Yehuda Levy*: 35, accountant and father of 6
Meir Shternberg: financial counselor and project director of JOIN Israel’s Pitronot Advocacy program, which helps people who have fallen into financial and legal difficulties
I once heard a well-known speaker relate that, around the turn of the last century, salesmen would go from door to door trying to sell something called “death insurance” — but no one wanted to buy it. Who wants to purchase an item that reminds them they’re going to die? Until someone had the brilliant idea to change the product’s name to “life insurance” — and suddenly, sales skyrocketed.
I’m the guy who would’ve fallen for that name change and been first in line to buy the new-and-improved “life insurance.” Not that there’s anything wrong with buying life insurance. But there is something embarrassing about being so easily manipulated by the advertising industry.
Me along with the other billion or so people out there. That’s why I feel it’s important to share my story.
About 12 years ago, I came into my marriage with an easygoing personality and terrible money management skills. My easygoingness made for a great relationship with my new wife; my poor money management set me up for an unhealthy relationship with borrowing. I am forever grateful to Hashem that, despite the rocky financial road that I would travel over the next many years, my relationship with my wife was never affected. I know many in my situation who are not so lucky.
We started off our marriage with very little income. I was in kollel; my wife was in school for occupational therapy. While her parents footed her education bills, we got very little other parental support. That was fine; I knew money was tight in my in-laws’ home, and, coming from a more Modern Orthodox background myself, I had no expectations about anyone else supporting me. I was raised with the strong conviction that it was my job to provide for my family, and I was ready to go to work as soon as my wife gave the word that our kollel arrangement was too difficult for her.
In the meantime, however, we were enjoying the benefits of a kollel life, and neither of us was eager to give it up just because we didn’t have the money to finance it. Over the next few years, our family grew, and even though my wife was now working, our expenses had jumped higher than her salary. Still, we were managing to pay the bills — because I’d discovered the magical world of credit.
It started one month when, logging on to my online bank account and noticing how alarmingly it had dipped into the red, I saw a lifesaving banner ad flash across my screen: “Credit in an Instant! Apply for a $10,000 line of credit right now!”
Right now? With just one click, all my overdraft worries for the next few months could be taken care of? This was exactly what I was looking for! And so, I clicked. A few months later, when that money had run out and I was once again facing bills that couldn’t be paid, plus minimum monthly loan payments, the solution, to my mind, was obvious: Take out another loan.
And they were so readily accessible. Wherever I turned, there was some credit card company just begging to give me money. It was the life-insurance tactic all over again: “You’re preapproved for a $15,000 loan!” exclaimed one cheerful mailing.
Preapproved? Hey, feels pretty good! They must think real highly of me if they’ve already preapproved me for so much money. Whereas if they had said, “We’ve decided to give you the opportunity to owe us $15,000, to be paid back monthly with an interest rate of 23 percent,” there’s a good chance I would have balked at taking on this “death insurance.”
Still, what was I thinking? Didn’t I realize that loans had to be paid back, and that if I didn’t have the money to cover that month’s electric bill, chances were I wouldn’t have it three months from then, either?
Honestly, I don’t know what I was thinking — I probably wasn’t thinking at all. As I said, I had poor money management skills, and I’d never been given any real education on the subject — something which, from my older and wiser vantage point today, I strongly feel that every young man and woman should receive prior to marriage.
As time went by, I came to see my ability to source credit loans as just another aspect of our income. “If our joint income is NIS 20,000 ($5,500) a month, and I can take out a loan for another NIS 5,000 ($1,400), then we have NIS 25,000 ($6,900) to spend,” I’d tell myself. By that point, with our growing family, I’d left kollel and, after a period of training, began to work as an accountant. It was a decent-paying job, and since we weren’t big spenders, my salary should have covered our monthly expenses… except that most of my paycheck was going to cover loan payments.
What had started out as an easy way to supplement our income and pay the bills had eventually taken on a life of its own. I was spending hours every day just figuring out how to get the money to make our minimum monthly loan payments.
The frustrating part was, I couldn’t even point to a big expense that had sent us into debt. No luxury apartment that at least my wife and children were enjoying. No over-the-top family vacation that had yielded fond memories. It was our everyday expenses — our grocery bills, my kids’ tuition — that had initially been too much for me to cover.
And because of my mistake in running too quickly to take on debt, without considering what the interest would do to me down the line, I was now in the untenable position of having to pay back amounts that were financially impossible. It was when I at last sat down and made the hard calculations — that in order to hope to ever pay back all of my loans in full, I would need to be earning triple my current income, which was already considered above average — that I finally confronted reality.
All along I had avoided letting my wife know about our desperate financial position. Sure, she knew we had loans, but she had no idea how deep in debt we were — $140,000 (NIS 500,000), to be exact. I’d seen this as my responsibility, and chosen to shoulder the headache alone. But now, when I realized that this thing was too big for me to handle, it was finally time to admit the truth to her.
It didn’t feel very good.
I think the hardest part of this entire ordeal was admitting that I didn’t have everything under control, that I needed help. My wife, bless her, was amazing, and together we went to a financial counselor. This counselor was wonderful in helping us get a full picture of our finances, and to understand exactly where all of our money was going. Until then I’d only had a vague idea of our various expenses — and my wife even less. As I’d mentioned, I’d never learned the skills of money management, and these sessions were eye-opening.
However, as helpful as it was to finally learn basic concepts like interest rates and budgeting, I still had the NIS 500,000 looming over me. There was no way I could ever hope to get my finances in shape with this amount of debt.
“What are my options?” I asked the financial counselor. And then, in desperation I asked, “Declare bankruptcy?”
He discouraged me from taking that route, seeing bankruptcy as a cop-out alternative to doing the hard, internal work of financial self-discipline. I understood that, but while I might have been clueless, I’d never seen myself as someone who lacked self-discipline. And all the self-discipline in the world wasn’t going to find me an extra NIS 500,000.
At last, the financial counselor referred me to Pitronot, which, he explained, helps people who’d fallen into extreme financial difficulty. While I winced at being labeled an extreme case, I welcomed the chance to finally get to the bottom of my problem.
At my very first meeting with Meir Shternberg of Pitronot, he looked through my 40-some pages of bank statements, then he stared at me and asked, “Are you depressed? On anxiety meds?”
“No,” I said.
He shook his head. “Well, I don’t know how in the world you’ve managed to deal with all of this for so many years. And to never once default on a loan!”
I felt so inexpressibly validated. Like a huge weight I hadn’t ever realized I’d been carrying had suddenly been taken off my shoulders. Meir confirmed what I’d suspected: that there was no human way I would ever be able to pay off this amount of debt, and my only feasible option was to declare bankruptcy.
That’s where we’re holding right now — in the middle of the bankruptcy process. Believe me, bankruptcy is no “Get out of jail free” card. Yes, much of our debt is forgiven (the exact amount is determined by the court). But we have to keep track of every penny spent and report to a court trustee, we’re not allowed to leave the country until all of our remaining debt is settled with our creditors, and, of course, we aren’t eligible for any type of credit.
Still, for the first time in many years, I finally have a sense of optimism that I’ll be able to pull out of this. It’s funny; I used to not be able to read the Money Trap stories, because I didn’t want to hear about someone else’s sorry financial issues when I was drowning in my own. But now, b’ezras Hashem, soon this period will be behind me, our restrictions will be lifted, and our ability to take on credit will get reinstated.
But I can tell you one thing that will change. I’ll never again be a dupe for the credit industry.
Meir Shternberg relates:
Our goal at Pitronot is to help people who are in major debt regain control of their finances and ultimately turn over a new leaf in their lives. Declaring bankruptcy is not something I recommend lightly. I like to compare it to a doctor examining a seriously ill patient and deciding which of the tools in his medicine cabinet to use. All else being equal, it’s always best to go with the least invasive. But sometimes, the best option to cure the patient is to perform major surgery, despite the risks involved. As soon as I looked over Yehuda’s paperwork and understood his total financial picture, I knew that this was a case that called for major surgery.
When do I feel declaring bankruptcy is warranted, despite all the drawbacks of taking this drastic step? As I explained to Yehuda, I look at several factors. First and foremost is the ability of the debtor to pay back his loans. This has nothing to do with the amount of his debts; for someone who is $30,000 in debt but is also struggling to put food on his table, I know that any extra money that comes his way is going toward his basic living expenses, and he may never amass enough funds to pay off his debts. On the other hand, there can be someone who is $300,000 in debt, but he has the wherewithal to pay off the extra thousands each month in loan payments, once someone sits him down and helps him draw up a budget.
Next, I do a cost-benefit analysis: What does the client stand to gain from declaring bankruptcy, versus what he stands to lose? Obviously, any process that will cause more harm than good is not worth it. Does he have property that he may lose in a bankruptcy proceeding? How will he be impacted by the dip in his credit rating? He might be able to build his credit back up eventually, but in the short term, bankruptcy can affect his ability to buy a home, rent an apartment, or even get hired for a new job.
Another important factor to take into consideration is the client’s emotional/psychological state, and his ability to handle the strict bankruptcy regimen. In Israel, bankruptcy restrictions are in effect over an 18-month period, during which time he is expected to provide careful documentation of all of his transactions and keep to the debt-repayment timetable decided upon by the court. Someone who has difficulty with self-discipline (which is often what causes someone to amass such debt in the first place) realistically would not experience a 180-degree turnaround in this regard.
Of course, I only advise declaring bankruptcy after exploring all other options. If the various lenders are open to negotiating and reducing the debt amount without involving the courts, obviously this is the vastly preferable option.
In Yehuda’s case, declaring bankruptcy was clearly warranted from all sides. He didn’t have the means to repay his debt, the financial benefits for him far outweighed the negative fallout, and he was perfectly capable of adhering to the strict regulations of the bankruptcy process. As soon as I recommended this option to him, I could tell how encouraged he was by the fact that he at last had a way to relieve his heavy financial burden.
Yehuda and his wife are still in the middle of the bankruptcy process, and they’re doing great. While nobody wants to get into their situation in the first place, they are exactly the type of people that the bankruptcy laws were made for. I’m glad to see how optimistic Yehuda’s become about his future since he started the process. Honestly, so am I.
How Credit Card Companies Lure Us In
Think you’re too savvy to fall for these obvious marketing ploys? Well, considering that, according to the National Foundation for Credit Counseling, roughly 38 percent of Americans carry revolving credit card debt (the kind that carries over from month to month, accumulating nasty interest fees in the process), these PR execs are clearly doing something right. Here are some of the techniques they use to convince us to take on debt, even when it’s to our detriment.
1) Big-Print Benefits. Beware those asterisks! That 0.0% APR figure may quicken your heart rate, but first read the fine print, no matter how many pages long it might be. For careful readers, there’s usually a qualifying as low as or for limited time only coupled with a steep jump to the double digits once this introductory offer ends. They might also tell you the loan is approved, without mentioning that you didn’t qualify for the special rate, leaving you on the hook for much higher rates.
2) You Are Special. Yes, you are. But not because a credit card company is offering you a seemingly exclusive deal, filled with hyped-up language like “Important!” “Confidential!” or “Preapproved!” Beware of these efforts to play to your ego. And being preapproved for a credit card means less than nothing; should you apply, you’ll still need to go through the same approval process as anyone else.
3) Identity Cards. Are you a diehard sports fan? Does your preteen go crazy for anything Hello Kitty? Believe it or not, companies market credit cards that “make an identity statement,” complete with your favorite team’s logo, a 1 percent discount on team products, and a sky-high interest rate for all other purchases. Sound crazy? Not as crazy as someone who would actually supply his preteen with her own credit card, Hello Kitty or otherwise. Yet these things happen every day in the great world of credit card marketing.
4) Beware the Big Bonuses. While the offer of 25,000 points just for opening an account may be enticing, often this bonus is contingent on making a minimum purchase of thousands of dollars within a limited amount of time, tempting you to spend money you don’t really have on items you don’t really need, so you don’t lose out on those 25,000 points. Which, if you read the fine print about what those points may be used for, might not even be so helpful for you to begin with.
Sources: The Simple Dollar, Money Talks News
(Originally featured in Mishpacha, Issue 746)
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