THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, October 30, 1995 TAG: 9510280225
SECTION: BUSINESS WEEKLY PAGE: 12 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY TOM SHEAN, BUSINESS WEEKLY
LENGTH: Long : 183 lines
It didn't take much to push Craig and Andrea Thorne over the edge.
When they moved from California two years ago, they put the expenses of their cross-country trip on a credit card.
More recently, the Chesapeake couple and their three children became accustomed to eating some of their meals away from home. Those, too, went onto a credit card.
Then came a string of unexpected medical bills.
By August 1994, the Thornes were saddled with $12,000 of debt on a half-dozen cards. They found themselves under siege from creditors calling for monthly payments.
That's when the couple turned to the Consumer Credit Counseling Service of Virginia office in Chesapeake for help.
``It was desperation,'' says Andrea Thorne, 36. ``We were buried.''
By using the organization's debt-management program, she and her husband have repaid $4,500 of what they owed. They are scheduled to pay off the remaining debt over the next two years.
Managers at four Consumer Credit Counseling Service programs in Hampton Roads say they are seeing increasing numbers of consumers in financial straits similar to the Thornes'.
At a Consumer Credit Counseling office in Portsmouth, the roster of participants in its debt-management program has swelled to 350 from 143 in December. Part of the problem has been a pursuit of immediate satisfaction and the unwillingness of some consumers to save for major purchases, says Ed Welp, president of Child and Family Service of Southwest Hampton Roads Inc., which operates the Portsmouth credit-counseling program.
``Young families rent nice apartments and buy new cars and say to themselves, `I should be able to afford this. I went to college and make good money,' '' Welp says.
But for some households, what had been a tolerable amount of debt under normal circumstances became onerous when a husband or wife lost their job.
Although many individuals laid off in recent years have returned to work, some have had to take jobs with lower pay and reduced benefits. And that, Welp says, has made managing their debts more difficult.
On the Peninsula, the Consumer Credit Counseling Service of Hampton Roads is working with 1,400 clients, compared with 800 two years ago.
``We see 100 new families a week,'' says Ken Hawkins, director of the Hampton-based counseling service.
To meet that demand for help, Hawkins expects to open two more credit-counseling offices in Newport News by late December. The counseling service, which already has six offices in the region, has long-term plans to open offices in Gloucester and Smithfield, Hawkins says.
Evidence of increasing financial strain on area households already has shown up in the region's bankruptcy courts.
After steadily declining from their peak in 1991, personal bankruptcy filings have climbed 10 percent during the first nine months of the year from the comparable period in 1994.
Andrea Thorne says she and her husband had considered eliminating most of their debt by filing for bankruptcy but decided against it.
``I'm not the sort of person to throw in the towel,'' she says.
Still, participating in a debt-repayment program and laying out the details of their tattered finances was painful.
``It's humbling experience,'' admits Craig Thorne, 42, a sales representative for a coffee-service company in the region.
The first step in a Consumer Credit Counseling Service's debt-management program involves making lists of the client's debts, sources of monthly income, and living expenses. In most cases, the process takes a counselor and a client about an hour.
Then the two determine how much can be applied each month to repaying the client's debts. On occasion, that requires closer scrutiny of a person's life style and spending habits, says Sharon P. Neuhaus, manager of the Consumer Credit Counseling Service of Virginia's office in Chesapeake.
``The first items I go over are the living expenses: the rent, heat, gas for the car, school lunches, lotto tickets,'' says Neuhaus, who helped the Thornes put together their debt-repayment plan.
If a client comes up short and has little left to apply to debt repayments, Neuhaus suggests they cut back on such things as meals away from home and cable television. In some cases, she recommends that the person take a second job.
Once the counselor and client have devised a repayment plan, the client makes one monthly payment to the Consumer Credit Counseling Service office. The office, in turn, disburses the funds to creditors. The goal is to pay off all that a client owes his creditors within four years. Sometimes, that can be accomplished in two or three years.
In addition to finding ways for clients to structure their payments to creditors, counselors often negotiate with retailers and credit-card issuers to halt late fees and suspend or reduce their interest charges, says Anne J. Gwaltney, director of the Consumer Credit Counseling Service division of Family Services in Norfolk.
That can be especially valuable for clients who owe significant amounts of credit-card debt. Gwaltney says she and a counselor have been working with a married couple who put $72,000 of debt on 17 credit cards while the husband, a military officer, launched a part-time business from their home.
It will take about five years of frugal living for the couple to pay off that debt, Gwaltney says. But the alternative - filing for bankruptcy - would have destroyed the husband's career, she says.
In addition to imposing restraints on their spending, the debt-management program requires clients to close all of their card accounts and bars them from opening new ones while in the program.
The Thornes say they adjusted to those requirements with little difficulty.
``A credit card provides a false sense of security, especially when you need large sums of cash quickly,'' Andrea Thorne says.
But for some individuals, the program's discipline and the loss of easy access to credit is too much to bear. Managers of local credit counseling offices say the dropout rates from their debt-management programs range from 10 to 25 percent.
The first few months of the program tend to be the most difficult, says Welp of Child and Family Service in Portsmouth. ``We find about a 70 percent success rate for those who are with us for three months or longer,'' he says.
The Consumer Credit Counseling Service programs are run by non-profit organizations that agree to abide by certain practices defined by the National Foundation for Consumer Credit in Silver Spring, Md.
These practices include having a volunteer board of directors representative of the community; using at least 5 percent of the annual budgets for educational services in the community; using trained counselors; providing clients with timely service and written action plans.
The Consumer Credit Counseling Service programs are supported by contributions from creditors, including large retailers, banks and other card issuers.
Most of the credit-counseling offices in Hampton Roads charge nothing for participating in their debt-management programs. At others, there may a modest monthly fee, based on an individual's income, to cover postage costs.
What's important for anyone wrestling with a heavy debt load is recognizing some of the danger signs and then getting help quickly. The warning flags include routine arguments with a spouse over debts and using credit-card debt to pay for basics like groceries and utility bills.
``A lot of people do not want to admit that they can't handle their own finances,'' says Gwaltney.
``The advice I would give to individuals is to forget their pride. Forget the embarrassment. Credit counselors are not here to judge.'' MEMO: [For a related article, see page 14 and 15 of this date.]
ILLUSTRATION: [Cover]
KEEPING CREDIT SHARKS AT BAY
[Color illustration]
RICHARD L. DUNSTON
The Virginian-Pilot
[Color Photos]
By using Consumer Credit Counseling Service's debt-management
program, Andrea and Craig Thorne have repaid $4,500 of the remaining
debt over the next two years. The first step in a Consumer Credit
Counseling Service's debt-management program involves making lists
of the client's debts, sources of monthly income and living
expenses, says Sharon P. Neuhaus, manager of the Consumer Credit
Counseling Service of Virginia's office in Chesapeake.
MORT FRYMAN
The Virginian-Pilot
JIM WALKER
The Virginian-Pilot
Consumer Credit Counseling Service of Tidewater director Anne
Gwaltney, above, and Sharon P. Neuhaus, manager of the Consumer
Credit Counseling Service of Virginia's office in Chesapeake, left,
advise clients how to pay off debts. Both agencies tell clients to
begin by getting rid of credit cards, which Neuhaus keeps in a fish
bowl.
Charts
[For copies of the charts, see microfilm for this date.]
CONSUMER DEBT: REVOLVING CREDIT
SOURCE: Federal Reserve
The Virginian-Pilot
BANK CARD DELINQUENCIES ARE ON THE RISE NATIONWIDE
SOURCE: American Bankers
The Virginian-Pilot
PERSONAL BANKRUPTCIES IN HAMPTON ROADS
SOURCE: U.S. Bankruptcy Court Eastern District of Virginia
The Virginian-Pilot
USEFUL READING
[For a copy of the graphic, see microfilm on page 13 for this
date.]
KEYWORDS: PERSONAL FINANCE CREDIT CARD DEBT by CNB