Debt management

Lori Scott, a certified debt and housing counselor at Center for Siouxland, poses by boxes of shredded paper money during an interview at the Sioux City agency.

SIOUX CITY -- The average American household carries $137,063 of debt, according to the Federal Reserve. That's more than twice the median household income in 2017.

While most people are able to juggle debt using credit cards to cover the cost of food, gas and other monthly expenses, eventually, their debt catches up with them. Lori Scott, a certified credit counselor at Center For Siouxland, said credit card, student loan and medical debt are the top forms of debt that Siouxlanders struggle with.

Scott said young people may not understand how borrowing money now will affect them down the road. She said people with good credit scores and jobs are often approved for a home loan amount that is larger than what they can afford. 

"For somebody that has really good credit and has a good job and a high-paying job, I think they can be allowed to borrow more money than you ever should," she said. "If somebody goes and applies for a mortgage, they will typically loan you more money or approve you for more money than what you should really take out, based off your living expenses, because there are things that they don't factor in, like insurance."

Even individuals who have health insurance, struggle to afford their medical bills. A simple doctor's visit could get them into trouble financially if they haven't saved for the unexpected.

Debt management

Lori Scott, a certified debt and housing counselor at Center for Siouxland, talks about debt management during an interview at the Sioux City agency.

"Insurance has changed so much. It used to be that we could go and pay a small co-pay," Scott explained. "A lot of people have the high deductible plans now and so they end up with hundreds of dollars just by going for a doctor's visit. It's coming up with how to budget that and pay for that."

At Center For Siouxland, Scott can help you create a budget, figuring out how much money you need each month to live. You'll set aside money for the obvious: food, gas, car insurance, rent and utilities, as well as the not-so-obvious. The service is free.

"We help them think of those expenses that they might not think of on their own -- license plates, property taxes," Scott said. "Those are things that put people into bad situations, too, because they don't have the money set aside."

After clients meet with her, Scott said they generally feel relieved, because now they have a plan in place to manage their expenses and debt.

Where do you start?

So how do you even begin to pay off those credit card bills you've been shoving in a drawer?

Scott said she typically recommends putting the credit card debts in order from smallest to largest. Put whatever extra money you can toward paying off the smallest debt, and then move on to the next one.

"That way, you're making some sort of headway on this. You get those little ones along the way, so it feels like you're actually getting somewhere," she said.

If you don't have any money set aside in an emergency fund, Scott advises saving some cash for a flat tire, water heater failure or medical issue first. Once you've set aside a minimum of $500 to $1,000, then you can start working on paying off your credit card debt. 

"What happens for a lot of people is they start paying on credit cards and they don't have money in savings, so when an emergency comes up, they don't have the money to pay for that because they don't have any money in savings and so then they will start charging again on their credit cards," she said. "Having that emergency money will help them feel more secure and then give them that option if emergencies come up."

Scott doesn't recommend borrowing from your retirement savings unless there's no other option. 

"We can usually find other options for them," she said. "I think people don't save for the future like they used to; and we're already in trouble that way, so borrowing from your retirement could be an issue," she said. "If you're going to lose your home, obviously that's something you may want to do. I typically say, 'Don't do that.'"

The payday loan trap 

In the past, the only way to obtain a payday loan was by visiting a local payday loan store. Since payday loan lending has expanded online, more people are falling into the payday loan trap. It's a cycle that can last for years, with individuals traveling from payday loan store to payday loan store. They may initially borrow $500, which must be paid back when they get their next paycheck. 

"For a lot of people, that money comes out of their account and now they don't have the money to pay for their household expenses or bills, so the next day, they're going to take out another payday loan," Scott said. "When we have clients that come in that have three, four, five payday loans, you can imagine the burden."

Delinquent payday loans can be turned over to a collection agency and result in your wages being garnished. Scott advises trying to find a solution before it goes that far.

"That really sends people into a tailspin. Once your wages are garnished, you have less money and your not able to pay you're household expenses," she said. "Maybe you have a payday loan that's $500. Next time, you go write a payday loan, try to do it for only $450. The next time, go down to $400, so you're tapering them down. It's a long process to get out of them."

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