'Perfect storm' puts all types in financial peril
— -- The current financial crisis is all-inclusive; our path to prosperity or even simple financial stability seemingly obliterated.
With every furlough, layoff or stock market drop, Americans of all ages and backgrounds are seeing their incomes dwindle, bills pile up and financial options disappear.
The number who are suffering has increased by 3 million the past year, according to a recent Gallup-Healthways survey. Some 37% of us said we were worried about money last week. Last year, 3.2 million consumers contacted the National Foundation for Credit Counseling, up from 2.2 million in 2007 and 1.4 million in 2006.
"What's happening to families is a perfect storm," says Bob Manning, a finance professor at Rochester Institute of Technology.
The personal stories illustrate how unemployment, health problems, shrinking retirement savings, unaffordable mortgages and other financial stressors lead to unprecedented challenges, worry and consequences. Recent history has shown periods when one area of concern consumed a family — a lost job for six weeks, for example — but nothing like this. And while people once could piece together solutions to recover financially or prevent outright financial ruin, fewer options exist today.
"Some people will never get out of debt," Manning says.
Whether you're in a financial crisis depends on your debt problem, says Steve Bucci, president of the Money Management International Financial Education Foundation, a non-profit organization. If you are less than 90 days late on a credit card bill, that's not a crisis. But if you are 90 days late on your mortgage, that's an earthquake, and if you are one month late on your car loan you might lose the car, Bucci says.
"For many, it's not one particular event, as much as it is life events starting to pile up," says Gerri Detweiler, co-author of Reduce Debt, Reduce Stress. "And it's compounded by the economy and the lack of credit options that are available."
Retirement on the line
The elderly have been harder hit than most. Personal bankruptcy filings among those 65 and older jumped 150% from 1991 through 2007, according to a study released last year by AARP. Although they have been known as the most frugal savers, today, many of them are deep in debt and without a safety net.
Howard Zynkian, 89, filed for Chapter 13 bankruptcy more than a year ago to help him save his home. Unlike Chapter 7 bankruptcy, which allows people to have most unsecured debts discharged, Chapter 13 sets up a plan for the filer to repay most debts over several years.
But Zynkian, who lives in El Cajon, Calif., refinanced his home five years ago and didn't understand that he was getting into a risky, alternative mortgage. After his monthly mortgage payment had jumped from $1,500 to $2,700, he was facing foreclosure.
