Feeling spent?
Minnesota Business & Opportunities
October, 1998
By Amie Duhamel

Does this phone conversation sound familiar? Most of us learned the notion of "establishing credit" during the college years. It was something we really should get a start on: an adult responsibility, a preparation for the future. From there, buying on credit became, simply, something that exists in nature.

Even this state of nature has its balances, though - in this case, debt. Beyond the scope of fathomability, much less manageability, our country's $5.5 trillion or so in household debt brings us together in agreement - that it's certainly a problem. However, believing it's a status quo issue is exactly what gives the problem its legs. Debt is something to be taken in stride with inevitable things like taxes, we may say. In fact, according to Juliet B. Schor's book "The Overspent American," the average American feels comfortable handling over 18 percent of their disposable income to debt servicing.

In other words, someone who makes $30,000 in income is likely willing to about $4,000 a year for the right to buy now and pay later. Whether racking up a debt is a choice or a result of bad money management practices, it becomes our little secret, in a way.

It is that embarrassment, that shame, of sorts, that can haunt even the most successful, overachieving people. Consumerism, and the resulting debt, can often grab hold of the people you'd least suspect.

"About one-third of the nation's population describe themselves as either heavily or moderately in debt," according to "The Overspent American." Schor's data attributes the most significant influence as coming from credit cards; according to her book, credit card debt doubled in a matter of just a few years, between 1990 and 1996.

The phenomenon is more profound than people splurging on shiny boats and fast cars. "The Overspent American" describes that what people "acquire and own is tightly bound to their personal identity....This is not to say that Americans make consumer purchases solely to fool others about who they really are...many of us are continually comparing our own lifestyle an possessions to those of a select group of people we respect and want to be like; people whose sense of what's important in life seems close to our own."

Jane Morrow, co-owner of Alpha & Omega Consulting, a Twin Cities technology firm, has a personal story about keeping up with the Joneses. She had been raised with the unorthodox idea that if t took more than three months to pay off a purchase, she should wait for it. Things changed in her adult life, however. She and her husband, Bruce, became accustomed to the luxury of two household incomes. They didn't alter their spending habits after they bought their house and started their family. Their debt grew in that secretive fashion. "It was a surprise to me when I found out the total of what we owed," she says.

Bruce, who was running their startup company, had taken the role of managing their finances. They were charging expenses both for the business and for home, and Janet let Bruce manage the finances without much questioning; she figured he knew what we owed," she says.

Bruce kept his financial-management shortcomings from Jane, but he was far from knowing what he was doing. "I tried to ignore it. I knew it was really bad, but it was well out of my league," he recalls. They had incurred $40,000 in debt.

When asked whether he was embarrassed, or why he had kept it such a secret, even from his wife, he replies, "I was more embarrassed for Jane than myself. That's not what you promise when you get married. It was supposed to be rosy, and that doesn't include debt."

Finally, when First Bank gave Bruce the option of either losing their account or getting consumer credit counseling, he clued Jane in to why he was stressed out, working longer hours, spending less time with the kids, and "putting way too much pressure on her to make sure she kept working." First Bank referred him to Metropolitan Financial Management (MFM), a non-profit consumer credit counseling firm. Five years later, he is free of debt and the overwhelming anxiety that came with it. After having history of what he admits was very poor money management skills, he says the thing that cured him was not just a schedule or a consolidation, but learning a different behavior. "They forced me to look at what was causing the problem, and got it into my head," he says.

MFM founder Tiff Worley describes the common attitude in each of his clients' stories: "Denial is a key word around here. No one gets to $20,000 in debt - they come in frustrated, defeated, angry. "They're losing sleep, not eating, straining relationships," Worley says.

"We look at the first phone calls as their first call for help," says Jim Keen, MFM's director of operations. "We do not pass judgment, which is a great fear behind debt. And it's almost uncanny how quickly they open up after they're greeted at the door, given a soda, and invited into an office that's as bright as we can make it. Then they feel comfortable to get at problems and work with us on them."

They may be discussing the cold issues of money and debt, but the true sense of the word "counseling" comes out in the way MFM handles clients. "When they come, they feel like they have no one to turn to. We do everything to let them feel like they have us. We personally answer our telephones, and empower our employees to respond to them while they're on the phone," Keen explains.

A client and successful business owner who wishes to remain anonymous, describes MFM's unique approach: "After three years in business, I had acquired $70,000 in personal debt. It was an untenable situation involving an enormous accounts receivable that I had no way, as a small business, to collect. When I went to (Worley), the fear of the worst, everything I had conjured up I my mind, had become paralyzing. He talked me through the reality."

He continues, "There is no such thing as hopeless, but don't try to solve it by yourself. (Worley) helped me considerably. If I was late, they would call to talk. They wanted the facts, not to beat me up."

"(Debt is) a slippery slope, especially for entrepreneurs," Worley explains. "They get the idea that they need things to complete, like 'We need video conferencing, etc.'"

Worley describes another situation, this one involving not an overspender, but someone who simply needed credit assistance. "Two-and-half years ago a woman came to us who didn't owe very much, but had no money to get an apartment. She had been living in a battered women's shelter, had two infants, and had only two weeks left to stay there. We put her on a budget and wrote a letter to potential renters, telling them she was working with us and that we believed she would be a reliable tenant. She got an apartment, and within weeks, we received 60 to 70 calls from other women from the shelter."

Referrals account for the majority of MFM's business, stemming from a variety of situations or sources, including businesses that refer employees and creditors with whom they have established strong relationships. MFM currently ha 8,000 active clients, and serve 90 percent of Minnesota's new credit counseling.

With a true mission of helping people, MFM has taken a unique approach to handling growth. Their sights are on maintaining the quality of the service, not watching the bottom line. As they have grown, from eight employees two years ago to 70 today, they have overstaffed and expanded office space, always far ahead of what demand would require.

"That's my fault," Keen admits. He was brought on to handle the transition from a company where everyone did everything, to everyone having specific jobs. "I've enjoyed myself more in the last year-and-a-half that I have in the 30 years prior spent in the business," Keen says. Before joining MFM, Keen was a vice president at ITT, and a vice president of credit management services for Traveler Express.

Worley came from a background as a marketing director for 3M, a presidency at BioPlasty, a manufacturer of medical products, and a presidency at Felas Lasers, a distributor of medical equipment. Although Worley says his interests in credit counseling was piqued by conversations on the subject, his friends make reference to Pollyanna, referring to his drive to serve a better purpose. Worley says, "I went to a few agencies just to do some research on the idea. I felt as if I were applying for food stamps. I wasn't treated well. When I started the business in 1991, I had no idea what good credit counseling was, I just knew there could be a more humane way. And based on that as the building block, we've found a way that works."

Now, MFM is heated preparation for future demand for the "way that works." Worley says. "Congress is looking at making people filing bankruptcy first go through credit counseling." If this passes, we may hear a lot more about debt than "it's definitely a problem."