Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

Ever since the nationwide credit crunch came crashing into the nation’s lap, seemingly unexpectedly, a new brand of debt counselors ready and willing to help – almost – any American arose.

Most people are familiar with the traditional methods of debt relief: file bankruptcy or perhaps seek the help of an advisor who will help allocate funds.

However, this group of debt counselors now faces a new competition; one that invokes a higher power.

Across the country, new companies are being formed that preach the values of responsible money management and debt relief through teachings of the Bible.

“We offer spiritual guidance in addition to credit and debt counseling,” explains Mickie Horst, debt advisor for Debt Free Christian. “We encourage our clients in the way of the Lord.”

A quick visit to Google.com truly shows the breadth of this new phenomenon. Simply type in a couple combinations of telling phrases and find numerous responses. Key in the words “Christian debt relief” and get over 250,000 hits. Another combination, this time “Christian financial counseling,” will provide over 213,000 results.

The company with the most conspicuous presence in the Christian debt relief industry is by far Crown Financial Ministries, which is only fitting because its founder, Larry Burkett was the mastermind behind this new wave of financial advice.

In 1972, at age 33, Burkett became a born-again evangelical Christian, getting a job with a non-profit ministry called Campus Crusade for Christ. While on staff, his job was to oversee the financial affairs of the ministry, and it was here that Burkett formulated his ideas for money management through the teachings of the bible. Burkett went on to author more than 60 financial books, among them, How to Manage Your Money, The Complete Financial Guide for Young Couple and Debt-Free Living.

According to Rick Miesel editor of Biblical Discernment Ministries, Burkett strove to eliminate tensions between people over money issues while at the same time instructing them on how to solve current financial difficulties. By telling people God owns everything and that God is always watching over financial transactions, Burkett hoped to make people release their grip on their own view of the importance of money and that when dealing with it, one must always remain ethical.

Over time, especially with the ongoing credit problems, Burkett’s message has taken a turn toward fundamentalism and has now proliferated into numerous companies and advisors looking to capitalize on the Christian market that has around 2.1 billion consumers.

As evidenced by the number of results the Google search brought for Christian debt relief, thousands of new voices are now being heard by wayward Christians looking to anyone for guidance through financial difficulties. Any number of companies are ready and willing to serve the Christian consumer at a moment’s notice, provided that the caller is not in debt so far as to not be able to make an initial payment of $55 to Crown Ministries for the right to have their help.

The turn toward fundamentalism has resulted in the transformation from Burkett’s initial message of financial independence and responsibility into literal translations of Bible passages that were written thousands of years ago and often are symbolic or metaphorical.

Teachings of ethical transactions and respecting your neighbor’s dealings have been replaced by the quoting of Proverbs 22:7: “the borrower is a slave to the lender.” This transition into fundamentalism can be most likely attributed to these companies trying to convince the potential client to sign on with their service.

As Jan Hendricks of Christian Credit Counseling Service said when asked about her company’s solution to debt relief, “Our counseling service is based on Biblical principle. The Scripture says that a borrower is a servant to the lender and that you are a servant to the creditor who says where your money will go.”

She was also quick to point out that “tithes and offerings should be a part of a budget. You should never not give tithes or offerings when you make one because the Scripture says that Jesus blesses those who give [them]”

In the vast majority of cases, the services provided by the Christian companies are no different from their secular brethren; providing the exact same advice as other debt consolidation sites, just slapping the word God and religious imagery across their web pages, hoping to attract any one of the 2.1 billion Christians that may have debt troubles.

“There really is no difference between our programs and others,” admits Ken Lynch, credit advisor for Christian Debt Consolidation.

However, he quickly added, “We do the ethical and right thing, and most of the time Christian people are just more comfortable with other Christians.”

After continued interaction with several Christian debt management services, the tone remained the same: there is no obvious difference between the secular and Christian debt companies, just the added benefit of spiritual advising.

“We offer the same programs and guidance as secular services, but we are different in that we encourage biblically through tough times,” says Joe Larson, from Family Life Credit Services. “We are more spiritual than other programs. We establish a long term relationship with our clients; we even pray on the phone together.”

No matter the source of the advice, debt relief services have proved invaluable to myriad consumers, yet as these new companies show, there is still room to maneuver for that extra buck.

For further information regarding the principles of Christian Money Management, visit the Christian Financial Ministries’ Web site.

Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

Debt management, credit counseling, financial education and debt reduction are all terms used by good, bad, for-profit and non-profit credit counseling services.

For-profit credit counseling services typically target consumers with debt problems through an onslaught of late night TV ads promising to negotiate with creditors and slash their monthly payments by large percentages.

By comparison, non-profit credit counseling services do offer debt repayment plans and negotiations with creditors, but also offer a wide variety of financial education classes for consumers. The classes on offer are a condition of maintaining a tax-exempt status for many non-profits.

Non-Profit Credit Counseling Standards

The National Foundation for Credit Counseling is a non-profit foundation located in Silver Spring, Md. According to Senior Public Relations Director Gail Cunningham, the foundation accredits its member agencies through a third-party accreditation service in order to insure its members maintain the highest standards.

Image courtesy of Money Management International.

According to Cunningham the foundation, which has about 100 nationwide member agencies, recommends that beyond the foundation’s seal-of-approval consumers educate themselves as much as possible about credit counseling services.

“It’s incumbent on the consumer to do his homework,” Cunningham said. “They should check with the Better Business Bureau and their states Attorney Generals Office before using a credit counseling service.”

Cunningham said the Foundation has its members reevaluated every four years by the Council on Accreditation, which also accredits other types of non-for-profits like hospitals.

Cunningham said part of the accreditation and membership process requires member agencies, all of which are non-profits, to provide customers with financial education services.

“If the service doesn’t have an education program I would advise the consumer to keep shopping,” she said.

According to the foundation’s Web site, the only company that is an accredited member in the Washington, D.C. area is Consumer Credit Counseling Services of Greater Washington. According to Greater Washington CEO, Joanne Kerstetter, the company operates about a dozen satellite offices that provide walk-in counseling and financial education programs in the D.C. metropolitan area.

Kerstetter has been at the helm of the company for almost 30 years and said that right now consumers are in the midst of the “perfect storm” in terms of their financial situation. In the past six months her company has seen a rise in delinquencies, bankruptcies and mortgage foreclosures for many of its customers because of the current economic downturn and credit crisis in the U.S.

Kerstetter said one of the most difficult situations that came through her door in recent memory was a family that had a child diagnosed with Leukemia and almost ended up in financial ruin. She said that when the family found out about their daughter, they shut down their home business for almost 60 days out of fear and exasperation.

“They let bills stack up and credit cards go unpaid,” Kerstetter said.

Greater Washington was able to help the family turn their financial situation around, Kerstetter said, by providing them with debt management and budgeting help.

Kerstetter said she often sees situations like this where a consumer encounters a big problem and ends up with financial hardships because of it. Ultimately, she said these consumers end up with debt problems because they don’t pay bills, mortgages and credit cards because they can’t see past what has happened.

“What bothers me is that most consumers will do this,” she said. “They’ll worry day and night for 60 days and let their financial health slip.”

Overall, Kerstetter said she wishes people don’t think about turning to someone for help at day 60, but at day one. The earlier a consumer comes for help the easier it is to fix the problem she said.

Are the NFCC and CCCS as good as they seem?

Non-profits, like the NFCC and Greater Washington, are regulated by the government. The Federal Trade Commission is responsible for bringing legal action against any credit counseling service that violates federal laws.

Non profits, because of their tax exempt status, are also regulated by the Internal Revenue Service. Every year non profits like the NFCC and Greater Washington, which are considered educational non-profits, are required to file a form with the IRS known as a 990. The 990 contains information ranging from yearly revenue and expenses, to executive compensation.

Data collected from the 2006 form 990 of the NFCC revealed that the Foundation paid out grants ranging from about $10 to about $350,000 to 80 of its member agencies. According to the 990, these grants were for the purpose of supporting educational programs given to the public that in most cases were free of charge.

Additionally, independent analysis of these 80 company’s Better Business Bureau files showed that nearly all had a satisfactory standing with the BBB. A satisfactory standing with the Bureau means a company complied with BBB charity guidelines and consumer interaction guidelines. The few NFCC members that didn’t have a satisfactory standing were because their files were incomplete, meaning the Bureau needed more information from the company before it would rate them.

An examination of Greater Washington’s 990 showed that prior to 2005 it was part of a merged entity which consisted of two other non-profits in different states. These other non-profits were Consumer Credit Counseling Service of Greater Fort Worth, headquartered in Fort Worth, Texas and Consumer Credit Counseling Service of Inland Northwest, located in Spokane, Wash.

Kerstetter said that the number one issue confronting non profits is getting funding for their operations. By merging, she said, they are able to share revenues, technology and the strategies that work best. Kerstetter said the synergy that came from the merger enabled Greater Washington to help more people. The next year Greater Washington’s consumer base rose by 12 percent.

This success was part of the reason for Greater Washington, along with Greater Fort Worth and Inland Northwest to merge in 2005 with Money Management International Kerstetter said.

According to Money Management’s 2006 form 990 and website it is the largest non-profit credit counseling service in the United States. Money Management operates nationwide telephone and internet hotlines as well as traditional offices, usually under the Consumer Credit Counseling Service name.

According to its 2005 form 990 the company had revenues of about $67 million. The 2006 filing revealed that after its merger with Greater Washington, Fort Worth and Inland Northwest, revenue rose to nearly $80 million.

According to the 2005 990s form for Greater Washington, Fort Worth and Inland Northwest, prior to merging with Money Management, paid their CEOs between $160,000 and $52,000. Kerstetter said that over the past couple of years her compensation has remained pretty constant.

Kerstetter also said that because of the merger, Greater Washington no longer files its own 990. Instead they file as part of Money Management’s 990. As part of its 990 filing Money Management is only required to report the pay of its five highest paid employees in addition to its CEO and of its board of directors. These additional five people may or may not include the pay of managers at its regional affiliates in 2007 and beyond.

Money Management International has Trouble in California

In 2007 the state of California won an injunction against Money Management for operating in the state without a valid license. According to documents obtained from the California Corporations Commission, Money Management could not obtain a California license because it violated California non profit law which requires non profit credit counseling agencies that have debt management plans to not charge user fees above $35. Money Management also failed to file its financial data on time with California.

According to its 2006 form 990, Money Management charged a $75 set up fee and a monthly administration fee of $40. However the company does waive these fees for consumers who cannot afford them, a fact which Kerstetter confirmed and said happens in many cases when the consumer asks.

Money Managements 990 also confirms this, “Fees are reduced or waived in cases of an individual’s inability to pay based upon their annual income in relation to the Federal Poverty Guidelines.”

California’s legal action against Money Management led the Better Business Bureau to revoke Money Managements membership, along with Greater Washington’s as well as other Money Management affiliates because the failure to file financial statements with California violated Bureau charity accountability guidelines.

Despite this Money Management’s website said it is “qualified to do business in all 50 states.”

Does this Mean don’t Trust Non-Profit Credit Counseling Services?

In 2003 the FTC settled out of court with AmeriDebt for $35 million. According to Frank Dorman, a spokesman for the FTC, AmeriDebt deceived consumers by telling them it was a non-profit corporation that provided real credit counseling education, when in fact it did not.

“AmeriDebt funneled profits to affiliated for-profit entities and individuals,” Dorman said.

Dorman also said the commission has prosecuted more than a dozen similar companies, none of which were non-profit corporations. Additionally the FTC, banks and credit score agencies, like Transunion, don’t recommend using companies that make outlandish promises.

Stephen Katz, a spokesman for Transunion said that while Transunion does not directly advise consumers on selecting a credit counseling service, it does recognize that there are many scrupulous firms in existence.

“Less scrupulous organizations…may attempt to present falsified documentation or try to flood the credit reporting companies with correspondence in an attempt to improperly force removal of items from a consumer report,” Katz said.

According to Cunningham and the published guidelines for NFCC membership, NFCC members do not offer any services like those described by Katz or make any promises for such things.

Ronald Campbell, of the Orange County Register, contributed to the 990 reporting in this article.

Sidebar:

Things to Know When Using a Credit Counseling Service

Having your debts settled or reduced does not effect your credit score directly, however credit card companies, banks and other creditors will often have a consumers credit report marked as having settled an account for less than what was owed. This does effect whether or not you can open new lines of credit.

The FTC maintains a list of guidelines at its website for selecting a service
Its always a good idea to check with your local Better Business Bureau and States Attorney Generals office before using any credit counseling service

If you are feel you have been deceived by any credit counseling service, for-profit or non-profit file you can file a complaint with the FTC or your local Better Business Bureau

A non-profit credit counseling service by law cannot refuse you counseling services as long as you can demonstrate financial hardship in accordance with the Federal Poverty Guidelines.

Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

If you want to eat lunch with Michelle Singletary, offer to buy or she will likely say no.

But don’t take it personally. She has been turning down lunch invitations since 1992, when she joined The Washington Post as a bankruptcy reporter.

“I was appalled by how much money my colleagues spent on lunch,” she said.

Dubbed the “resident cheapskate” at the Post, Singletary preaches the frugality she practices thanks to her penny-pinching grandmother. After Singletary finished her first day at the Baltimore Sun, “Big Mama” called to see if her progeny had gone to the benefits office to have part of her paycheck set aside each month for savings.

“There was no, ‘Hey, how was your day?’” Singletary said.

But that’s just how it was for a woman who raised five kids debt-free on $13 thousand a year. So it makes sense that when Singletary considers the biggest financial problem facing people today, she did not hesitate in her answer: debt. Singletary is straightforward, and her shot-from-the-hip advice never sugarcoats anyone’s financial failings.

“We confuse wealth and income,” she said. “Not everyone is going to be a millionaire, and that’s okay.”

In that case, would you allow your child to move home after college so they can live cheaply for a time?

“Most people look at me like I’m crazy when I suggest that,” Singletary said.

Michelle Singletary preaches thrifty living.

But many students graduate with tens of thousands in loan debt. Added to that is the more recent problem of credit card spending. The average credit card debt of a graduating senior is $3,000, according to the latest college rankings from U.S. News and World Report. For a grad student, it tops eight thousand.

That is exactly why Singletary unapologetically tells indebted students to go home after they graduate and work on paying off their debt.

“You have to be careful,” she said. “You have steady money coming in for the first time and you end up spending because the sense of what you have is warped.”

Singletary also recommends living below your means. That goes for you, too, Mom and Dad, because Singletary is placing some of the blame on you. She said many parents aren’t raising their kids to understand the values of money and saving, because they can’t do it themselves.

Parents aren’t the only group Singletary takes to task. In her piece, A Tax Rebate? Feed Piggy, she chastised the government for setting a “horrible example” by borrowing money to pay for the upcoming rebate. She chastised individuals making personal loans to family members in If You Lend, Be Prepared to Lose.

“Chances are you will never see much, if any, of it [your money] again,” she wrote.

Having spent the past 11 years writing the personal finance column, “The Color of Money,” Singletary has seen and heard it all from her readers. She estimates that at least 70 percent of the emails and phone calls she receives – 30 calls on a slow day – are related to debt.

It’s not unusual that someone making $30,000 a year has more saved than someone making $300,000 a year, she said. People are living way beyond their means, overspending and accumulating too much stuff with no value.

It gets worse. Singletary receives queries from people that she and a master’s degree in business and management cannot help. The example she gave was a person with $50,000 in debt and a $20,000 annual income.

“There’s not much you can say to them,” she said with a sigh.

Singletary’s intimate knowledge of individual finances has offered a front-row seat to changes in the economy over the past decade. She said she was talking about the recession long before it happened.

Personal overspending tipped her off. Singletary thinks that individual financial situations have gotten worse since she started her column, because people are so heavily leveraged with debt, loans and mortgages.

“Most people are trying to live Cadillac lives with a Chevy budget,” she said.

It was these outrageous spending practices that partly inspired her to become an author. She wrote her second book, “Your Money and Your Man,” when she grew tired of hearing the same, heart-wrenching stories about women taking money out of their retirement funds to lend to their boyfriends, only to find that those “boyfriends” had suddenly skipped town.

Critics of Singletary’s strict methods are hard to find. Some in the newsroom say she is a bit despotic in her views about living debt-free, but it was her stories and her practices that got her the column in the first place.

It is also hard to argue with a person that advocates appreciating what you already have and finding ways to do more with less.

One example of practicing what she preaches is re-gifting. Singletary appeared on the Tavis Smiley show in 2004 and suggested wrapping up a child’s own neglected toys and putting them under the tree on Christmas morning.

“Half them toys those kids don’t never play with…they won’t know the difference,” she told Smiley, who was aghast. “Tell me if I did not do it? I sure did.”

Author Dave Ramsey.

Not long ago, Tammy Wade of Tulsa, Okla. had a debt problem. Following the suggestion of her husband, the mother and small business owner followed Dave Ramsey’s book: Financial Peace. A transformation took place and the family eliminated more than $36,000 of debt in less than two years.

“Ramsey really cares about changing peoples’ lives,” Wade said. “He taught us that we don’t need to follow society’s measure of the ‘American Dream.’”

Ramsey, a hit syndicated radio personality and millionaire, makes his money by helping Americans get out of debt. On average, those who follow 7 Baby Steps decrease their debt by $8,000 and pay off their mortgage within seven years, according to Ramsey’s public relations director, Beth Tallent.

“If you’re in debt, then you’re a slave because you do not have the freedom to use your money to help change your family tree,” says Ramsey.

Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

For some, Ramsey’s program brought peace of mind and balance to their families. For others, he is just a source of entertainment. Listeners and viewers are drawn to his personality and find his tips helpful. However, changing behavior is a big challenge that Ramsey takes on. Ramsey followers discuss what makes the program different from others and how they were able to stick to it. Financial experts have some concerns about his advice, but overall they believe it may be a good program for many people.

Ramsey celebrates with listeners when they call into his radio show to share their joy of becoming debt-free. More than 3.5 million fans hear Ramsey’s nationally syndicated radio program, The Dave Ramsey Show,” each week. His evangelical Christian stance on improving your life, marriage and relationships by eliminating debt draws his listeners in to follow his Total Money Makeover program, participate in his Financial Peace University, purchase one of his books or attend one of his 16 live seminars per year. More than 500,000 people attended Ramsey’s live events and spend between $30 to $180 per ticket.

Much like losing weight, Ramsey says eliminating debt is 80 percent behavior change and 20 percent head knowledge. Ramsey provides advice and teaches his audience how to eliminate debt. But getting people to change their behavior is much more challenging.

The fundamental part of Ramsey’s program is learning how to follow Ramsey’s 7 Baby Steps. The second step of “Paying off all debt using the Debt Snowball” can take years.

Laurie Yeargin, a mother of four living in North Carolina, explained the snowball phenomenon as paying off your smallest bills first, regardless of the interest rate. Once the smallest bill is paid off then the monthly amount you would have paid towards the first bill goes towards the next smallest bill. Eventually the next smallest bill is paid off. This process repeats for the third smallest, then fourth smallest, etc.

Yeargin said this was opposite to what she thought of how to pay bills.

“I had always been told pay off the highest interest bills first, so that was a complete turn-around,” Yeargin says. She found that within a couple of months, she was able to pay off four or five bills.

Ramsey said the debt snowball is very psychological. While there are financial benefits of paying off bills with the lowest interest rate last, the thrill of paying off bills provides a person with a sense of accomplishment. Paying the bills from the lowest balance to the highest achieves that psychological rush that most people need to keep the momentum up and reward the saving behavior, Ramsey said. Wade found it fun to find creative ways of cutting back on expenses. She quickly saw results, which she found rewarding.

However, not all financial professionals believe the debt snowball is the right approach. Phil English, a personal finance professor at American University, said that classical finance principles suggest debts should be paid off with the highest interest rate first. He doesn’t follow this approach, but he does believe David Bach’s system of “DOLP” or “Debt on Last Payment” system, as described in The Automatic Millionaire is the best out there. This method calculates interest rates into the equation and suggests calculating the balance of each debt divided by the minimum payment. The lowest amount determined by this equation should be paid off first. This equation is a bit more complicated, but it does take into account the interest rate on each bill.
English also said that consumers should be aware that minimum payments may not cover the total interest accrued each month.

Therefore, someone paying the minimum balance each month on a high interest credit card could pay nothing towards their principle amount and not even cover their accrued monthly interest, causing the amount owed to creep up each month. If someone is following Ramsey’s debt snowball, they may fall into this trap if they have a credit card with a high balance and terms that set minimum payments too low. However, English still believes the debt snowball is a great idea because of the personal satisfaction one gets from paying off debt.

Most of Ramsey’s advice is practical, such as creating a budget, setting long term goals and avoiding poor financial decisions. While these are good ideas, it is much more of a challenge to stick with the program. Ramsey says that 80 percent of eliminating debt is to make behavioral changes.

Behavior changes are much more challenging to teach, and this is where Ramsey’s faith and lessons are crucial to getting people to follow his seven-step program and succeed.

“He brings a spiritual aspect into giving that was very motivating,” Yeargin says of Ramsey.

Ramsey’s first audience was not directed towards church congregations. Initially Ramsey rented out ballrooms at hotels and gave seminars. When that took off, Ramsey recorded a video that landed in many churches. His public relations director, Beth Tallent, said the program was never designed as a Bible study because the proverbs he uses are universal.

It may be tougher for some non-Christians to get through some of Ramsey’s lectures due to the Biblical content. For example, “Myths and Truths of Personal Finance” from Ramsey’s Web site references Proverbs 22:7, “The rich rule over the poor, and the borrower is slave of the lender.” This proverb is often repeated on Ramsey’s radio programs, books and television program.

Despite his abundant use of Christian phrases, many listeners connect with his messages—even if they do not consider themselves religious. Katherine Zinder, an occasional listener from Virginia, says she enjoys the entertainment value of Ramsey’s show and doesn’t mind the overused biblical proverbs. Zinder says Ramsey’s “personality is what makes the show so good.” She said the tips Ramsey provides help her think of ways to maintain a good budget.

Ramsey’s books, DVDs, software and CDs are available at retailers nationwide. The programs range in price from $19.95 for Financial Peace Junior, a resource to teach children about debt, to $329 for the thirteen-week Financial Peace University Home Study DVD. He sells additional programs designed for specific audiences such as church groups, Spanish speakers, workplaces, students, and those in bankruptcy.

Tammy Wade, who has all of Ramsey’s books, said she found the investment well worth it because her family and business debts are now under control. Her debt is nothing like it was before, since she now has the keys and knowledge to fix it. Wade met Ramsey several times and volunteers at his events.

“We have been thrown a lifeline and it’s such a more peaceful way to live,” she said.

SIDEBAR:

A Little More about Dave Ramsey
Ramsey suffered a personal financial loss of a four million dollar real estate portfolio and became bankrupt when in his twenties. With an education in finance and real estate, he decided to return to the basics of personal finance. He worked to rebuild his fortune. Along the way others asked him how he did it, so Ramsey wrote and self-published a book. After selling the books, Financial Peace, out of the back of his car between real estate deals, he found an audience. From there he started hosting seminars in hotel ballrooms and eventually created a video of his seminar to meet the demand.

Ramsey now has three New York Times bestselling books, his own privately owned syndicated radio program, a nightly television program on Fox Business and the number-one downloaded podcast about personal finance.

Ramsey has helped most of his followers save an average of $8,000, according to his Web site. His public relations director says he is not trying to change America; he is just helping one person at a time.

Sidebar 2:
The 7 Baby Steps According to Dave Ramsey
1. $1,000 to start an Emergency Fund
2. Pay off all debt except mortgage using the Debt Snowball
3. 3 to 6 months of expenses in savings
4. Invest 15 percent of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give! Invest in mutual funds and real estate
Source: www.daveramsey.com

View more video interviews by following the links below:

Vendor video interview>>

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Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

The Terms:

Credit

“I’d gladly pay you Tuesday for a hamburger today,” said Wimpy from the old Popeye cartoon.

That’s basically the concept behind credit. The debtor borrows money from creditors and repays their debt at a later date. The amount of debt is called the principal. The debtor must pay back the principal in installments determined by the bank as well as credit fees (interest). Interest rates can be subject to only the principal (simple interest), or you can be charged the principal plus interest incurred over a period (compound interest).

A little bit of debt is necessary to build up a good credit score. A history of timely payments and responsible purchasing allows you to get loans, take out mortgages and increase your credit line, afford college tuition, etc.

Mortgage Loan
This is a term usually understood to be a loan used for the purchase of a home. The home serves as security, or collateral, for the loan. However, the mortgage is not really the loan itself, but a method of security for the lender. If the borrower cannot pay back the loan then the lender has the right to sell the home in what is called a foreclosure.

Most people can’t afford to buy a house outright. Instead, when a consumer decides to buy a home (or any expensive property) he pays a down payment, and then monthly mortgage, property taxes, and any homeowner’s fees.

The Problem:

Credit Debt
Credit debt becomes a problem when you can’t keep up with credit payments. Various signs include paying the minimum payment on credit cards, being near or over credit card limit, occasionally making late payments, using cash advances from one card to pay another. The repercussions of overspending can be merely inconvenient or overwhelming; while you can’t be arrested for owing, you can be sued by the credit card companies and have to appear in court.

• In February, total consumer credit increased by $5.2 billion, or a 2.4 percent annual rate, to $2.54 trillion, according to the Federal Reserve. Of the total increase, credit card debt rose at a 5.9 percent rate and accounted for $4.7 billion. (Federal Reserve)
• Update by the Federal Reserve: “Consumers, battered by a credit crunch and prolonged housing slump, significantly slowed their pace of borrowing in February,” according to the Washington Post Express.

• Retrieved from creditcards.com: Of the households that owe money on credit cards, the median balance was $2,200, meaning half owe more, half less (Source: MSN Money).
• In perspective, the majority of U.S. households have no credit card debt. ? 25 percent have no credit cards, and 30 percent of households pay off their balances every month. (Federal Reserve)
• “The default rate for prime mortgages is still far lower than for subprime loans, about 24 percent of which are delinquent or in foreclosure. Some economists note that slightly more than a third of American homeowners have paid off their mortgages completely. This group is generally more affluent and contributes more to consumer spending and the economy relative to its size.” – NewYork Times.

Source: Federal Reserve; revised figures as of 4/7/08

Source: Federal Reserve; revised figures as of 4/7/08

Source: Federal Reserve; revised figures as of 4/7/08

• Total consumer debt outstanding: 2538.6 (in billions)
Consumer Credit, February 2008, http://www.federalreserve.gov/releases/g19/Current/

http://www.federalreserve.gov/econresdata/default.htm

http://www.census.gov/

• Repossessions rose 90 percent to 45,327 in January from the same period a year ago. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent according to RealtyTrac, a company that lists foreclosure filings.

Mortgage Crisis
Subprime lending is lending at a higher rate than the prime rate. Extending credit to borrowers with credit (<620 FICO score) that would normally disqualify them from loans at the prime rate. In other words, it’s lending to borrowers with questionable credit histories. Subprime mortgages totaled $600 billion last year, accounting for about 1/5 of the U.S. home loan market.

Adjustable rate mortgages are loan types that allow the lender to adjust the interest rate during the term of the loan.

The problem is complex. First there were nationwide housing bubbles. When property values skyrocketed people couldn’t keep up with mortgage payments and led to foreclosures. Then the housing prices decreased so that owners had negative equity. The amount they owed was more what the home was worth, so when they were foreclosed on, they stilled owed money.

Also, lenders made too many subprime loans to borrowers who couldn’t make their payments on time. Now that it’s too late lenders are raising standards for loans and raising ARM interest rates. Since people aren’t able to pay off the loans they have, they are cutting back spending. The result is widespread. Less consumer spending means weaker economy. Big businesses have to cut jobs and small business owners as well as lenders are filing for bankruptcy. On the individual level, it basically means less money in the pocket, in the bank and higher prices at the gas station and grocery store.

Who’s to Blame?

Predatory Lenders
Mortgage Companies & Banks are accused of deliberately targeting unwary borrowers who didn’t understand conditions of subprime loans. Predatory lending is when companies take advantages of ignorant borrowers using deceptive practices, discriminatory or steering borrowers to disadvantageous deals.
Predatory Lending Defined, Mortgage News Daily

Greedy borrowers
Borrowers knowing they couldn’t afford payments took out loans anyway. “Others disregarded warnings about complex loans because they wanted to be a part of the housing boom, which like the technology stock bubble lured people in with seemingly instant and risk-free profits, said Mory Brenner, vice president of Financial Firebird Corporation, a company based in Pittsfield, Mass., that publishes consumer debt information and refers borrowers to credit counselors.” -New York Times.

Macroeconomics: When the US Sneezes, the world turns to China

Terms: The 411 on credit terms, concepts and problems

Microeconomics: Debt vignettes from society

Living debt-free: Millionaire gives practical advice for a debt-free life

Post guru speaks: Post’s debt-free guru preaches a brown-bag lifestyle

Counseling: Non-Profit Credit Counseling Services; Friend or Foe?

A drastic solution: Cutting up cards may not be the best solution

Faith: Christian Debt Relief: Stewards of God?

When the United States sneezes, the world catches a cold – or so the saying goes. In the last few years, the U.S. housing bubble has collapses, unemployment has skyrocketed, financial institutions have stumbled, inflation increases by the day, and the country is pouring money into funding two foreign wars.

The U.S. has been called the epicenter of this global financial crisis because many economies, domestic and foreign, bet on the American consumer. It started when the housing markets in California, Florida and other boom states crashed and the securities tied to mortgages created heavy losses for the U.S. financial institutions, leading to a weakened economy and the drying up of credit in the U.S. and parts of Europe.

In an attempt to preempt a recession, the Fed slashed interest rates, some say too much, which now leaves us with a weakened dollar. All this – combined with high gas prices and credit card debt – has left Americans less willing to open their wallets and support many countries exports, sending a ripple effect throughout the world.

Federal Reserve Chairman Ben Bernanke confirmed the economy’s growth has slowed and recession is a real possibility.

Not all foreign economies, however, are feeling the domino effect from the U.S. financial crisis. Countries with economies based on their natural resources, such as oil, iron-ore, aluminum and copper, are weathering the current financial situation because of their high-price commodities. And now that China and India have emerged as big consumers, these countries have become alternatives to the once-dominant U.S. market.

Source: Peterson Institute for International Economics.

Source: Peterson Institute for International Economics.

The United States is not the only country feeling pressure from the mortgage crisis. The United Kingdom, Germany and Japan are also feeling the pressure.

The United States must look at its own debt and spending before all of this can be blamed on the mortgage crisis. Right now, the debt is almost 70 percent of the GDP. If the federal government debt was divided among everyone, we would all be paying approximately $30,000, up from $20,000 in just 2002.

Asset Bubbles
The recent credit crisis is so complex that no one really knows how it happened. Common sense says that it is a compilation of small-but-serious crises that culminated into the current global financial slowdown.

Oil, commodity, and inflation bubbles that peaked in 1980 have helped create this current situation: the highest rates of inflation in centuries.

Housing prices soared beginning in the late 1990s. Adding to the asset bubble were historically low interest rates, declining building costs and moderate inflation, which assisted the over inflated housing boom.

The system is stacked against the regulators because they are shackled by politics, are paid less than those on Wall Street, know less than the financial gurus, and they think like everyone else, following the financial herd.

Source: Federal Reserve.

By all appearances, Cecily Lach is a carefree 32-year-old American woman.

Photo courtesy of CECILY LACH
Lach returned to India for the first time in her adult life in January 2008.

Tall, slender and always smiling, Lach is full of exuberance and life. A first glance gives no indication of early years spent in a humble orphanage more than 7,000 miles away.

Lach was left in a basket at the door of an orphanage in India in 1975, where Catholic nuns cared for her for roughly two and a half years. She said an Indian couple brought her and 12 other children to the United States in 1977, when she was adopted by a Milwaukee-based family.

Over the past three decades, Lach’s adoptive parents, Fred and Gae, encouraged her to return to the country where she was born.

“We’ve always talked about me going back to India,” Lach said. “I thought, not without mom and dad, no way. I don’t go anywhere without my mom.”

After a few months of planning, Lach returned to India in January 2008; her first trip back since her adoption more than 30 years ago. Her journey was lengthy, taking her from Raleigh-Durham, N.C., through Washington, D.C., on to Doha, Qatar, and ultimately landing in Trivandrum, the capital of Kerala, India.

Upon landing in India, she was joined by a family friend, Stacy, who had been to India in the past and could serve as a bit of a guide.

Photo courtesy of CECILY LACH
Lach’s salwar kameez cost approximately $18.

After flying for more than 25 hours, Lach said she desperately wanted to go to sleep, but, instead, went straight to a tailor shop to have traditional clothes made. Lach’s salwar kameez – a traditional cotton outfit consisting of a shirt, a scarf and pants – cost approximately $18.

Lach and her friend took a 45-minute train ride the next day to the coastal town of Varkala. She described the train as very cheap (less than $1), unclean and very crowded.

“The train was filled with people who seemed to think we were very unusual,” Lach said. She said the few seats that were available were made of wood and were uncomfortable.

“We thought Varkala was paradise. It was a beautiful relaxing beach town and the locals were very friendly. We felt very safe there. We swam in the sea, ate traditional Indian food and relaxed on the beach,” Lach said. She said one of the highlights of her excursion to Varkala was an elephant festival, in which elephants were decorated with gold and paraded through the village.

Photo courtesy of CECILY LACH
Lach attended a Jan. 23 elephant festival.

From Varkala, they traveled by ferry to Kottayam, a city located on the Meenachil River.

“A Spanish couple that we met in Varkala had told us about a home-stay in Kottayam, and we were very happy to find that they had room for us,” Lach said. She described the river-front guest house as very comfortable and quiet, surrounded by trees full of birds. She said the Sarovaram River View home-stay cost about $12 per night, and included breakfast, lunch and dinner.

“The best part of this home-stay was getting to know the family. When they learned that I was adopted, they insisted that their rickshaw driver help us find the orphanage,” Lach said. She said they spent more than two hours going around town asking people for directions before they found the orphanage.

Photo courtesy of CECILY LACH
Lach was greeted by nuns at her former orphanage.

“I knew that it was there, I knew it wasn’t gone,” Lach said. She said they were greeted by a nun who identified herself as Sister Superior. The nun gave Lach and her friend a tour of the facility after hearing Lach’s adoption story.

“For years, I was like, I don’t know where I’m from. I’m an American citizen, but I’m really not. I’m from India,” Lach recalled.

She said she was not overwhelmed upon her return to the orphanage, she was excited.

“She showed us the room where I lived the first two and a half years of my life. The former orphanage was very clean and bright, and is now used as a home for elderly sisters,” Lach said. She said the nuns invited them to stay for lunch.

“It was reassuring; everything just came together. Two of my most important years of my life were there,” Lach said.

Photo courtesy of CECILY LACH
The nuns found a photo of Lach in an orphanage album.

“Afterwards, they brought out an old photo album and we found my picture. It was very special to see where I spent the first two and half years of my life,” Lach said.

She speculated that her biological mother was probably unmarried and poor when she became pregnant, and someone influential in her life probably advised her to give her baby up.

“In India, you just don’t give up a child. You just don’t,” Lach said, explaining it is against religious and social norms in India to abandon a child.

“I think my mother is still out there. But, I don’t feel like she knew, I feel like somebody else helped her out. She was so poor, where I was from, it was so poor,” Lach said. “But, she was intelligent enough to give me to somebody else and drop me off at the orphanage.”

Photo courtesy of CECILY LACH
Sister Superior gives Lach and her friend a tour of the facility.

Lach and her friend said tearful good-byes to their home-stay family the following day, and started on a journey of many bus rides across southern India.

They traveled over the 6,000 foot Western Ghats, completing what Lach described as a terrifying six-and-a-half-hour ride on winding roads. She said the bus driver constantly beeped the horn as it passed animals, people and other moving vehicles.

They visited the Periyar Tiger Reserve, where they did not see any tigers.

“But, we saw lots of elephants and barking deer,” Lach said.

Photo courtesy of CECILY LACH
Lach saw many elephants in Periyar.

“We left the beauty and peacefulness of the mountains and descended into Madurai, which is a huge city in Tamil Nadu,” Lach said.

She said she had been told Madurai has the most impressive temples in all of south India.

In the final days of the trip, Lach and her traveling companion visited Munnar and Fort Cochin, logging many hours on buses. They eventually split up to continue on separate journeys, and Lach spent a final two days of relaxation back in Varkala.

Photo courtesy of CECILY LACH
Madurai is known for beautiful temples.

“This was truly a trip of a lifetime,” Lach said.

She said the trip gave her a fuller realization of how fortunate she is.

She said adoptive parents need to know that it’s important for adopted children to seek and find their roots.

”Don’t pressure them. Just let them go,” Lach said.

Four years ago, groundbreaking began at Mount Vernon Triangle, a once-abandoned corner in downtown Washington, D.C. When completed, the 15-block district formed by Massachusetts, New Jersey and New York avenues will include up to 4,000 new condos and apartments, a 50,000-square-foot Safeway grocery store and a million square feet of office space.

Courtesy of Google Maps

While the city’s Community Improvement District denies gentrification, others are much more pessimistic about the coming changes.

Kristine Thompson, executive director of Calvary Women’s Services, one of the only homeless service providers operating within the bounds of the Triangle said that they will likely have to leave the neighborhood.

The shelter leases its building and although the spot is secure through this year, the board and management are already seeking new locations.

“Hopefully we will be in this building for a few more years,” Thompson said. “After that, we will definitely have to be gone because no one will want us to be here.”

The shelter on Fifth Street, N.W., houses about 25 homeless D.C. residents. Up the shelter’s rickety stairs, Calvary shares its building with an Alcoholics Anonymous group. Outside, men bundled in ski coats wait, smoking. One man lurches down the sidewalk, rattling a Coke can; just across two deserted lanes of Fifth Street is Louis’ Rogue topless bar and Subway Liquor.

But right near it is also a glass-walled condominium and, all around the shelter, buildings in various stages of construction are popping up, surrounded by chain-link fences, dirt piles and orange construction machinery.

At Calvary’s second building, a transitional home located down the road at Fourth and H streets, residents pass the adjacent site of Dumont Condos as they leave at a chilly 8 a.m.

“Starting from the upper 200’s to over a million,” boasts the larger-than-life blue sign, a picture of the future building surrounded by sun-lit trees and wide sidewalks drawn enthusiastically below it. Welcome to the image of the new Mount Vernon Triangle.

Calvary’s situation highlights a larger district trend. As new developments come in, low-income residents and service providers are pushed out, victims of higher rents and rising costs of neighborhood living.

Former Mayor Anthony Williams’ plan to increase the city’s population by 100,000 residents in the next decade will necessitate new housing construction, but with about 56,000 current district residents already on the waiting list for affordable housing with the D.C. Housing Authority, the move to higher-priced condos and apartments could hurt the lower-income population.

According to a report by the Fannie Mae Foundation, Washington lost 592 rental units to condo expansion between 2004 and 2005, with the median condo price rising by almost 15 percent after inflation.

Still, the executive director of the Mount Vernon Triangle Community Improvement District insists that the project will not lead to gentrification.

“People think that when a neighborhood gets better that means it’s gentrifying. Gentrification means displacement,” said Bill McLeod, the newest head of the Community Improvement District. The current projects are being built on parking lots, said McLeod, so the units already in the area were not affected.

Incoming tenants have a different view.

“It’s good for us,” said Ilenia Gonzales, who lives in one of the first buildings to go up in the area. “And not so good for the other people.”

Gonzales praised the neighborhood, especially its location in the city’s downtown.

A lot of the residents who have lived in the improvement district for years are afraid, McLeod said.

“I’m not really sure what they are afraid of,” he said. “The low-income buildings are still going to be low-income buildings, they are just going to have new neighbors.”

But the new neighbors have a much greater level of disposable income. According to the 2000 Census data for Track 47, a small one-mile-wide grouping that fully contains the Triangle, 37 percent of the track’s 4,000 residents lived below the poverty line. Homeownership rates were 7 percent. Of the renters, 13.7 percent spent over half of their household income on rent.

The average family income for the track in 1999 was around $26,000, according to NeighborhoodInfo DC, a community organization.

Although the developers of Mount Vernon Triangle have promised to reserve some of the new units for low-income use, overall, the additional housing will not be available to the neighborhood’s current demographic, McLeod said.

Within Washington, D.C., new development can often lead to a greater loss of affordable housing as landlords see the potential to raise rents, said Dena Michaelson, a spokeswoman for the D.C. Housing Authority.

“Once you lose low-income housing, it’s hard to replace it,” she said.

Three properties in the Triangle – Museum Square One at 401 K Street, Carmel Plaza North at 200 K Street and Golden Rule Plaza at 1050 New Jersey Avenue – offer low-income Section 8 housing units, providing about 526 units combined, according to the Department of Housing and Urban Development’s Multifamily Assistance and Section 8 database The Golden Rule apartments are owned by the local Bible Way Church, which has a representative serving on the Community Improvement District’s board of directors.

The Carmel Plaza and Museum Square apartments are owned by Bush Construction, one of about a dozen major developers working in the area. Mount Carmel’s contract for low-income units will not expire until 2017. Museum Square recently renewed their contract until October of 2008.

Vera Watson, a resident of Museum Square for 25 years, said this is the biggest change she has ever seen in the neighborhood.

“I sure hope that it doesn’t affect our building,” she said from under a Redskins cap. “We’ve got to have a place to live too.”

A few yards from Watson on the corner of Fifth and K, construction crews are busy on the CityVista building, a $200 million mixed-use venture. The project was a partnership between the city government and developers, featuring a Safeway, condos and rental units. A special emphasis was placed on neighborhood-serving retail, said Sean Madigan, a spokesman for the Deputy Mayor for Planning and Economic Development. In addition to the Safeway, the project will feature a hardware store and a gym.

“I honestly believe that everyone deserves good retail, whether you’re rich or you’re poor – shopping is free,” said McLeod. “Buying things is not free. But you know, everybody wants to go to Safeway.” The store has made a commitment to hiring from the community and already started job training for its opening in the spring, he said.

The city also required that affordable housing be an aspect of the proposals, as development in the area has created a lot of housing pressure, said Madigan.

The CityVista’s two condos and one apartment building will keep 20 percent of their units affordable to people earning less than 80 percent of the area median income, said Lisa Wiersma, assistant vice president of development at Lowe Enterprises, one of the developers working on the project.

The condos were allotted through a lottery, Wiersma said. Lowe Enterprises received 1,900 applications for 900 units, though all of the applicants might not meet the income level or qualify for the necessary loan, she said. Under the contract with the city government, the condos can return to fair market rate after 30 years.

Mixed-use housing, like in CityVista, is the preferred model of the D.C. government as it alleviates some of the problems associated with the concentration of poverty, creates a diverse community and brings new retail and services to neighborhoods, said D.C. Housing Authority’s Michaelson.

While a favorable land deal with the city enabled developers on CityVista to create a mixed-use structure and take a loss with affordable units, a soft housing market now makes getting developers to turn 10 or 20 percent of their buildings over to low-income rental or condo difficult, McLeod said.

“Every developer is different. Some really have a heart and some are really corporate,” he said, although having developers on the Community Improvement District’s board of directors keeps them informed of problems facing the area’s residents.

But now that the housing market is suffering, many developers are hesitant to put their newly erected buildings onto the market. Many condos that have yet to be built are switching to rental units. Some residential buildings are trying to shift to office space, McLeod said.

But the changes have also created opportunity for some in the Triangle, as the burgeoning construction has led to rising incomes and business growth.

Ielly Joya has co-owned the G & J Deli on the corner of K and Fourth streets for three years, serving a blend of Mexican, Salvadoran and American food. At a quarter to noon, the little store bustled with construction crews from the neighboring projects, chatting over pupusas and sodas at the deli’s green vinyl-covered tables.

“The business we get is from construction,” said Joya. “The first year, it was very slow.”

Joya does not feel threatened by the coming Safeway. Looking around, she noted that her customers prefer to sit and enjoy their meal, an atmosphere Safeway does not offer, she said. But, Joya leases her building and probably will not renew. Already their main business comes from construction, with lunch hours being the deli’s only busy time of the day. When the building is done, the store may lose their strongest source of revenue.

She shrugged. “I don’t know. Maybe we’ll close.”

Other, newer businesses are banking that the new residents of the neighborhood will bring new jobs and fresh dollars to the area. Already, recent upstarts like Tunnel Fine Wines and Spirits on H Street are awaiting the influx of wealthy patrons.

The dark-wood paneling and cobbled floors of the liquor store distinguish it from others in the area. In the back of the store, a wine cooler holds bottles of white from around the world and a small, decorated room stands ready for a community wine-tasting later in the evening.

Owner Feleke Girma, a 23-year resident of the D.C. area, started the business two months ago. Despite already having survived a robbery, he trusts that the new demographic of the neighborhood will appreciate his openness.

“I used to have to work behind bullet-proof glass,” he said, describing his experience at his former convenience store on Georgia Avenue, which was not part of the Triangle improvement district. Thinking back to the Triangle’s neighborhood 15 and 20 years ago, Girma acknowledged the whole demographic has changed. Before, many of the buildings were boarded up, he said.

“These changes were necessary,” he said. “It has been neglected for a long time.”

Like Girma, the Community Improvement District hopes to one day soon start catering to a new demographic, anticipating the challenges of streetscaping and hiring hospitality teams to provide directions and escort late-night office workers to their cars, McLeod said.

For now the Triangle’s mission of clean, safe marketing and economic development is focused on two street cleaners who pick up the trash that lines the streets. Two men from the nearby Gospel Rescue Ministries transitional shelter work the roads in distinctive blue jumpsuits and their progress is charted on a chart, beginning two years ago. Trash is down to about 500 bags per month in October, from over 2,000 in November 2005.

Besides fewer bags of trash, William Coleman, a Clean Team member for three months, has seen the neighborhood improve, gaining a much needed face-lift and increased safety. While he would love to stay, the people moving in all have “real substantial incomes,” Coleman says. But, the former hotel worker said there are still gains to be had from the changes and fresh influx of money.

He chews a cigarette as he looks down the road. Like parking lots for McLeod, the remaining bits of debris represent an opportunity for something new.

“I thank God for this job,” he said.