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Jewish World Review April 8, 2005 / 28 Adar II, 5765 Scaring people away from debt By Froma Harrop
http://www.JewishWorldReview.com |
The era of happy borrowing is over. Americans might as well know
it.
The death bell now tolls for low interest rates. And he, who
doesn't hear that chime, can't miss the siren of bankruptcy reform. The
federal bankruptcy bill, sure to become law, will turn many exuberant
borrowers into lunch for debt collectors.
Fear does have its uses. If the sight of a tighter noose warns
people away from piling up debt, all to the good. Americans will understand
that credit cards are a potential enemy — and that even the friendly home
mortgage can come back to haunt them.
The bankruptcy bill in a nutshell: If you get in over your head
in debt, and still have a decent income, you can't wipe the slate clean with
a Chapter 7 bankruptcy. Instead, you will be shunted into what's called
Chapter 13. There, lawyers will find a way for you to pay back what you owe.
That means you will write your creditors checks month after month and, if
necessary, year after year.
To be honest, the bankruptcy bill leaves me with mixed emotions.
The Puritan in me likes the part about personal responsibility. People who
borrow have a moral duty to pay back their debt. And there are bad people
who work the system. They do a Chapter 7 on Monday, then drive off in a new
BMW Tuesday.
The liberal in me, however, thinks that the weak deserve
protection. Many people fall into bankruptcy owing to medical bills or other
bad luck. And the legislation does nothing to stop credit-card pushers from
luring the innocent into obligations they barely understand.
Most everyone gets those come-ons offering 2.99 APR (annual
percentage rate) in big letters. Take out the microscope for the fine print,
and you see that the deal is good for only a few months. Should you miss
your payment by even a day, the credit-card company can hike the rate to,
say, 29 percent. Many people are too lazy to figure it out — or they just
don't get the technical lingo.
Mortgages are also part of the danger. Borrowing off one's house
has become a common way to pay off credit cards. Consumers take out bigger
mortgages and use the freed-up cash to pay off credit-card balances. (After
all, mortgage rates are lower and the interest is tax-deductible.) The
home-equity loan, a kind of mortgage, works by a similar principle.
The problem with this arrangement is that every time homeowners
increase their mortgage, they end up owning less of their house. A fall in
real-estate values could leave them owing more money on the house than the
house is worth. It's happened before.
When interest rates rise — and they're doing it now — things
get dicier for many mortgage holders. That's because more and more Americans
are taking out adjustable-rate mortgages. With an adjustable-rate mortgage,
the interest rate goes up and down with other interest rates. It's a nice
thing to have when you think interest rates will head south. But when rates
go up, the monthly payments get only bigger.
You'd think that when interest rates are rising, people would
avoid adjustable-rate mortgages like the plague. But no, they do not. In
recent months, 36 percent of new or refinanced mortgages have been the
adjustable-rate type.
Why are people still getting these mortgages? Because the
lenders hook them with very low starting rates. The rates will soon take
off, and with them, the monthly payments. But who's thinking about tomorrow?
In a better world, government regulators would stop such abusive
lending practices. Consumers would be smarter. But since this is not a
better world, then perhaps the bankruptcy law can do the job by scaring
people away from debt altogether.
Others, sadly, will not hear the alarms until too late. Many
reckless borrowers don't know there is a new bankruptcy law, much less
what's in it. They will end up in Chapter 13 — making monthly payments unto
eternity for things they forgot they ever bought.
As Dear Abby once said, "If we could sell our experiences for
what they cost us, we'd all be millionaires."
One way or another, the lesson will be learned: Debt is
something to fear.
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© 2005 Creators Syndicate |
Arnold Ahlert | |||||||||||
