Crescent-News.com - There is bright side to credit crisis

The endless money tree called "credit" that has kept Americans dressed in Abercrombie wear, driving giant sport utility vehicles and eating out on a regular basis has been cut back. The credit crisis facing a large portion of the country these days has left many at a loss -- for wants. Many people are crippled by job loss, a cut in pay or bills that are getting out of hand.

But as the economy continues to spiral out of control, with the stock market jumping and diving on a daily basis, there is a bright side. More and more people are getting their priorities straight -- essentially cutting back on unsecured debt.

Because money has become tight for so many, Dr. Buck Buchanan, a business professor at Defiance College, believes the tides are changing. "I believe many are already conscious about their spending. The majority of households have no credit card debt (and) 40 percent of all (credit) cardholders carry a balance of less than $1,000. These are good signs that many of us are well aware of how to manage credit cards. We are learning that 'cash is king' and not owing others for our possessions gives us a feeling of freedom."

John Walters, director of Community Credit Counseling Specialists that has a main office in Toledo and branch offices in Defiance and Sandusky, said he has seen a definite increase in clients over the past few months. "In northwest Ohio, there has been so much job loss," he said. "Those who are working are working for less. Maybe they were earning $18 an hour before and now they are making $9," Walters said.

That has made life for them very difficult.

Asked if he thought this credit crunch has opened the eyes of consumers, Walters said, "Oh, I think so. ... Everyone has the same outlook these days and they are putting off major purchases." Looking back, Walters said, "We've lived in a society that has overspent for decades."

What people need to do these days, Walters said, is take a look at their priorities. First, he said, they need to make sure their monthly housing is paid, second their utilities, third food and fourth car insurance and car payments.

During a September state of the credit counseling and financial education sector address by National Foundation for Credit Counseling president and chief executive officer Susan Keating, she reported a significant increase in housing assistance help this year. "During the first two quarters of this year, NFCC member agencies provided 210,000 housing sessions, compared to 100,000 a year earlier," Keating said. "This year, we are on pace to provide 1.26 million bankruptcy sessions, a projected 15 percent increase over 2007, and I think it is a near certainty that bankruptcies will likely rise further in 2009. ..."

She continued, "All consumer debt is high, savings are down, unemployment is rising and economic growth is slowing. Combine these four and you have a recipe for increased bankruptcies as more and more consumers find themselves over extended."

Buchanan, who is also a Crown Ministries financial counselor (along with his wife, Barbara), has helped many people become debt free.

He said as people find themselves being swallowed by debt, they need to remember, "Your behavior is the key. You must start living within your means."

That includes making and sticking to a budget "that is equal to or less than your income," and becoming debt-free -- not by debt consolidation, but by changing spending patterns to manage debt.

Today's ballooning expenses have forced people to re-evaluate their finances. "Anytime we see a downturn in the economy, people have to look at their finances and determine what they need to do to reduce their discretionary spending levels," Buchanan said, such as entertainment and dining out.

A serious look at income vs. expenses should be done "at a minimum of once a year when you sit down and plan your next financial year ... based on your current and historical spending and income patterns," Buchanan said.

As a country, "America's thirst for credit enables us to be the highest debtor nation on the planet," Buchanan said. "This is not a good thing." Citing information from creditcards.com, he said, "Total U.S. consumer revolving debt reached $962 billion in May 2008, up from $879 billion at the end of 2006. About 98 percent of that debt was credit card debt."

This spending has spiraled to a point of pain for many. "We need to take a very serious look at how we manage our income and stop or reduce our love of paying for things later. Delayed gratification, something many people have no concept of, needs to become the norm. We do not need everything now."