Money Train: 'All Aboard'

Money coach Alvin Hall kicks off the summer financial fitness series, "Money Train: How to Get (and Keep) Your Finances on Track." He engages listener experiences.

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MICHEL MARTIN, host:

I'm Michel Martin, and this is TELL ME MORE from NPR News.

Coming up: by day she is an events planner, by night a songbird. What's playing in her ear?

But first, are you sick and tired to being sick and tired? Okay, how about sick, tired and broke? We thought so. So today, we are launching our summer series on financial empowerment. It's called the Money Train. We're going to pick three people or families or households who want advice on three issues - getting out of debt, buying a first home, starting a small business.

We put out a call on our blog for listeners who want to work with personal finance guru - or maybe I should say, our conductor, Alvin Hall. He joins us from our New York bureau. Alvin, welcome back.

Mr. ALVIN HALL (Financial Adviser; Author, Presenter, "Your Money or Your Life"): Thank you very much.

MARTIN: And thanks for helping to lead this adventure. I hope we can offer some help and hope to people.

Mr. HALL: I think it's going to be interesting. I was reading the blogs overnight, and people have some serious problems with debt.

MARTIN: They sure do.

Mr. HALL: And I think this will help them sort of gain control of it. And I was so interested with the number of people who have problems sticking to budgets. That fascinated me tremendously, because that has more to do with emotions than real money.

MARTIN: Well, let's take this one at a time. And one thing I noticed throughout the postings is exactly what you talked about - credit card debt.

Mr. HALL: Yes.

MARTIN: In fact, several people used exactly the same language. They said they have fallen into the credit card trap.

Mr. HALL: Yes.

MARTIN: Now how common a problem is this, and why is it so common?

Mr. HALL: It's so widespread, because people want money to be magical. They see credit cards come through the mail, and three things happen. One, it feels like free money. Two, it validates you as an adult. Somebody thinks I'm worthy, therefore I can use this money. And then, it gives you the way - a way of spending without using real cash. So it's like using what I call shadow money. And it's so easy to just flash that plastic and ignore that bill. So the shadow money factor is really big. So those were the three reasons.

MARTIN: Let's talk about a couple of other people who wrote in, and I'm hoping you could just give us a little bit…

Mr. HALL: Sure.

MARTIN: …of a tidbit or a little bit of something that they can take away with them today while we're going through all of the blog postings and deciding who we're going to work with in depth. I'm just hoping you can give them a little something to take away with.

Mr. HALL: Okay.

MARTIN: So first, I want to read a posting from Jason. He says that we live in northeast Mississippi. We have two children. We fell into the credit card trap after college. And a few years ago, we entered into a debt consolidation, which turned out to be a bigger mess. It has seriously hurt our credit. We haven't charged a thing in four years, and we still have bills, not to mention student loans. Needless to say, they're having a hard time saving anything…

Mr. HALL: Yes.

MARTIN: …for school. So talk to me about this whole debt consolidation thing. What is that, and why would that make things worse? And is there anything Jason can do right now?

Mr. HALL: Well, yes. Debt consolidation - there's several types: one type that uses your house as collateral, and another type where they take over the control of your money and supposedly manage it for you, allocate it to your creditors. Both cases are bad ideas, because basically, it's like handing things over to daddy and saying I don't want to deal with this - daddy, please, please, please, solve this for me.

And it's such a mistake. So it's an easy way out that most people grab when they're desperate.

What these people need to do is to sit down, make up a budget, decide how much they can realistically afford to pay to all their debts, and then begin calling their creditors themselves and coming up with a plan to allocate money to each creditor. They should also ask their creditors to try to freeze the interest rates on their loans, on their credit card balances, for a period of time to allow them to at least show good faith by making the payments regularly for six months and then calling up and renegotiating again.

MARTIN: What about - just briefly, because I want to move on to a listener who's kind enough to join us - but is there any way they can get out this debt consolidation program? Is that a contract?

Mr. HALL: It's a contract, but generally, if you're really strong and you say you've damaged my credit rating. I am unhappy with what you're doing. I'm going to seek some legal advise either from credit counselors, services or something like that, they'll generally let you out of these things.

MARTIN: Okay. That's good advice. Thank you.

Mr. HALL: And they should really walk away, because it's just wrong.

MARTIN: All right. Now I'd like to bring in David. David, do you mind if I use your last name?

Professor DAVID SHORTER (University of Indiana): Sure. You can use it.

MARTIN: Okay. I would like to bring in David Shorter. He also responded to our blog. He is a professor from the University of Indiana. Now, here's the situation he wrote us about. And he has some distinct circumstances, but I think he's in a situation…

Mr. HALL: Yeah.

MARTIN: …many people can relate to. David, why don't you just take it away and tell us what you're facing?

Prof. SHORTER: Well, like many people, I decided that getting an education was the best ticket to a good future and I decided to go for a Ph.D., which took me 13 to 15 years. And you add student loans for every one of those years, and I graduated with my Ph.D. with over a $100,000 in student loan debt. And so even though I got a great job - in my opinion - at Indiana University in Bloomington, I have a certain amount that's just automatically deducted from the top every month. And you add on top of that that my university only pays us on a 10-month, scale…

Mr. HALL: Yes.

Prof. SHORTER: …then you get $2,000 at least taken out in taxes. All of a sudden, I'm put in a sort of position where I got a great education, I feel like I got a great job, but I don't have the money to get any sort of savings under way, much less pay off the credit cards that I used for the last couple of years of my college life as well.

Mr. HALL: Yes.

MARTIN: Well, it's a good place to start, and David has some distinct issues, which we'll bring up later.

Mr. HALL: Yes.

MARTIN: But let's start with that.

Mr. HALL: Okay.

MARTIN: I think that David - what I'm hearing from David is he kind of feels he did everything right, you know?

Mr. HALL: Yes, he does.

MARTIN: He invested in his education. He got the job of his dreams, but he's still up under it. And when I heard $100,000, I have to tell you, David, I went ouch.

Prof. SHORTER: Yeah.

MARTIN: So, Alvin…

Mr. HALL: That's a lot of money. David, have you consolidated all these loans? Have you talked to the people who handle your education loans about consolidating them into one?

Prof. SHORTER: I did. I graduated in 2002, and in 2003, I consolidated with Direct Loan. So I do only make one payment, and it's to the Direct Loan system. I also consolidated my credit cards last year into one line of credit. So that - the good thing about that is, of course, that means that I'm writing less checks per month.

Mr. HALL: Exactly.

Prof. SHORTER: But I'm still writing a pretty large amount.

Mr. HALL: Yes. This is one of those situations, David, where the solution is going to be a temporary painful one. And to be very honest, you may have to -for a year or two - consider taking a second job to get out of this debt. You just might have to do that. I realize teaching may not give you the exact schedule you want to do that, but you may have to say to yourself the only way this is going to work is for me to take a second job for the two months I am not teaching and just devote that money to paying down the debt, because sometimes there isn't a magical solution to the problem. I was in debt myself one time, and what I did was to devote every summer, all the money, to just paying down that debt. And it worked.

Prof. SHORTER: Okay.

MARTIN: David has one other circumstance that he wanted to talk about, and that is - David, do you want to share with Alvin, or do you want me to tell?

Prof. SHORTER: Sure. You can go ahead.

MARTIN: Well, David is partnered, and he's in a civil union.

Prof. SHORTER: Yes.

MARTIN: And he, and his partner - so part of the issue is two issues: he and his partner have very different incomes. His partner makes a lot more money than he does, which is not uncommon, I think, with different-gender couples. But the other added later here is that they don't have the same kind of protection or legal relationship that a married couple would even if they are partnered or - they're married in Vermont, right?

Mr. HALL: Yes, I understand.

MARTIN: But you see what I'm saying? Under the federal system, they don't get the tax brakes that married couples would get. Does this - what can you tell him that - how to address these issues?

Mr. HALL: Well, I think these are political concerns, and they have to be a little bit removed from the basic concern of getting his credit and everything back in order and paying off his debt. First, once he gets his own personal finances in order, then these bigger issues become really significant. But right now, he needs to focus on getting his debt paid off, maybe taking a second job, coming up with a strategy. That's what he needs to do most. Everything else to me is just a sort of deflective issue. You know, it deflects you away from the real basic concern.

Prof. SHORTER: Could I interject for a second?

Mr. HALL: Yes. Sure.

Prof. SHORTER: Because I think that that makes sense. And you're actually reiterating something to me that Nick, my husband, says all the time, which is, you know, even though I make more than you, why don't you just take care of your stuff…

Mr. HALL: That's right.

Prof. SHORTER: …I'll take care of my stuff, and then as we both get more ahead, then we can start working to integrate our finances. The one thing that comes up when I hear that is that, for example, because of my student loan debt, it was just more intelligent for us to put the mortgage in his name.

Mr. HALL: Yes.

Prof. SHORTER: Because we just wouldn't have gotten a good rate without that. But, yeah, I'm paying - what we did is we looked at his salary and my salary and we figured out a percentage of what we bring in to the total house, and we've divided all the bills and mortgages along that percentage line.

Mr. HALL: Smart. It's very smart.

Prof. SHORTER: But the result is now I'm paying now a money - amount of money every month, and I get no tax benefit for that.

Mr. HALL: Yes. Is this…

Prof. SHORTER: Is that something that we should try to alleviate by getting my name on the mortgage somehow?

Mr. HALL: At some point, when everything is in balance, when you get your debt paid down, then I would sit down and make an agreement and buy an interest into the house, or negotiate an interest in the house so you can get a deduction. But right now, you need to focus on the short term. If I could wave a magic wand, I'd give you a job for two months this summer so you could just devote all that money to paying down. And then, next summer, maybe you'll only use one month of that money and take the second month and do something you want to do with it.

Prof. SHORTER: Okay.

MARTIN: All right, David, how does that sound?

Prof. SHORTER: That sounds excellent.

MARTIN: All right. Thank you so much.

Mr. HALL: Thank you, David.

MARTIN: Thanks for joining us, David.

Prof. SHORTER: Thank you.

Mr. HALL: Thank you, David.

MARTIN: Alvin, we got a couple of minutes left, and you're rocking and rolling here.

Mr. HALL: Oh, thank you.

MARTIN: We got a comment from Indie(ph). Now this is interesting that the whole partnership - you've talked a little about how the emotions get involved with the money.

Mr. HALL: Okay

MARTIN: Here's another one. She struggled with debt for a while, put apparently, large wedding expenses on a credit card…

Mr. HALL: Oh, Lord.

MARTIN: Marriage didn't last, and now she's still married to the bills. What advice do you have for her?

Mr. HALL: This is a common practice in America. It's just so American, this particular practice of putting your bills - your wedding - on a credit card. She needs to view the credit card as part of her past and say, give herself a fixed amount of time she's going to pay off that bill and put that wedding behind her. Again, I think for most people, it's hard for them to say to themselves, I'm going to have to work nights.

I'm going to have to take a job that I may not like just to pay down the bills. But as soon as she can do that, she can put this behind her and create a different future for herself. Dragging that old, dirty wedding dress behind her and all the betrayal that it represents, she needs to get over it and move on fast.

MARTIN: Tough love today. Tough love, Alvin, tough love.

Mr. HALL: Well, that is tough love, because I think putting a wedding on a credit card is delusional behavior, anyway. Cut back on the wedding. You don't need to enter marriage in debt. If you enter marriage in debt, it's almost a sure sign that that marriage is going to fail.

MARTIN: Well, we should talk more about that later why that might be.

Mr. HALL: Okay.

MARTIN: Here's one more person who's at a different stage of life I wanted to get your comments on briefly. I think it's a she - it's Kelly. Could be - I think it's a she - says, I'm a young person who fell into the credit card trap again when I made my first attempt at college. I'm still trying to dig out several years later. And what's so ridiculous is I know better. I've been working since I was 15, but I've nothing to show for it except a '96 Honda. My other issue is my complete inability to make a budget and stick with it. I make relatively decent money for someone with few monthly expenditures and no children, but I'm always broke. It's like the second the money hits my bank account, it's gone.

So I think this person wants to know why am I doing this? What can I do? Is there anything you can Kelly right now today to intervene in the cycle?

Mr. HALL: Yes. Kelly needs to live a cash life for three to six months. She needs to stop using credit cards, only write checks in necessities, put cash in her wallet and spend down the cash.

MARTIN: Okay.

Mr. HALL: I've used this in the past with people, and as soon as they see those green backs begin disappearing from their wallet, they start to alter their behavior.

MARTIN: Okay. And if - sorry.

Mr. HALL: But as long as, it remains, yes.

MARTIN: Sorry, you have to leave it there.

Mr. HALL: Okay.

MARTIN: Good to advice for Kelly. We can talk to her more on our blog.

Mr. HALL: All right.

MARTIN: And speaking of which, you can still post comments to the Money Train at npr.org/tellmemore. We'll be finalizing our Money Train passengers this week. David Shorter joined us from Bloomington, Indiana. David, thanks for writing in. And Alvin Hall, of course, our financial expert and our conductor, joined us from NPR New York.

Alvin, thank you so much for joining us and all that tough love.

Mr. HALL: Thank you, Michel.

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