Card Debt

After every financial crisis over the past 10 years, the Federal Reserve has cut interest rates and pumped money into the economy. Each rescue solved the problem - and created a new one. The next bomb from this chain reaction of bailouts and blowups will be credit-card debt. Hardly anybody is talking about it yet, but banks and consumers are laying the ground for a wave of credit-card defaults, bankruptcies and asset write-offs for 2009 or so. Regulators and investors have discouraged excessive mortgage lending, so banks are turning to credit cards as the next growth business.

If you lost your job, do you have enough savings to cover basic expenses at the federal poverty level for three months? A new report released today by the Corporation for Enterprise Development found that 36 percent of Marylanders don't. Among them are residents with income below the poverty line, which is defined as $23,050 for a family of four. But the report noted that 13 percent of households here earn $80,197 to $125,376 annually and don't have three month's worth of savings, either.

Your credit card debt might look innocent enough today. The median balance for college students is $1,600, according to Nellie Mae's most recent National Student Loan Survey. But between the ages 25 and 34, the average balance mushrooms to $4,088, according to a 2004 report from Demos, a public-policy group in New York. Combined with fresh car loans, mortgages and student loans, that debt level easily can strain a young household's budget. Feeling queasy? Interest rates on credit cards average about 13 percent, so your first priority should be to pay off the plastic.

Based on estimates by the Federal Reserve, for the first time in U.S. history, student-loan debt ($867 billion) has surpassed credit card debt ($704 billion). These debt levels have real implications for productivity and lifetime earnings for this current generation of graduates. Much has been written about college students dealing with rising tuition, but there's been much less examination of how substantial student-loan debt, coupled with a slumping economy, affects new graduates. According to a June report by Drexel University's Center for Labor Markets and Policy, even as the overall job market has rebounded in the last two years, employment prospects for college graduates have declined.

A Shady Side woman was sentenced yesterday to life in prison for murdering her husband, a slaying she blamed on spousal abuse but which prosecutors say stemmed from his discovery of her five-figure credit card debt. Terry Harriet Pierce Eslin, 59, wept as she pleaded with Anne Arundel County Circuit Judge Nancy Davis-Loomis for leniency in the killing of her husband of 15 years, Richard P. Eslin, as he slept. "I cannot get over that I did it. But I did not intend to do it," she said, contending -- as she did during her weeklong trial -- that her husband was a "very brutal and harsh man."

If Alex P. Keaton were around today, he might have a thing for Amanda Gleason. Keaton, you may recall, was the briefcase-toting teen played by Michael J. Fox in the '80s sitcom Family Ties who ardently read the Wall Street Journal and had a picture of Ronald Reagan on his bedroom wall. Gleason is the founder of Young and Broke (youngandbroke.typepad.com), a personal finance blog for the younger-than-25 crowd. Young and Broke is largely without the eye-glazing chatter about diversified stocks and P/E ratios you often find on other sites.

In an effort to simplify my life, I tried to consolidate my credit cards with a loan from my bank. I also contacted a loan-consolidation program. I was declined both times. I thought about transferring my balances to one card, so I would have to worry about only one due date and interest rate, but I can't because my credit limits aren't high enough. Can you send me a list of financial institutions in my area that can help me? The problem isn't that your credit limits are too low. The problem is that your balances are too high.

CREDIT CARD delinquencies are creeping up, but for most of us there's not a lot to worry about. Consumer debt is cyclical. The vast majority of families manage it well.Now and then, we charge up a storm, as happened last Christmas. Then we repent and throttle back. Recessions often follow shifts in consumer spending, but not always.Some of the debt statistics today are actually looking pretty good. On-time payments have improved for auto loans and for revolving home-equity lines of credit.

My husband recently inherited about $80,000. He is just a few years away from retirement and wants to make sure he uses this money wisely. Our first thought was to put $50,000 toward our mortgage, allowing us to pay off the house around the time he is thinking of retiring. We are one year into a $90,000, 15-year mortgage at 5.5 percent. It seems like a smart thing to do, seeing as there isn't much else out there making 5.5 percent without risk. We aren't sophisticated financial investors, but the peace-of-mind aspect of this is also paramount to my husband.

A 33-year-old Howard County businessman is turning the nation's mountain of credit card debt into a personal gold mine.Five years ago, Bernaldo J. Dancel started National Credit Counseling Services (NCCS) on the kitchen table of his Columbia apartment. Today, he makes about $300,000 a year running a $27 million tax-exempt, nonprofit corporation that's about to move into its fifth new and larger office since 1992.County officials tout Dancel's operation as a prime example of economic development -- even as tax experts warn he is pushing the Internal Revenue Service standard of what it means to be a public-service nonprofit corporation.

Marquis Jones remembers Peter Holland clearly. He's the lawyer whose work, with his law clinic students, led to the dismissal of a claim against her - a credit card debt she said she knew nothing about. "If it hadn't been for Peter and his team, I have no idea what would have happened," the Severn woman recalled, saying a debt-buying company had the wrong person and claimed it served the legal papers on her spouse. She's not married. But unlike Jones, most of those who've benefited from Holland's consumer advocacy never met him. Few of them know that in December he will receive an award for his legal work from the Maryland Legal Services Corp.

Norman Harvel is growing old under a mountain of debt. At 60, Harvel faces medical and credit card bills topping $80,000. Yet Harvel is unable to work, having been injured at a job site more a decade ago. The former building maintenance worker now lives on $904 a month in Social Security disability benefits. "I was so sick and tired of getting the bills, so I would throw them away," Harvel said from his tiny basement apartment in Dundalk. "I've had to try to tell myself that it's something I will wake up from.

Regarding you editorial "Twice as nice" (April 25), my wife and I along with our kids went through credit card debt not once but twice. The second time we had to cut up the credit cards and simply decide that if we couldn't afford something, we wouldn't buy it. (Of course there were exceptions, such as medical emergencies.) What has always bothered me about government spending when as a nation we find ourselves deeply in debt - to the tune of some $15 trillion currently - the government always threatens to cut police, firemen, teachers or other vital public services.

Marylanders on average have the highest income in the country, but when it comes to having a financial cushion in hard times, we're disappointingly mediocre. If we were in school, our grade would be a C. That's according to the 2012 Assets & Opportunity Scorecard to be released Tuesday by the Corporation for Enterprise Development, or CFED, a nonprofit research and advocacy group in Washington. The CFED says one out of five Maryland households have little or no money squirreled away to cover expenses for three months if they lost their jobs.

Many consumers will resolve to pay off their credit cards for the new year, and their intentions are in the right place. But according to a recent study, how they go about it is likely to be wrong. Mathematically, consumers are best off eliminating the debt on the card with the highest interest rate first. But researchers found that many of us tend to pay off the card with the smallest balance first, even if it carries the lowest interest rate. By not tackling the most expensive debt first, we end up paying more in the long run. So why do we do it?

Ever so slowly, the unemployed are getting hired. And if you're one of them, the next task will be to get your finances back on track. The latest government figures show that the median length of unemployment is 51/2 months — enough time without a paycheck to do a lot of damage. By then, you might have wiped out savings, dipped into retirement accounts or racked up credit card debt. Your credit record could be tarnished if you were late paying bills or defaulted. Getting back on sound financial footing will take some time — and a switch in mind-set.

For this Depression-era generation, the lesson has been to pay your debts and owe no one. But at a time when senior citizens should be basking in their retirement, a disturbing trend is emerging: Many are struggling to pay off credit card bills. And the use of credit cards by the elderly will continue to increase over the next two decades, according to Robert D. Manning, professor of humanities at Rochester Institute of Technology in New York. "The elderly are living longer, and that's leading to a host of abuses," Manning said.

A 59-year-old Shady Side woman was found guilty yesterday of first-degree murder for using a rifle to beat and shoot her husband to death over her mounting credit card debt. It took an Anne Arundel County jury two hours to convict Terry Harriet Pierce Eslin of the most serious charge against her - one that could carry a possible life sentence without the possibility of parole. A sentencing hearing has not been scheduled. Eslin and her lawyer have maintained that she suffered from battered wife syndrome, was temporarily insane during the attack and therefore is not criminally responsible for killing her fourth husband, Richard P. Eslin, 66, last year.

More holiday shoppers this year are using cash or debit cards to avoid overspending with credit cards. But what about the rest of the year? Is it possible in a credit-dependent society to get by without plastic? "Credit cards are not necessary," says Ed Fredericks, a finance professor at Pepperdine University. "Originally, credit was seen as a privilege. Soon it kind of turned into something that everyone had to have. Multiple cards were mailed out to people, whether they were able to carry credit or not."

With consumers leery of piling up credit card debt, more and more retailers are reviving a service that had been given up for dead: layaway. Kmart began offering Internet layaway this year, and sister company Sears expanded its service to the Internet this year. Online site eLayaway.com has seen its business grow. Toys "R" Us announced last month it would bring back layaway on more expensive items such as bikes and cribs, though not yet in Maryland. Promotions for layaway - which allows consumers to pay for merchandise in installments - have picked up as stores prepare for a challenging holiday season.