Tuesday, May 18, 2021

Payback Time
by Gary Foreman
Gary Foreman is a former Certified Financial Planner (CFP) who currently writes about family finances and edits The Dollar Stretcher website http://www.stretcher.com. You'll find hundreds of FREE articles to stretch your day and your budget!

Gary Foreman

Dear Gary,
I just finished reading the letter from "Tina", who was upset that she was being "harassed" by a collection agency. Could you address the other angle of this? I'm 32 and I guess I have a big chip on my shoulder about people who run up debts and are then outraged that they would have to pay it back.

I scrimped and saved in order to pay off my home mortgage and live debt free currently. In the past, I've had acquaintances who made me feel cheap because I was driving a 10 year old car. I've been called cheap, tight and stingy when I made dryer sheets, opted to eat at home rather than out, and made Christmas gifts or purchased them on sale throughout the year. It was some of these same acquaintances that lived penny to paycheck, asked to borrow money and complained that they couldn't afford a gallon of milk for their children.

I want to scream when I hear them complain that creditors should "get off their back". Maybe they shouldn't have gotten into debt in the first place! Everyone makes mistakes, but I hear too much of this. Please address this side of the coin as well.

Nancy makes an interesting point. Living within your means isn't always popular. Sometimes people imply that you're less of a person for being frugal. And, that makes it especially hard to listen to their complaints later when the bills come due.

There's more than just hurt feelings involved. Approximately 1.5 million bankruptcies occurred in the past twelve months. According to bankruptcy.org "the average American family loses about $400 annually to bankruptcy filings". And that doesn't include the other expenses we all face when people don't pay their bills

Statistics from The American Banker's Association show that 2.4% of all outstanding loans and over 5% of all credit card accounts are delinquent. That means that everyone who borrows money will pay slightly higher rates to compensate for the increased risk to the lender.

Nancy's point is valid. People should be expected to live up to their obligations. When we borrow money, we agree to pay it back within a certain time and generally with interest added. We don't have the right to break that promise just because it becomes inconvenient later. And whining about it isn't fair to the people around us.

However, that doesn't mean that creditors are allowed to abuse or harass debtors. Federal law prevents that. So if a collection agency is truly abusing someone they can be stopped.

But we would probably also all be happier if people considered the financial effects of decisions they make. Divorce is an example. Many people would argue with me, but studies are pointing to divorce being a major cause of poverty.

Take, for instance, a study done at the University of Michigan. It showed that household income for a family with children went from $43,600 before divorce to $25,300 after the split. That's a lot of money to pull out of any family budget. Pretty hard to avoid financial trouble down the road.

I'm not saying that someone should stay in an abusive relationship. But in many cases marriage counseling could be a very good financial investment. In any event, considering how your finances will be effected would certainly be smart.

One thing that Nancy and all of us need to remember is that there are different reasons why people are in financial trouble. Many do get behind because of foolish spending. But that's not the case for everyone.

People who provide non-profit credit counseling tell me that about half of all the debtors who come to them did create their own problems by simply spending more than they earned. But, they also say that the other half generally were doing fine until a medical emergency or other unexpected crisis threw them into debt.

While we want people to be accountable for their actions, we also want to make sure that we don't harden our hearts to everyone who struggles with bills. There's a temptation to dislike people who complain about situations that they appear to have caused. But it's bad for us to be without compassion.

And, expecting responsibility and acting compassionately aren't incompatible. In fact, suggesting ways that people can spend less or make more will probably cut down on the whining and might help them to solve their problems. Those who aren't interested in hearing possible solutions are probably chronic complainers that can safely be ignored.

Should Nancy speak up? Only she can decide whether a relationship is strong enough to handle that. But it is tempting to tell someone who complains about bill collectors that 'cheap' methods could help solve their problem. After all, true compassion is helping someone out of a bad situation. Nancy could be holding the key to their freedom.

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