Season can wrap consumers up in debt
Miami Herald
December 3, 2000


Lluvia Grande of Pembroke Pines ran up some hospital bills and she had student loans to pay.

But what really got her was holiday shopping. "That's why I ended up in the situation I'm in now," says the licensed optician. Over two years, she ran up her credit card bills until, as she says, "I was up to my neck in them." Her $20,000 in debt was the equivalent of 17 months of her take-home pay.

"You hope at the beginning, you feel you can pay it off. Then July comes and the interest accumulates and then Christmas comes around again," she said.

At 25, and in the the middle of a three-year debt repayment plan, Grande has learned a valuable lesson.

It's not finding the best bargains that'll make this a good holiday, financially.

It's what you spend. Or don't spend.

Tahina Fleurima, 23, gets it. She was taking a break from holiday shopping at Cutler Ridge Mall the other day and talking sense about handling her money.

"I just hate bills," said the recent college graduate. "So when I get paid, it's easier to just put the money aside and use the debit card." Her mother Marie Fleurima chimed in. "If you go too hard and spend a lot during the holidays, you get a lot of headaches," she said. "If you charge too much, it takes months to get them down again." Welcome to the one part of personal finance in which no one needs expert advice. We are all experts at spending. And we all know how it feels to pay for it.

Grande, for a year and a half, worked her way back to a semblance of financial health. She had to give up going out with her friends after work. She couldn't even get her nails done. Of course, she had to eliminate all credit cards, too.

There's another family, currently in a debt management plan organized by the Consumer Credit Counseling Service of South Florida, that is living on a budget of about $4,000 a month. Among the items they can't have: long-distance phone calls and magazine subscriptions. This father, mother and child have had to cut video rentals in half and to give up their hobbies. All this, in order to pay off $4,000 to Discover, Visa and Sears. An estimated 29,000 people -- every year -- go through the doors of a CCS office in South Florida. By some accounts, 15 to 20 in every crowd of 100 have some sort of credit problem.

The nation is presently sitting on a mountain of debt. As of September, the Federal Reserve reports that we have $1.5 trillion in consumer debt. Here in Florida, we seem none too worried about trying to get out of it. The state is second only to California in the number of personal bankruptcies. There were almost 74,000 of them filed in the 12 months ended June 30, on top of 79,228 the year before.

But that's no easy out. Non-payment of credit cards or even some of these debt management plans will lead to negative marks on your credit report that will last perhaps a year. If you slip into bankruptcy, it'll be a decade before it's off your record.

Most financial experts don't care for credit card debt because it's expensive, it has no tax benefits and it stretches out the time in which you pay for what's already done.

But let's be realistic. People will use credit. The Federal Reserve Board figures that consumer debt has been inching up since the third quarter of last year. For the typical household, it now takes 7.68 percent of disposable personal income to make those payments.

What people won't do is budget. Ask someone what they spend, say, on birthday gifts, and they'll give you a quizzical look. On many standard budget forms, there isn't even a line for gifts.

What you should spend, of course, is what you can afford. What's average? The International Mass Retail Association's annual shopping survey shows the typical holiday shopper expects to spend $828 this year. However, last year, when the shopping was finished, the group found that the average person had overshot the budget by 20 percent. So that would put this year's realistic holiday spending at about $1,000.

That's more than many people have on hand. A survey last week from the Consumer Federation of America and the National Credit Union Alliance indicates that 35 percent of shoppers are worried about how to pay those bills.

There's a reason why people get into difficulty at this time of year. "The pressures (to spend excessively) have to do in my mind largely with self worth. Your self worth is reflected in the presents you give other people," says Tiff Worley, head of Auriton Solutions, a debt counseling and repayment outfit based in Roseville, Minn. Grande is working with Auriton.

"People who are experiencing a financial crisis usually go through something that works like this. Every time I have a financial decision to make, anything I want to spend money on, there's not enough money. If I wait, there will never be enough money. This (sale or using this credit card) may be the last chance I get."

How do you break that desperate cycle and keep the spending in hand? One thing is to work on the issue of why you want to overspend in the first place.

"There's a trap that a lot of people fall in to," said Phil Garner, head of Consumer Credit Counseling Services of South Florida. "We had a young couple, they had $86,000 worth of credit card debt. Their annual income, combined, was $43,000. They don't think (when they're charging that much) that another twenty bucks or another thirty bucks will hurt. They say, What the heck. Then they get sucked in before they know it."

The trick to success here is still the budget. If you have one, you have a better chance of sticking to reasonable levels of expenses.

The budget starts not with numbers but with your list of who'll get a gift. The most important people at the top. While it's elementary to make such a list, it's not easy to stick to it. Merchants make it hard to pass up things you know just one more person would love to have.

The next key: Timing.

Start shopping early. To allow yourself enough time to comparison shop. To get better prices.

Christmas-eve markdowns? Don't plan on them. The experts say that last-minute shoppers don't get the best deals. And when they can't find what's on their list, they also tend to find expensive alternatives. Last-minute shoppers also tend to spend more on shipping, because they're running out of cheap delivery options. If you're in a time pinch, you're also far more likely to pay someone to wrap the gift than to do it yourself.

If you really can't go to the mall and hold the line on your spending, Consumer Advocate Leonard Elias of the Miami-Dade Consumer Services Department has a suggestion: Don't go.

"Some people find that catalog-shopping helps them stick to a budget. You're not attracted by the millions of choices in a store and the unlimited amount of merchandise available to you," Elias said.

Not a bad thought. Another Elias suggestion: Don't buy everything on your list. Make something. A meal, for an elderly relative. An evening of babysitting for a couple that needs it.

Grande says that for a long time, all she did was work to pay the bills, and had as little as $30 left from her paycheck for groceries. But she's doing much better now, having gone through a payment plan and having learned to save.

Her motto: "If you don't have cash, don't buy it," Grande said. "I'm glad I don't have any credit cards now. Because they make you spend."