Earlier this month, The Street announced the discovery of a new ailment afflicting millions of Americans, both rich and poor: Debt Detachment Disease.
The term was coined by Howard Dvorkin, a CPA and chairman of Debt.com. Dvorkin says he was looking for a way to explain a troubling statistic; 1 in 10 families earning $100,000 or more have no savings, according to a recent Pew Charitable Trusts study.
How can that be? Especially with the economy rebounding. Dvorkin thinks it has less to do with economics and more to do with sociology. “Americans have grown incredibly callous to debt,” he says. “Credit card balances are approaching $1 trillion in this country. When your friends and family are just as deeply in the red as you are, there’s comfort in the company. That’s followed by a comfortable complacency.” In other words, it seems ok to be in debt. However, there’s always been peer pressure to “keep up with the Joneses.” So it’s now easier than ever to overspend just to impress your friends and neighbors.
Combine that with the delayed misery of debt, and you have a stubborn affliction. As Dvorkin told The Street, “If you live in a nice house and drive a nice car, but you can barely make the payments, that’s a problem that hasn’t altered your lifestyle yet. Sure, you’re paying the minimum on your credit cards and you’re racking up late fees on your car and home loans, but you still have the house and the car.”
Dvorkin says Debt Detachment Disease can be fatal, “but since it takes a long time to kill you, few people take it seriously.” He says treatment of Debt Detachment Disease has to be inexpensive and easy, otherwise no one will take the medicine. So what’s the cure? “Credit counseling,” he says bluntly. “It doesn’t sound sexy, but it works.”
Dvorkin actually got his start as a financial educator by creating a nonprofit credit counseling and debt relief agency more than two decades ago, so he know what he’s talking about. “These agencies work with the credit card companies and often reduce credit card interest rates anywhere between 0 and 10 percent,” he says.
How do you know how a counseling agency is reliable? Three things are important, he says:
- First, has it been in business for more than a few years and are their counselors certified? I wouldn’t trust my credit card debt to a company that’s been around only a few years and who cannot show that their counselor are certified financial professionals.
- Second, how large is the agency? In this case, size matters. The bigger the agency, the more experience it has with the nuances of the law as well as changes to the law.
- Third, is it highly rated by outside groups? That means an A rating from the Better Business Bureau and maybe an endorsement from the likes of the United Way or other well known group.
This makes sense when you think about it. When you’re seriously ill, you consult a doctor. When you suffer from Debt Detachment Syndrome, you need both financial and psychological help. A credit counselor is part cash doctor, part debt psychiatrist.