Confront Financial Issues Early, Expert Advises

By Elaine Wilson
American Forces Press Service

April 7, 2010 - Tough economic times have taken their toll on Americans in recent years, leaving many buried under debt or saddled with a now-unaffordable dream house that's plummeted too far in value to sell. While it may be tempting to ignore debt-related issues and toss unopened mortgage statements and bills into a neglected pile, confronting the issue head-on offers a much better option, a defense financial expert noted.

"Financial problems aren't like a fine wine; they don't get better with age," said Dave Julian, the Pentagon's personal finance director. "People should act sooner rather than later to get their finances under control."

Servicemembers and their families have a plethora of free resources at their fingertips to help, he noted, whether it's Military OneSource consultants or on-base personal financial managers. Both resources can help people devise a budget, identify spending pitfalls, manage debt and set up short- and long-term financial plans, he added.

"It's important to be on a plan, to live within your means and save for emergencies and long-term goals," Julian said. "Financial counseling can help you do that."

People also can turn to private-sector resources, such as nonprofit credit counseling agencies, but should do so cautiously, Julian warned. "It definitely pays, because of the potential of increasing your financial hardship rather than helping it, to do the research," he said.

People who are swimming in debt may be tempted to turn to a debt consolidation or settlement service, but this path also can lead them deeper into debt, Julian noted.

Debt consolidation or settlement companies look at debt, in some cases negotiate lower interest rates, and then work out a payment plan, or they can bargain with creditors for a lower payback amount. While attractive to people mired in debt, these companies are a largely unregulated industry, Julian noted, and some prey on debtors fueled by desperation.

"People should be very concerned and very careful," he said. "With the economic conditions that have arisen in the last year and a half, two years, a lot of these organizations have sprouted up and not all of these have been the best actors."

He noted that while it's common to require up-front fees, some companies may just take the money and run. "There have been cases in the news where members have paid their up-front fees and expected the debt settlement company to negotiate on their behalf with their creditors," he said. "But then a month, two months go by, and they've been paying their fees and find out the unreputable companies are gone."

Julian recommends people first consult with their installation personal financial manager or a Military OneSource consultant, who can do the research legwork and help to steer them toward reputable companies. The Better Business Bureau also can be a helpful resource to see which companies have favorable ratings, he added.

Even if they use a reputable company, people who pay back a lesser amount than they originally owed may find their credit rating affected, Julian said. "Any time you can pay back the full amount you owe, it is much better by credit reporting agencies, and is just a lot easier to do," he said.

But ideally, he added, people will avoid the problem in the first place or seek help at the first sign of trouble. "It's best to try to manage your finances as best you can or ask for help early on," he said.

Another potential pitfall is mortgage restructuring companies that offer to make mortgage payments more affordable. Julian recalled meeting a sailor who was about to pay a hefty fee the next day to have his loan restructured, something the sailor could have researched himself and done for free. The Navy intervened and the sailor kept his cash, but many others have lost money along the way.

As with debt consolidation companies, people should do their research first before handing money over to any company that is claiming to save them a lot of cash. In many cases, people can work with lenders to adjust payment plans or interest rates to make mortgage payments more affordable, all free of charge.

Above all, when behind in payments, it's important to speak up, Julian said.

"Nearly 58 percent of folks that lost homes due to foreclosure in 2007 never contacted their lender," he said. "Banks really don't want your house. They want your payments. If you can work out a payment plan with your lender, that's the best scenario."

The Servicemembers Civil Relief Act provides a wide range of protections for servicemembers facing mortgage issues. The act is intended to postpone or suspend certain civil obligations so servicemembers can devote full attention to duty and relieve stress on themselves and their families, according to a Military OneSource fact sheet. For instance, servicemembers who anticipate they may fall behind in their mortgage payments may be able to go into court to ask for anticipatory relief under the act.

Servicemembers can find out more about the act from their local legal assistance attorney.

The government also has several housing programs, some for first-time buyers and others for mortgage and foreclosure assistance. People can research these programs online through sites such as the Department of Housing and Urban Development, Julian suggested.

The first line of defense in dealing with financial issues is education, Julian said, noting that all the military services offer some type of basic financial classes. This can be especially helpful for young servicemembers, he added, who may have entered the military with up to $12,000 of unsecured debt.

Julian urged servicemembers to take advantage of the military's Thrift Savings Plan or Savings Deposit Program. The Savings Deposit Program offers deployed servicemembers the opportunity to invest up to $10,000 and receive 10 percent on their return annually.

"About half of our force is 25 and under," he said. "They are young, and time is their friend for savings and investment plans. Small contributions now can yield big returns in the future."

No matter how great the debt, Julian said, people shouldn't give up hope, and he urged those with financial problems to take advantage of the help that's available to them.

"It won't be easy, but you can get there," he said. "Folks do it every day."