Iowa State University Extension

Problem:
U.S. Consumers hold more than 691 million credit cards and use them to charge $1.8 trillion each year. Eleven percent of cardholders pay interest rates of more than 25%. About 58% of consumers carry a balance on their credit cards. A major cause of divorce is financial conflict within the marriage.

Response:
After attending a lunch & learn session presented by ISU Extension on “Cutting Back on your Debt”, a couple came into our office for a consultation. This couple, who had been married for over 16 years, admitted that they were on the verge of a divorce. The husband had one major credit card with a balance of approximately $800. The wife had 5 cards with a balance of $45,000. The husband did not know about the wife's credit cards and had no idea they had such a balance until he recently had opened one of the statements he found in the mail. Between the two of them, they had an income of around $75,000/year. Because they had paid one of the credit cards late, two of the companies had raised interest on the balances to 25% and 30%. Their home mortgage rate was 6% and they had an estimated $60,000 in equity. The thought for the wife was to take out a home equity loan and pay off all their credit cards. The husband was very reluctant to do that. The husband also had a $5,000 savings account that was paying less than 1% interest. The husband was working six days a week on his job. The wife, who was self-employed, was only working about 20 and admitted that she could work more hours.

Impact:
ISU Extension ran the Power Pay program with several different scenarios. By using the $5,000 low interest savings, adding 20 more hours to the wife's job, selling an extra car and a camper they had not utilized for two years, and reducing their insurance, they were able to add these funds to their high interest credit card debt. Power Pay showed them they would have their credit card debts paid off in 1 year, 10 months ( which originally it would have taken them over 4 years) and they would be saving over $12,000 in interest. Seeing the results of Power Pay helped them set some priorities and put together a spending plan. The husband now is paying most of the bills. The wife agreed she had a spending habit and seems to be happy with staying within the spending plan they put together. She has increased her hours of work and thus has less time to shop and spend money on things they do not need. They are also seeking counseling.

Power Pay was a real eye opening experience for this couple and may have even saved their marriage.

 

Contact:
Margaret VanGinkel
Resource Management Specialist
Hotlines Coordinator