Credit Card Debt Young Bankrupts*

Credit-card debt pushing youth into bankruptcy

Kristin Tillotson

Star Tribune

Sunday, June 3, 2001

Tiana Clemons got a Visa card five years ago when she was a senior at South High School in Minneapolis. "I signed right up, and so did all my friends," she said, sitting in the cramped, modest Maplewood apartment that she shares with her boyfriend, a school-bus driver, and their three children. "We thought, 'Wow, a thousand bucks!' But when we spent it, it didn't seem like real money."

Five years, four more credit cards and a painfully real $25,000 debt load later, Clemons, now 22, saw no choice but to file for Chapter 7 bankruptcy this past March because of her inability to make even minimum payments on her debt.

Lawyers and credit counselors say Clemons is among the fastest-growing age group of people opting for bankruptcy, primarily the result of credit-card debt.

"I was too young to handle it, to take it seriously," said Clemons, a full-time nursing assistant who is currently on maternity leave. "I take responsibility for myself, but they should take a look at people's incomes before they offer so much credit."

There are currently about 1.5 billion credit cards issued and $560 billion in outstanding credit card debt in the United States.

An increasing proportion of the debt belongs to people in their late teens and early 20s.

The fastest-growing group of bankruptcy filers is under 25, said Robert Manning, a sociology professor at Georgetown University in Washington, D.C. Manning, author of "Credit Card Nation: The Consequences of America's Addiction to Credit," said that young consumers "are being given the keys to the car before they've learned how to drive."

The University of Minnesota is so concerned about the emotional effect of debt on students that the on-campus Bonyton Health Clinic now offers financial counseling, through a grant from Lutheran Brotherhood.

Chapter 7 popular

The U.S. federal bankruptcy court system does not keep records by age, but Twin Cities lawyers who specialize in bankruptcy report a rise in the number of young adults using their services.

Jack Prescott, whose Prescott and Pearson firm handles 20 percent of all Minnesota bankruptcy cases, said that about a fifth of his clients are in their 20s, a trend he began noticing "about eight years ago, when they started giving credit cards to anyone but dogs and cats and 4-year-olds."

About 70 percent of personal-bankruptcy filers in Minnesota choose Chapter 7, which absolves them of debt with minimal penalty. Under Chapter 13, the filer must eventually pay back some of the debt.

The Consumer Federation of America reports that the average college graduate has two credit cards and is carrying an average balance of $2,500 on each of them. Add to that student loans -- exempt from bankruptcy -- car payments, rent, utilities, taxes and interest, and few starting salaries are going to be high enough to cover anything beyond minimum payments.

"Kids' access to credit is way too easy," said Paula Langguth Ryan, who wrote "How to Bounce Back from Bankruptcy." "The [credit-card companies] have figured out that high school seniors and college students have the most disposable income."

Ryan declared bankruptcy in 1986, when she was 21, living in New York City and was $35,000 in the hole. "When you're young, it's so much easier to get in over your head," she said. "If you have a $12,000 income and a $15,000 line of credit, you see it as a $27,000 income."

Compounding the problem for young debtors, said Ryan, is that as they establish their independence, "they don't want to admit to their parents that they've gotten in over their heads.

"Money is still the one thing we won't talk to our kids about," Ryan said. "In school, they're taught civics and economics, when what they really need to know is how to balance a checkbook."

State Sen. Steve Dille (R-Dassel) agrees. His bill requiring courses in personal-finance management to be part of public school curriculums is now before the Legislature. Education may be even more important since President Bush signed a bill in April making it more difficult for anyone to file for bankruptcy.

Even young adults who seem to have it made financially can spiral into the poorhouse. Take the case of Jeremie Calvin, a 26-year-old from Burnsville who didn't have to work at all, until recently.

While supporting himself on the $1,900 per month he was receiving from a court settlement over a childhood injury that left him blind in one eye, Calvin decided to start a pay-phone business. He maxed out several credit cards buying the necessary equipment. Because of his inexperience and some bad advice, he said, he wound up nearly $40,000 in debt. He filed for Chapter 7 bankruptcy last fall. He's now in school, studying local-area computer networking, and working as a restaurant cook in Eden Prairie. He lost his late-model pickup truck, and now drives "about a $200 vehicle."

"I didn't look before I leaped, and now I have a terrible credit rating," he said. "But I was in so deep, all I could do was start over."

Going to school

Lenders claim that they promote financial responsibility along with their cards. "We review all applicants carefully, and make great effort to help college students use their credit wisely," said Darrell Coleman, marketing manager for Wells Fargo Card Services. "We want to build long-term relationships with [new customers]."

The college market has been expanding for several years, he said, "and we are not out of line with that expansion." Of Wells Fargo's 4.4 million cardholders, 294,000 are college students.

But lawyers helping recent college graduates and others new to self-support crawl out from under paper mountains of overdue bills say that many lenders are indiscriminate.

"It's like keeping liquor stores open 24-7, selling to minors, then wondering why everybody's drunk all the time," said Rob Hoglund, a partner at the Roseville office of Hoglund Chwialkowski & Greeman, who is Clemons' and Calvin's attorney.

Manning, who has been criticized by lenders for what they see as an abdication of the role that personal responsibility plays in debt, maintains that "the companies feel victimized, but they are the real catalysts of the problem." An example, he says, is what he sees as a ploy to hook college students: "If you're 20 years old and make $25,000 a year working full time, they'll only offer you a $500 limit. But if you're in college, even if you've never had a job, you can get up to $5,000."

Clemons advises young credit applicants to "wait till they know the meaning of a bad credit report" before getting charge-happy. Neither she nor Calvin have any credit cards at the moment -- but the offers keep on coming, in the mail and over the Internet.

Ryan's advice? "If you can't pay your balance in full each month, put those cards in a Ziploc bag, put the bag in a glass of water and put the glass in your freezer."

Kristin Tillotson isat ktillotson@startribune.com

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