TONY COX, host:
Now many of us are not homeowners and are not dealing with high-interest home loans, but nearly all of us do have credit cards. And a high number of us have credit-card debt. According to the Federal Reserve, U.S. consumer debt has nearly doubled since 1998 and now stands at more than $2 trillion.
Of course, many of us will soon be facing some pretty steep statements of our own from our holiday gift shopping sprees. So for more on personal debt and how to deal with it or to avoid it altogether, we turn to economist and regular NEWS & NOTES contributor Julianne Malveaux.
Julianne, how are you doing?
Ms. JULIANNE MALVEAUX (Economist, Last Word Productions): I'm good, Tony. You?
COX: I'm doing pretty good, thank you. Actually, I tried to be careful about my credit cards this Christmas until I was feeling pretty good yesterday. But then I got to the store and you know what happened.
(Soundbite of laughter)
Ms. MALVEAUX: I know how it goes. Well, you know, people are being barraged by ads. If you have kids, you know, your kids know the name brands of everything and they want it all. And, you know, financial discipline is certainly easier said than done, but almost half of all African-American people have some credit-card debt while half of us do not own homes.
So indeed homeowners do have some luxury in that they can get low-interest home equity loans. But if you don't have that, what you're doing is you're getting 18-20 percent credit cards. Now you can shop around for a little less, but still, you know, people believe - they treat credit cards like they're cash, and they're not.
COX: Well, you know, something, I was under the impression - well, actually, I had tried it and it worked a few times - where you could call a credit card company and say, look, this rate is too high. I'm a good customer. I haven't had any late payments, mispayments, and they would lower the rate because you could threaten to, you know, cut your card up.
Ms. MALVEAUX: Move on.
COX: Well, I tried that. And they were like, you know, too bad for you. We're not going to change the rate. What's happening with that?
Ms. MALVEAUX: Well, it really depends on how long you've had the card, what kind of rates you have, Tony. But they're a lot less flexible than they used to be. In fact, they'll tell you go find somebody else. And you're still getting, I mean many people are still getting in the mail, especially if they're homeowners, offers for new credit cards and flip your loan over from one credit card to another.
But some of the other companies have pretty much put their foot down. I mean the best thing to do with credit is to just use it judiciously. You only use it if you have to because, frankly, the amount of money that the average American owes today is about $6,000. If you make the minimum payment on $6,000, it'll take you 15 years to pay it back. And you pay $15,000 in interest along the way. So just bear that in mind.
Ms. MALVEAUX: You know, I have a student friend up at Howard University, who charges stuff like pantyhose and pizza. And I'm - do you want to pay 25 percent interest on pantyhose and pizza?
COX: Well, you know, it must be like smoking, in a sense, trying to quit smoking because we - everybody is told, you know, don't use your cards, don't pay just the monthly minimum. But when it comes right down to it, it's difficult to do that, isn't it?
Ms. MALVEAUX: Well, a lot of Americans are under a lot of financial stress. You know, we have not yet raised the minimum wage, we have almost 10 million people earning the minimum wage. You have people who are not getting raises. The average raise - salary increase this last year was something around 3 percent.
You hear about these huge bonuses on Wall Street, but for people who are in a public sector, in education, they're not seeing those huge bonuses. Some university professors haven't had raises at all for a couple of years. So a lot of people are finding themselves under financial stress. And for many people, especially low-income people, that credit card becomes like a savings account.
I can't tell you how many people actually get into credit trouble because they go to the hospital, and the hospital will demand your credit card.
COX: Yes, they will.
MS. MALVEAUX: And, you know, then you can't pay it, but what are you going to do? Let your kid, you know, sit outside with a broken arm or something?
COX: Well, let me ask you this, because you're an economist. And there is a sense in some parts of the black community, and probably in others as well, that the way to operate is to operate on a cash system. And just if you can't pay cash for it, then don't buy it. But sometimes you are not able to really function and maneuver with just cash, am I right?
Ms. MALVEAUX: Well, you can't go and check into a hotel with just cash.
Ms. MALVEAUX: You can't rent a car with just cash. if you can, you've got a huge deposit that you have to leave. If you purchase an airline ticket with cash, Tony, they will treat you like a terrorist. I mean literally one of the triggers, is cash. I recommend that people have one card that they pay it back at the end of the month. That that card is an emergency card, maybe two. The other reason that you do need to use credit wisely is if you don't own a home now but you want to. They will look at your credit rating. If you pay cash for everything, you don't have a credit rating.
So, basically, credit is literally a necessity in our society, but using it wisely is important. There's so many schemes and scams and tricks, as the young lady was saying about the homeownership. So many schemes out there to get people financially encumbered because then people make money from you. You know, if you have a credit card where the interest rate is 25 percent, someone is making that money.
COX: Yes, they are.
Ms. MALVEAUX: If they charge you $29 or $35 every time your payment is late, somebody is making that money. So that's what we have to, you know, really be aware of, these pre-payment penalties and other things. So using your credit but using it wisely. And it really does require people to just really guard themselves against temptation, which means - yeah, I don't know how people tell you they're broke - I'm broke, I'm going to the mall. Well, if you're broke, go to the library.
COX: I understand.
Ms. MALVEAUX: You can't spend any money at the library, you know.
COX: Listen, we have about a minute or so left, and my final question is, what laws and protections are there in place for the debtor now?
Ms. MALVEAUX: There are not many. In fact, the bankruptcy bill that was recently passed prioritizes your credit card payment over your child support payment. The IRS has done a decent job of looking at these credit counseling companies that often debtors are forced into. Some of those companies actually are rip-off joints. So if anyone is in any trouble, make sure you go on to the Federal Trade Commission's Web site where you can find out more about which credit card companies - which credit counseling companies are responsible and which ones are irresponsible.
There have actually been cases, Tony, of people attempting to pay their credit cards back through a counseling agency that has kept their money and not forwarded it. So people have to be - even in debt, you have to be very, very aware of how you're managing your money.
COX: Absolutely. Julianne Malveaux, thank you so much.
Ms. MALVEAUX: Thank you.
COX: Julianne Malveaux is an economist and president of Last Word Productions. She joined us from our Washington, D.C. headquarters.
Just ahead, a Los Angeles medical school hopes to become the first historically black college on the West Coast, and remembering James Brown.