couple worried about debt - being in debtBeing in debt isn't fun. While that's hardly groundbreaking news, that's the bottom line of a survey released last week by GreenPath Debt Solutions. Obvious or not, the survey still has some interesting nuggets about what it's like to be in debt, useful information to anyone who knows they're in trouble but wonders just how much trouble that debt is going to be.Greenpath surveyed 999 credit card holders, 90% of whom had an income beyond unemployment or disability checks, between June and December of last year and asked them a variety of debt-related questions. Despite the lack of surprises, their responses offer a helpful snapshot of what life is like when you're buried in bills:
  • 95% of respondents couldn't easily pay an unexpected repair bill of $1,500.
  • 80% of respondents usually felt stressed about their finances.
  • 41% of respondents experienced some level of collection activity (notices or phone calls from bill collectors) in the past three months.
  • 26% of respondents were sometimes paying their housing and utility bills (rent, mortgage, gas, electric) late or skip housing payments all together.
  • 15% of respondents said they follow a budget and track their spending.

Out of those 999 people, 82% had at least three credit cards, and 50% had five or more. Some 72% were only paying the minimum due on their credit cards and sometimes making no payments at all; 25% were paying more than the minimum but never the full balance. Just 2% paid their credit card statement balances in full every month but were still having financial difficulties.

Here at WalletPop, we've been taking a close look lately at how people manage to climb out of debt, so I spoke to Greenpath's president and CEO Jane McNamara to see what she made of the findings and to get her take on Americans and their debt-related issues. Here's what she had to say:

Things Are Going To Get Worse. Not for everyone, of course. The economy is looking better these days, with some signs even pointing to less unemployment this year. McNamara says that the credit counseling company she runs is "less crazy than it was a year ago ... I think in general people are feeling more positive than they were."

But for those left behind and who aren't yet in that positive economic aura, the situation's only going to get worse.

"If my crystal ball is perfectly clear, I wouldn't be sitting here in the snow and gray weather -- I'd be somewhere sunny and near the water," says McNamara. "But that said, the predictions are for more housing foreclosures in 2011 than in 2010. Because of that, I anticipate we could be seeing numbers in 2011 that show people are having even more trouble paying off bills. People are struggling, and certainly the small survey we did reflects that people are living on their credit cards."

Get a Plan: "The first thing you should do is develop a spending plan," says McNamara. "You need to ask yourself questions like, 'What is your income?' Typically we refer to that as 'take-home income.' Since not everyone is employed, they'll have income from other sources like Social Security or unemployment. Then you look at expenses you can't change, like rent and your mortgage, your car payment and other payments you might have, and then you have to ask yourself how you're spending money on a day-to-day basis. There are other payments that aren't necessarily fixed, like credit card payments and utilities, and they all needed to be included in your projections.

"How much are you spending for transportation?" she continues. "Certainly in the Midwest, we don't have mass transportation. People drive automobiles. What are you spending on food, medical expenses, child care, expenses at school? Write all those things down, and compare all those things, and see where you are. The next step is defining what your needs are vs. your wants and being realistic about what you can really afford and deciding that this is what you're going to spend. So if you're saying you're going to spend $800 a month on food, and that includes groceries as well as dinners out, lattes or whatever, that means you spend $800 and you don't go over that."

Pay Yourself First: "We all need to have an emergency fund," says McNamara, "where there's money you're not tapping into on a regular basis but money that's there if you need it. Generally, you should have three to six months of your monthly living expenses saved up, so if your monthly living expenses are $5,000 a month, that's a minimum of $15,000 of savings."

Be Honest: According to McNamara, we lie to ourselves about how we're spending our money and then are surprised when we see the results.

"It's really, really important that people are honest with themselves about how they spend their money," says McNamara. "It's a lot like dieting. Do you eat two Oreos, or do you sit down and eat the whole sleeve? If you eat the whole sleeve, chances are, your weight's probably going up. It's the same thing with money. You have to be honest with yourself about what you're really spending, and that's not sexy, and people don't really like to do that, but it's very important. It's very easy for spending to get out of hand."

Teach Your Children Well: McNamara says that part of the problem many Americans have with managing their money is that they weren't taught how to budget -- by their parents or the school system. "Money is a big mystery in a lot of families," says McNamara. "Parents don't want to talk about how much money they make because the kids might tell friends and talk about it. So there's a mystique about it. We can't talk about how much money we make or how we spend our money, and in between that, we aren't taught how to manage money, and the factors combine in a recipe for disaster. Managing money is not an innate ability. We aren't birds building nests."

Geoff Williams is a regular contributor to WalletPop. He is also the co-author of the book Living Well with Bad Credit.


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