Do you have to work overtime to pay your monthly bills?
Are you unsure about how much you really owe?
Are your monthly payments to creditors, excluding mortgage or rent, more than 20 percent of your take-home pay?
If your answer is yes to any of those questions, look out.
You may be teetering on the edge of a credit crisis, and the recession could push you over the edge, says Becky Cutler, chairperson of the National Education Committee of the National Foundation for Consumer Credit, a non-profit organization whose regional affiliates offer free credit counseling nationwide.
Cutler, who also is the education director for the Consumer Credit Counseling Service of Greater Denver, was in Baltimore to conduct two free seminars as part of a consumer education program sponsored by the NFCC and Citibank MasterCard and Visa.
The recession drives families into financial crises when loss of a job or a cutback in working hours is compounded by past spending habits, says Cutler.
"People are working overtime to keep up with their spending. They view that income as normal. When the overtime is cut back, they can't keep up with their commitments," she says.
A job loss can paralyze even dual-income families.
"In two-worker families, their commitments are based on two incomes. It's especially frightening when the mortgage is based on two incomes," she notes.
These situations are among the more extreme results of what Cutler, a former teacher, sees as a major national problem: the lack of basic consumer education. And that's something the nation, as a whole and individually, will pay for, she says.
"I'm taking about basics -- balancing a checkbook, making a budget, using credit wisely," she says. "We're not educated.
"The subject of personal finances is often taboo in a family. We're afraid of our children knowing our financial situation . . . We don't understand the importance of educating them."
And to top it off, she adds, "We want our kids to have it all. It's keeping up with the Joneses. They have to have the Levi 501 jeans, the Guess? sweatshirts. . . There are kids with jobs -- with paper routes or who work at McDonald's -- who have more money saved than their parents."
That kind of upbringing, she observes, has its results.
"Many young people move out of their parents' homes and expect to live at the same standard," she says, and consequently run up large debts for cars and consumer goods. Or, she says, adult children continue to live at home, at their parents' expense, so they can indulge their taste for expensive goods.
"We see that a lot -- parents who are overextended because the adult children are still living with them.
"You have this scenario -- the parents are in their 50s, with a 30-year-old still at home that they're subsidizing. Then, given this economy, the parent gets an early retirement -- he doesn't have much choice but to take it -- and that early retirement isn't always as much pension or the family's not prepared; they thought they had another six or seven years more to save."
Parents generally resist the advice that they ask their adult children to contribute to household expenses or pay rent, Cutler says, but "often the adult child doesn't realize the burden. After all, he's used to living there. If the parent explains the situation, the child often is very willing to pay. That $300 or $400 a month is still less than he'd pay in rent on his own."
Cutler says the recession also is taking its toll on people with home equity loans, which were heavily advertised in the 1980s as an easy way to borrow against the value of your home. With the skyrocketing rise in home values during that past 15 years, many families found they were able to borrow tens of thousands of dollars on the amount their home's value had increased beyond their mortgage.
"We see a lot of people overextended by home equity loans. They were very common in the '80s to put children through school. Then the recession stepped in [and loss of income] and now they find themselves with two house payments instead of one," she says. If they default, they can lose their homes.
Although their homes represent the bulk of their life savings, she says, too many people fail to consider all the possibilities that might occur during the 15- or 20-year life of a home equity loan.
"They don't look long term, if their health fails, if they lose their job, if their company goes bankrupt . . .," she says.
Two-thirds of the estimated 5 to 7 million Americans who are financially overextended are in that situation because of unanticipated events -- the loss of a job, major illness, death, divorce, Cutler says.
Although consumer education isn't a magic wand, Cutler believes teaching the basics and knowing how to budget is the best answer available. While people can't foretell the future, some basic planning will give them more room to maneuver when unexpected events do occur.
"I'm talking about a money management plan, a budget," Cutler says. "It's putting 5 to 10 percent of take-home pay into savings. And it's also putting money away for expenses you know are coming.
"And no individual or family should ever be commited to short-term obligations for more than 20 percent of their take-home pay."
Short-term obligations, she notes, include items like orthodontics payments as well as credit cards.
Ideally, a home mortgage should be based on one income, she adds, and suggests younger people focus on buying a cheaper "starter" home with a larger down payment instead of committing themselves to large monthly payments.
"It's called waiting and saving," she comments.
Similarly, she says, a $7,000 car can be purchased with payments over two years instead of a flashier, more expensive one with a five-year payout. Or, she says, people could use public transportation.
While Cutler does not recommend people keep high credit card balances, she advocates the wise use of credit cards for convenience, for taking advantage of sales, for financing large purchases, etc. Similarly, people need to be careful in sifting through those already-approved offers for credit cards that arrive uunsolicited in their mail boxes.