Setting a good example

Debt doesn’t discriminate

No. 1: Keep tabs on your bank.

No. 2: Never take out a payday loan.

No. 3: Ask questions before you get debt relief.

No. 4: Unleash the power of calculators.

 No. 5: Think long and hard about cosigning loans.

No. 6: Teach your kids to control spending and debt.

Quick Clicks to Help with Consumer Debt

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At a time in their lives when they should have been financially carefree, the Johnsons were bankrupt.

“They were both retired and led a reasonably comfortable life,” says Joel Greenberg, president of Novadebt, a nonprofit organization that provides financial counseling to consumers in need. But alluring credit card offers started rolling in, and the couple continued buying things they couldn’t afford to pay for. The Johnsons tried everything to stave off disaster—they borrowed from their children, downsized their home, and even dodged collectors. “Nothing helped,” says Greenberg. “By the time their oldest daughter contacted [Novadebt] on their behalf, their situation had deteriorated to the point where solutions were virtually nonexistent. Only bankruptcy protection seemed viable. We wished they had come to us earlier.”

Setting a good example

Compare the Johnsons’ story with that of Air Force Tech. Sgt. Julie Scott, a single mother who manages to put $800 a month into retirement accounts for herself and her triplet daughters—and still lives on her military pay. Although she describes her income as “small,” she is grateful that when one of her daughters was born in Germany with a hole in her heart, she was flown stateside for corrective surgery—something that would have buried a nonmilitary family in debt, but was free for Scott.

“Some servicemembers have no idea they should be managing their money,” says Scott, who bemoans the fact that people who need financial planning usually don’t get it until it’s too late. The resource that has worked for Scott is the Military Financial Education Center, administered by the University of Maryland University College (UMUC). Its military-specific Web site has more than 2,000 users a week who browse its more than 800 pages of information.

UMUC’s director of operations, Marky Campbell, is a longtime military wife who has relocated 22 times and knows the difficulties for people deployed overseas and for military spouses who live far from base-provided financial counseling.

Debt doesn’t discriminate

The issue of personal debt is one that requires vigilance as constant as any military guard duty. According to Roger W. Ferguson Jr., vice chairman of the Board of Governors of the Federal Reserve System, household debt, relative to disposable income, annually has hit record highs each year since 1993.

“Consumer debt has affected our society in two basic ways,” says Greenberg. “It has enabled us to have more opportunities for material needs and desires. It has also been frequently misused, resulting in a wide range of individual and family problems that include divorce and suicide.”

Military life is fraught with its own life-and-death pressures. Oppressive debt doesn’t have to be one of them. Consumer credit watchdogs offer six strategies that can help military families avoid some common consumer-debt pitfalls.

No. 1: Keep tabs on your bank.

Recent changes in how your bank processes your checks can cause you a lot of problems and affect your credit card debt load. Legislation (H.R. 1474) popularly known as “Check 21,” which was implemented in October 2004, gave “substitute checks” the same legal validity as the original paper checks. Your paper checks are automatically destroyed once received because a digital or substitute copy is made of them. Although the bank’s ability to copy and store electronic versions of your checks can be a good thing, there are some implications that can bite you if you don’t know about them.

First of all, once a check is received, the “float time” you previously might have depended on disappears. So does your ability to stop payment on a check. That should make you stop and think before you write a check for an impulse item. (Unfortunately, however, the new law doesn’t make your deposits available any sooner.)

Even more dangerous is the lure of overdraft protection that can turn your bank account into a source of personal debt. A recent newsletter from Mary Hunt of Cheapskate Monthly points out newly aggressive bank credit card campaigns that will allow you to bounce checks and even overdraw your account using an ATM or debit card. “Just because you can get money out of your account doesn’t mean you have money in your account,” says Hunt. “There are no laws or regulations to stop [banks]. They want you to bounce checks.”

Hunt calculates that a $100 overdraft with a $20 fee has an APR of 520 percent if the overdraft extends over two weeks, once the late fees of $2 to $5 a day are factored in.

No. 2: Never take out a payday loan.

“Need a little help until payday? Quick Cash Here,” say the ads. So-called payday lenders are nothing less than financial predators, according to Adm. Jerry Johnson, USN-Ret., former president of the Navy-Marine Corps Relief Society and former chairman of MOAA’s board of directors. With storefronts often located right at a military base’s gates, they not only charge hefty transaction fees upfront (say, $50 on a $300 loan), but legally can charge up to 800 percent APR interest if your check won’t clear and it’s rolled over into new, interest-aggregating loans. If you’re so financially strapped that you’d even consider such a loan, you should run—not walk—away from any payday lender.
 

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