house for a day.

WOLF: Maybe a little bit.

KEILAR: Turkey sandwich.

WOLF: Unless you want to (INAUDIBLE) and you want to get out there and shovel off the walk, by all means go ahead, but just take it easy.

KEILAR: Yes, definitely. All right. Reynolds, thank you so much for that.

WOLF: You bet.

KEILAR: Let's take a look now at some top stories.

Nineteen-year-old naturalized U.S. citizen from Somalia accused of attempting to blow up a van filled with explosives. The FBI says Mohamed Osman Mohamud targeted the crowded Christmas tree lighting ceremony in Portland's Pioneer Square. Mohammed is due in court on Monday.

And North Korea's artillery shelling of a South Korean island is drawing protests today in Seoul. Demonstrators say they want a stronger response against North Korea. The shelling killed four Koreans.

And President Obama is nursing a bit of a sore lip this morning. He was elbowed during a basketball game yesterday. He needed 12 stitches to close that cut.

Coming up next on "YOUR BOTTOM LINE," spend less, give more. Christine Romans will show you how to make your lists and check it twice to ensure you know how to properly embrace your inner cheapskate.