Judge steers young around credit pitfalls


April 17, 2005|By Eileen Ambrose

THOUGH Congress and the president want to make it harder for consumers to wipe out their debts through bankruptcy, some lawyers and judges are taking a different approach: They are trying to make sure that people never get into financial straits in the first place.

They are doing so by reaching out to those on the verge of getting their first credit cards - high school juniors and seniors and college freshmen.

Lawyers and judges around the country visit classrooms and tell students tales from the bankruptcy court front. They also give students quick math lessons about credit cards, such as telling them that letting interest accrue on plastic is like insisting on paying $120 for an $80 pair of sneakers.

Credit Abuse Resistance Education was started three years ago by John C. Ninfo II, a bankruptcy court judge in Rochester, N.Y. The program is in 24 states, and Maryland is one of the latest to introduce it.

Ninfo said he got the idea for the program while sitting on the bench and watching debtors routinely come before him with $30,000 to $60,000 in credit-card debt. He said he would ask them if they understood the consequences of borrowing at an interest rate of 20 percent or how to budget and build up savings.

"They all looked at me with blank stares," Ninfo said. "Some of them said, `If someone had come to my high school and told me about these things ... then I might not be here today.' "

So in 1997, Ninfo started visiting high schools to talk to students about credit, reaching them before they could develop bad habits. He encourages students to build savings and not take on card debt.

Divorce, illness and job loss are the prime reasons given for filing for bankruptcy. But consumers would better weather those setbacks, and perhaps avoid bankruptcy, if they had savings, Ninfo said.

Ninfo recruited other judges and lawyers to join him to spread the education program to other states. C.A.R.E. was recently established in Maryland by Assistant U.S. Trustee Mark Neal, along with lawyer and Chapter 7 Trustee Lori Simpson, both in Baltimore.

"We began to see many young people that were in debt way over their heads," Neal said. "It's troubling to see people starting out in life with such a debt burden and then feeling they need to take the ultimate step of filing for bankruptcy."

Those involved in C.A.R.E. come from a bankruptcy court background, but bankruptcy isn't the biggest danger for young people, Ninfo said. Lawyers and judges are concerned that young people will damage their credit records by poor money management and pay for that mistake for years, he said.

Employers pull credit reports, and a college graduate with a poor record could easily lose a job to an equally qualified candidate who doesn't have financial problems, Ninfo said.

Someone who looks like a bad credit risk also might not be able to rent an apartment or could find himself paying a higher interest rate on a car loan.

And if young people end up filing for bankruptcy, it remains a negative mark on their credit reports for seven to 10 years, Neal said.

An estimated 7 percent to 10 percent of college students will drop out of school because of credit-related problems, Ninfo said.

Baltimore lawyer Simpson said their intention is not to portray credit as bad.

"Credit is an amazing tool," she said. "If you can learn early on to control spending, credit can be a wonderful thing."

Among the tips they give students are:

Carry only one or two credit cards, which makes it easier to track and control spending. Simpson said that "$100 on one card seems like more debt than $20 on five cards."

Don't use a credit card for purchases of less than $10 that could as easily be paid for with cash.

Comparison shop for plastic, because not all terms and interest rates are the same.

Neal and Simpson recently made their first venture into the classroom, speaking before two law classes at Montgomery Blair High School in Silver Spring. The sessions were so successful that teacher Patricia Anderson said she recommended making the C.A.R.E. program part of the 10th-grade government class.

Junior Kat Zhao, 16, said she enjoyed hearing about real-life experiences and what to watch for when handling credit. "I thought it was very important," she said. "They presented a lot of situations where people my age or a little older got into terrible [financial] situations and became bankrupt."

Simpson said the goal is to reach as many Maryland students as possible.

Schools that want to make time for a C.A.R.E. presentation can call Simpson at 410-468-0054 or Neal at 410-962-3910.

Do you have a personal finance issue of general interest that you would like to see addressed in this column? Contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.

Credit pop quiz


1. You must be age 18 or older to obtain a credit card in your own name.

2. All credit cards charge the same annual percentage rate of interest.

3. If you pay your credit-card balance in full each month, it doesn't matter what rate the bank charges on your credit card.

4. You pay no interest on a debit-card purchase.

5. There is a credit report for everyone older than 18.

6. If you are late in making a few payments on your credit card, the interest rate you pay could increase sharply.

7. If you miss one or two payments on your credit card, it won't hurt your credit rating.

8. When you apply for a job, your prospective employer may review your credit report.


1) T; 2) F; 3) T; 4) T; 5) F, you must establish credit first; 6) T; 7) F; 8) T

Source: Credit Abuse Resistance Education

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