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Alan Prahl column: Personal debt elimination is no joking matter

5:11 PM, Mar. 29, 2013  |  Comments
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On April Fool's Day, it's fun to play practical jokes on other people. Sometimes we are fooled when we believe half-truths or myths about money and finances.

Here are some persistent financial myths:

Myth No. 1: The only reason people have credit card debt is because they overspend.

The truth: Overspending is a cause of getting into debt, but there are many other causes. Some causes are beyond our control. For example, when people lose their jobs, they often struggle and end up charging some of their basic necessities.

Medical care is expensive, even for people who have health insurance. Co-pays, deductibles, out-of- pocket costs and prescriptions can add up to many thousands of dollars. Sometimes people use credit cards to pay for these expenses. In a Kaiser Health Tracking poll, 17 percent of people said they experienced serious financial problems due to medical bills.

Divorce takes a financial and emotional toll. Attorney's fees, expenses of establishing separate households, and support payments can deplete savings, leading to financial strain and debt.

Myth No. 2: Young adults are so far in debt because they want to have everything overnight rather than work for it for years like their parents.

The truth: Many young adults are looking for better jobs, but are currently underemployed. The average student loan debt for graduating college seniors is more than $25,000, and about 20 percent of U.S. households owe on student loans. The annual cost of child care can be as much as tuition at a state university. While many young adults have financial challenges, it's often not just due to overspending.

Myth No. 3: People need to pull themselves up by their bootstraps and deal with their situation.

The truth: Some financial challenges can be handled easily, while other times there are multiple challenges and it's hard to sort through the available options. Many people are overwhelmed. They feel embarrassment, shame and guilt. They didn't deliberately set out to overspend. Many are frustrated, thinking, "Well, if I'm earning $30,000 per year, why can't I afford more things?"

While rising prices reduce our buying power, the greater culprit may be pre-tax demands on our paycheck for 401(k) savings, the employee share of health insurance premiums, health savings accounts, child care, social security and taxes. It's helpful to make pre-tax payments, but these elective payments plus taxes can eat up 40 percent or more of a paycheck and feel like a bad April Fool's Day joke. Unfortunately, this is no joke.

While it can be tempting to dismiss debt as someone else's problem just because they overspend, it's better to recognize that there can be many causes for financial struggles and to encourage people to find a lasting solution through a caring financial advisor or credit counselor.

- Alan Prahl is with FISC consumer credit counseling service (www.fisc-cccs.org), a nonprofit program of Goodwill of North Central Wisconsin. He can be reached at aprahl@fisc-cccs.org.

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