The Truth About Getting In & Out of Credit-Card Debt

By Sarah Bennett-Astesano

If you’re like many people, when you hear “bankruptcy” you immediately think “credit-card debt.” So much media attention has been paid to the phenomenon of American consumer debt that you might not be surprised that the average American household owes roughly $9,000 in credit-card debt, according to many reports.

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  • Amelia Warren Tyagi and Elizabeth Warren, co-authors of All Your Worth and The Two-Income Trap, agree that credit-card debt has a crushing effect on Americans’ financial situation and they document a 6,000 percent – yes, that’s thousand – increase in credit-card debt in a single generation (since 1968).

    Getting Into Debt
    But it’s not overindulgence in frivolous expenditures that have gotten Americans into credit trouble. Much of that credit debt has been accumulated as families with little discretionary income struggle to cope with disaster, Tyagi and Warren contend.

    The blame for Americans’ credit struggles, they say, lies squarely at the feet of lending companies. Deregulation of the lending industry in the 1970s and ’80s meant that mortgage and credit-card companies alike have been able to put into place policies that had a catastrophic result: the most profitable customers are those that are unable to pay, Warren and Tyagi note. So even as fees and interest are piled upon them, these struggling customers are offered more credit.

    Getting Out From Under
    Once you’re under, don’t seek help from a credit-counseling agency, the authors warn.

    “Unfortunately, this industry has become thick with slick operators who just take your money and leave you worse off, and there is no easy way to tell the good guys from the bad guys,” says Tyagi. “Even not-for-profit and religious affiliation is no assurance of quality; many of these are being investigated for fraud.

    “Many counseling agencies take their money from the credit-card industry, which means that, ultimately, their loyalty is to the big banks, not to the families in financial trouble,” she continues. “Those guys won’t tell you whether you are the victim of a credit-card scam, and they sure won’t tell you whether you would benefit from contacting a bankruptcy attorney. In fact, some of these agencies actually fire any ‘counselor’ who even utters the word bankruptcy!

    “There are plenty of good organizations out there, but until the industry is cleaned up,” Tyagi says, “we advise people to stay away from all of them.”

    The bottom line is there are no shortcuts to getting rid of debt, she says. “If you have a high-rate credit card, you should shop around for a lower rate – or just call your card issuer and ask for one. Otherwise, earmark a certain percentage of every paycheck – we recommend 20 percent – for debt repayment, and then get those debts paid off, dollar by dollar.”

    Public Pressure

    For parents who want to focus their frustration on public activism, Tyagi offers this advice: “Get focused on the credit-card companies, credit counselors, payday lenders, credit repair companies, second mortgage lenders, and all the other big businesses who make their money by robbing from your future. These guys are playing a Wild West game: There are too few rules, and no one is watching over them. Don’t let them get away with it! Complain to your representatives in Washington and in the state capital. Complain to your local newspaper. Complain to the Office of the Comptroller of the Currency and the Federal Trade Commission.”