Per capita bankruptcy filings on the increase in Colorado

It sounds like a good idea: Go out to dinner, charge it to your credit card so you can pay the bill when you choose. Heck, some cards even offer up to 20 percent cash back at some restaurants and throw in frequent-flyer miles to boot.

Be careful: 20 years later, you may still be paying off that meal with the equity from a home you can never afford to own.

During one of the most prosperous times in their history, Americans are accumulating credit-card debt faster than at any other time. When the burden gets too expensive, they are resorting to personal bankruptcy in ever-increasing numbers to wipe away mistakes brought on by a lifetime of unnecessary consumption and fiscal mismanagement.

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“The problem sometimes is not that credit is too easy, but that bankruptcy is too easy,´ said John Green, an economist at the University of Northern Colorado in Greeley.

National bankruptcy filings exceeded one million for the first time in 1996. So severe is the problem nationally that Congress acted recently to tighten the conditions permitting declaration of personal bankruptcy. The new federal statute seeks to ensure that all debtors pay back at least a portion of their debt. It also requires that anyone filing personal bankruptcy must first complete a debt-counseling program.

“In Colorado, the number of personal-bankruptcy filings stood at 7,852 for the first six months of 1998,´ said Brad Bolton, clerk of the U.S. Bankruptcy Court in Denver. “That would forecast a slight dip by year’s end over the 15,875 filings posted during 1997.”

While that drop in absolute numbers is encouraging, Bolton said, it is the number of filings per capita that is the more important indicator. The news there is less encouraging. During the first and second quarters of 1998, there were 4.1 and 4.26 filings respectively per 1,000 state residents. That is identical with the 1991 figures for the same two periods. While that may sound low, the second-quarter per capita rate of 4.26 per thousand is the highest since the third quarter of 1991, when it hit the identical rate. That means that personal bankruptcy in Colorado is at a higher rate than at any time in the last 6 1/2 years.

Many financial counselors place the blame for the nation’s worsening indebtedness on the credit-card solicitations that multiply like low-interest-rate rabbits in everyone’s mailbox these days.

“Credit cards are convenient, but the balance builds faster than you may realize,´ said Kathy Cosgrove Green, executive director of Consumer Credit Counseling Service of Northern Colorado and southeast Wyoming. “It can get to a dangerous level.”

CCCS is a United Way-funded agency licensed by the Colorado Division of Banking to provide financial counseling. It has seven offices, five in Colorado and two in Wyoming. The service offers financial-planning sessions with a certified counselor. CCCS has 1,295 clients, almost a 13 percent increase since January of this year.

“For most people, overusing their credit cards is not a conscious decision,´ said Cosgrove Green. “It is a consequence of the emphasis on getting and having things.”

Approximately one-third of those counseled by CCCS use its debt-repayment service. Cosgrove Green emphasizes that fiscal management is often a preventive matter, noting that CCCS “does a lot of preventive counseling and financial-management workshops.”

Used excessively, however, credit does become a serious problem for a significant part of the population.

“We are becoming a minimum-payment society,” Cosgrove Green said, noting that only 60 percent pay off credit-card balances monthly. “It takes 20 to 30 years to pay off the average credit-card debt by paying only the minimum payment each month.”

In order to make that repayment seem easier, many companies now offer debt-consolidation loans in return for a portion of the equity on the debtor’s home. These home-equity loans are legal but are disliked by credit counselors and bank officers alike.

“You have to be careful about home-equity loans,” cautioned Cosgrove Green. “Not only do they make it difficult to pay off your home mortgage, they do not address the real problem, which is the consumption pattern of the debtor.”

Cosgrove Green says there are several things credit-card users can do to be certain they use credit to their advantage.

” Do not accumulate more than 15 percent of your monthly income in debt service in addition to your mortgage payment.

” Think about what you pay with credit cards: It may be wise to use them for necessary things such as emergency auto repairs or replacement of a needed appliance, but unwise to use them to pay for nightly dinners out.

” If you have a large credit-card debt, accelerate payments and/or consider using only cards with lower annual percentage rates.

” Go on a cash basis when possible.

” Finally, if you have problems, seek help.

Consumer Credit Counseling Service of Northern Colorado and Southeast Wyoming has offices in Fort Collins, Greeley, Longmont and Loveland in Colorado, and Cheyenne and Laramie in Wyoming. Call (970) 229-0695 or (800) 424-CCCS.