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Stephen J. Rhode
interviewed by Brian Hecht on November 3, 1995
"There are three major things which cause somebody not to be able to repay their debts: illness, accident, or divorce. "
Stephen Rhode works with the Debt Counselors of America.
Tripod: What's the one debt problem that young people seem to encounter the most often?
SR: Credit cards! College students are targeted for credit cards. There are all sorts of promotions and offers on campus, anything from free beer mugs to beach balls and lots of other things. I assume that it's because they're going to be coming out into the productive job market and many creditors assume that they need a credit card and it's not going to be a problem. But we have many clients who are currently college students who are having debt problems.
Tripod: What questions should I ask myself before I incur, let's say, a consumer debt, a credit card debt?
SR: There are three major things which cause somebody not to be able to repay their debts: illness, accident, or divorce. So you need to ask yourself: if you suffer an illness or an accident, are you going to be able to repay your debts without any income coming in? If the answer to that is no, then you can still obtain credit cards -- as many as you want, and a credit limit as big as you want -- as long as you get a credit card which is called a secured card in which you put up a deposit in exchange for a credit line. Most people can get one quite easily with a $500 deposit and a $500 credit line, and they use the card to make rental car reservations or go out to dinner, or puchase a product. With a secured card, if any of those things happen, the money is there to repay the debt, and so you don't have an obligation that you'll have to pay back in the future.
Tripod: What would be some of the good reasons, in your mind, to incur debt, or even to carry a balance? Are there any good reasons?
SR: I can't think of any.
Tripod: It's just completely fraught with peril?
SR: There is no real benefit because -- unless you have a low interest rate credit card -- you are going to be paying, usually, 18 to 30 percent on a credit card to carry a balance over. And what would that balance consist of? Dinner out, stereo, new computer, something like that. You would be much better off financially, rather than impulsively purchasing an expensive product like that which you can't pay off in one month, to accumulate the funds first, and then go out and purchase it. If you do it that way, it's more advantageous to you because you have the power to negotiate a lower price, as long as you've got cash in advance.
Tripod: But for something like a computer, couldn't you argue that it's an investment, and that would be a good reason to incur debt, even if it becomes more expensive by paying it off over time?
SR: Have you recently bought a computer on a credit card?
Tripod: No.
SR: {[Laughs]. No, that is an argument that I've heard before. That piece of equipment never really turns around and pays itself off in a short period of time. The case that comes to mind is a husband and wife in financial trouble, had the last remaining credit on their credit card, and went out and bought a computer because they were going to start a home word processing service. And that didn't work out, so, now they've got no way to pay it back.
Tripod: Let's say I'm not in trouble, but I do have some debts and I'm interested in finding lower rates, maybe through consolidation. What are some of the simpler strategies you would recommend, short of calling for professional help?
SR: I would not recommend a home equity loan to consolidate debts. If you're only able to pay near the minimum each month, it doesn't make much sense, even with a tax advantage, to change an unsecured debt to a secured debt against your house ... Because if you couldn't pay your debts before, how are you going to pay it after? And now you've got your house on the line. So I wouldn't recommend that.
Other things you can easily do: Family. Go to family. But make sure that you have an understanding of exactly what the repayment terms are. Because sometimes it can cause hardship in the family. You can always contact your creditors and try to negotiate lower payment arrangements yourself. And sometimes creditors, if you've been a good customer up to that point, will reduce the interest rate and lower the monthly payments.
Tripod: How do you know if you're in trouble?
SR: You're in trouble if you have to pay for routine monthly expenses with a credit card, such as groceries, food. Or if you can only pay the minimums each month. Or, if you can't make the minimum payment each month.
Tripod: Let's say I call Debt Counselors, just feeling overwhelmed by my debt, maybe I can't make a payment, or I feel like the payments are too much of a burden. What's the first question that you ask me, what kind of services do you offer?
SR: First thing that we need to do is get more information about the situation. We don't offer an off-the-shelf solution. So the first thing that we're going to ask for is copies of your credit card statements, or documentation on exactly what you owe. Then we can develop a repayment plan that not only fits your budget, but will also be reasonable to the creditors. If it's not, and they're not going to participate -- but they always do. They're just going to keep leaning on you.
Tripod: So that involves actually contacting the creditors?
SR: Right. That's what we do.
Tripod: What would you say to a creditor?
SR: Because we are a non-profit organization, there are special terms that are reserved for us that aren't available to consumers. And we already know what those reduced payment terms are. The reason those terms are offered to us is because creditors realize that if somebody reaches out for professional assistance, they're making an honest effort to solve the problem. I could imagine working on a customer service line at one of the creditors -- I have visited one and listened to some of the calls -- and they get very hardened to the stories people tell. So they're a little less willing to make arrangements and work things out quickly if you're calling up saying "the dog ate my paycheck."
So that's where we step in. Because we do this all the time. And we have developed a relationship with creditors. And the creditors realize that we have taken a look to help the debtor, and have put together a plan which should be able to be met, then everybody's willing to work with us.
Tripod: Would contacting your organization ever reflect poorly on someone's credit history?
SR: Well, if you contact an organization or work with a counseling agency, there are some creditors out there, such as Citibank and J.C. Penny, which will report on your credit reports that you are working with a counseling program. But if you're in a situation where you can't make your monthly payments, or you're behind, or you're being charged late fees, that's already being reported. And the thing is, when you start to work with a counseling agency, it show that you took some responsibility.
Tripod: How do you charge for this service?
SR: We don't charge. We don't have any fees. When somebody comes to us for assistance, we ask for a tax-deductible contribution of $50 and that helps to offset the expense of contacting the creditors and working with the client to develop a payment program.
Tripod: Tell me about some of your other services.
SR: We have a Debt Eliminator program, which is for people who are not currently behind on their credit cards or any kind of debt, but want to get out of debt as quickly as possible and pay the smallest amount of interest. And that's a computer program which we use. We input information regarding the debts and it puts together a step-by-step plan on who to pay, how much to pay, and how to get out of debt as quickly as possible.
[There's also] Ask the Experts. We often get calls late in the evening. When you have debt problems, you also have problems sleeping, and you're anxious and nervous and tense. But we have made available counselors which cover the phone from 8 am to 11 pm and can provide immediate assistance, providing assistance or advice.
Tripod: And that's a 1-900 line?
SR: That's the 1-900 line. It's a flat charge of $20 per call. It's 1-900-225-3328.
You can view a Web page for the Debt Counselors of America, and learn more about their various services at http://shops.net/shops/GET_OUT_OF_DEBT/
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