Start Freeing Yourself from Burdens of Debt

The Consumer Credit Counseling Service of Atlanta is encouraging people to declare their independence from credit-card debt. Make this month the start of your lifetime of economic freedom, says the nonprofit organization.

"Using credit cards for purchases can put you at risk, especially if you aren't disciplined," said Suzanne Boas, president of the CCCS office in Atlanta. "It may feel like you aren't really spending money and, before you even realize it, you have amassed a large debt that is difficult and very costly to repay."

This group's call for self-defense is useful considering the latest bankruptcy statistics. The number of consumer bankruptcies filed during the first three months of 2007 jumped to 187,361, a 66 percent increase over the first quarter of 2006, according to the Administrative Office of the U.S. Courts.

This sad news comes at the same time that the five federal regulatory agencies that oversee banks, savings institutions and credit unions (and related subsidiaries) issued a joint statement directed at certain lenders. The organizations implored the lenders to be more forthcoming about the eventual sting that borrowers may feel after signing up for teaser interest rates on subprime mortgage loans. The regulators are particularly concerned about adjustable-rate mortgage products that are contributing to the rise in bankruptcy filings.

The loans in question enabled people to get low initial payments based on a small introductory rate. Those teaser rates are expiring and many borrowers are finding they can't handle the larger mortgage payments, leading to increases in defaults and foreclosures.

About $467 billion of mortgage loans will reset for the first time in 2007 and another $383 billion will reset in 2008, according to Moody's Economy.com. Together the $850 billion is equivalent to about 9 percent of the mortgage debt that was outstanding in 2006, says Celia Chen, director of housing economics for Moody's.

The crux of the regulatory clarification to lenders is this: An institution's analysis of a borrower's ability to repay one of these hybrid loans should include an evaluation of the borrower's ability to repay the debt after the introductory rate expires.

"D'oh!" as Homer Simpson says.

The road to financial success means factoring in the best-case scenario and the worst-case scenario.

True financial independence is making financial decisions based on the resources you have today, not on what you might have tomorrow. That applies whether you're borrowing on a credit card or applying for a home loan.

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