NEW ORLEANS – Is your New Year’s Resolution to get out of debt? If you live in Louisiana, you’re not alone.
According to recently released report from the Urban Institute, Louisiana residents have the most number of residents in debt with collections among all 50 states. The median amount owed in debt collections is $1,486.
Using data from anonymous consumer-level records from a major credit bureau, the report shows that nationwide, 33 percent of people have debt that has gone into collections, meaning unpaid bills creditors have either closed or are trying to collect.
In Louisiana, that number climbs to 46 percent—nearly half—in debt with collections, the highest level among all 50 states. Broken down further, Orleans Parish has 49 percent of its population in debt. Forty percent of residents in Jefferson Parish are in debt, according to the report.
The majority of U.S. states with high levels of debt are concentrated in the south. Texas is second with 44 percent of its residents in debt and South Carolina comes third with 43 percent.
“The unfortunate reality is that the state of Louisiana is a relatively poor state, and another unfortunate reality is that Louisiana has very low education attainment,” said Guy Williams, CEO of Gulf Coast Bank & Trust, headquartered in New Orleans. “It’s not that people aren’t trying hard; it’s just a difficult place for people who have limited skills. Low income and low education—that’s a recipe for disaster.”
Williams spoke with Biz New Orleans about tips for Louisiana residents and beyond on how to take control of their financial health.
1.) Understand good debt vs. bad debt
There’s a good timing for debt and debt that serves a good purpose, such as when you start out building a business, or building a family or buying a home. But when you are getting ready to retire, you want to be out of debt.
2.) The credit card in the freezer trick…really
Why is it that you want to finance today’s hamburger over four years and pay interest? The rates are horrible—national rates are in the 20s and 30s. Louisiana banks the maximum allowed is 18 percent, but that’s still a lot.
Several years ago, I taught at Tulane and did an experiment with the Tulane students. I said, I want you to go to your favorite off-campus restaurant and eat dinner with your credit card and then next week, go to the same restaurant but don’t pay with your credit card. I had them bring me receipts. Every single student spent less when they didn’t have their credit card.
The reason merchants take credit cards is that it will make you spend more when you use a credit card. Put the credit card in a baggie of water frozen in the freezer and don't take it out until bill is back to zero. There is no need to finance trivial expenses.
3.) Don’t try and keep up with the Joneses
People see what they want, what their friends have and if they don’t have the money, they think debt is the way to go. That is not the way to go. Don’t get the biggest house you can afford – a bigger house leads to bigger problems.
When you move into a neighborhood that you can barely afford, you get yourself worked up with psychological issues – everyone is driving better cars, for example, or have better decorations. If you put every penny into a house you can’t afford, you won’t be content with that decision. We encourage to buy what you afford and not the maximum amount possible. We discourage you using your house as a piggy bank to take out home loans.
4.) Work towards a major purchase rather than impulse buying
Spend money on things that are important to you and have an end goal – do you want to pay for your kids to go to parochial school? Want to buy a boat or a car? We do normal financial plans for a person to achieve objectives. Say someone’s objective is to buy a boat and go cruising. Know your goal and get on a path to achieve it.
Also, I refer to the area within ten feet of the checkout counter the “no buy zone”—that’s were the impulsive, high-margin items are.
5.) Attend financial education classes, use resources
The biggest thing is don’t wait until the very last moment to reach out for help. The earlier you start, the more options you have. Talk to a financial banker or advisor. We have a financial education program where we get help people get out of debt. The worst case scenario is that we see families on the verge of losing their house. We review their options, we work with them to identify how to solve permanent problems and work through the best solutions. It’s one-on-one and confidential, it’s the right thing to do and we love to see people back on their feet.
We have been able to help business owners get restructuring plans and turnaround plans. A major success story was that a business was one week from bankruptcy and we helped it turn around and 18 months later, each investor got a check for $1 million. It’s an amazing difference of what was and could have been.
Upcoming financial education class:
LPWA Seminar: Budgeting Financial Checkup
Wednesday, January 10, 2018
11:30 a.m. – 12:30 p.m.
Tchefuncta Country Club, 2 Pinecrest Dr, Covington
To register, go to lpwanorthshore.com or call 985-789-3111.
– Jenny Peterson, Associate News Editor, Biz New Orleans
