Rising debt continues to be a critical issue for many Americans and, with the participation of several Bay State lenders, a new initiative is being introduced to teach consumers to better manage their money and eventually rid themselves of debt.
Financially Strong America, a nonprofit and national public outreach program of New York-based Consumer Debt Solutions, is intended to show people how to better manage their finances by using a spending planner, training seminars and conference calls. Through the use of a personalized payment planner, spending is planned in advance and monitored daily utilizing detailed categories. Other than the $30 price for the optional spending workbook, the program is offered at no cost to consumers.
According to Brett T. Saso Sr., founder and executive director of Financially Strong America, people aren’t knowingly and recklessly spending their money. However, he points out that people need to watch their checkbook activity carefully.
Saso also said credit cards are not the only cause of debt.
“Too often credit cards companies are painted as the villain and the evil source of debt,” Saso said. “Credit is a necessity. In reality, the source of spiraling debt is the person or couple that does not have a spending plan. Additionally, they make no effort to track and monitor their spending. It is not the plastic card that has led to mounting debt; it is often the checkbook that has gone unchecked.”
He said people often are living paycheck to paycheck because they use their checkbook as a gauge of how much they have left to spend in a month.
The nonprofit program is very different from credit counseling, an industry in which some companies have come under fire in recent times for unscrupulous practices that harm the very consumers they purport to help, according to Saso.
“Unlike traditional consumer credit counseling, where an outside organization takes over your debt and spending, the [Financially Strong America] system teaches people how to manage their own futures and live within their means,” Saso said.
The program, which will be advertised in 30-minute “edumercials” on cable channels throughout the United States this summer, allows consumers to register on the company’s Web site for free. Once Financially Strong America reviews the consumer’s information, they receive a customized binder with information and are set up with a realistic budget. Saso said consumers can end up with thousands of dollars left over if they keep balances within specific categories, such as bills and groceries.
Another option for consumers is to contact a local representative licensed by the organization. In Massachusetts, four mortgage companies and brokers have signed on to work with Financially Strong America, paying a fee to do so and providing guidance to consumers. According to FSA, the number of representatives in each state will be limited and there currently is no screening process for representatives. FSA will refer to local representatives consumers whose financial information indicates they might benefit from homeownership or a debt-consolidation loan.
Dennis Shriver, loan officer at Mortgage Results in Lakeville, said he was primarily interested in Financially Strong America because he can build referrals.
“I look at this as a tool to keep the lines of communication open and to build my referral base,” Shriver said.
Shriver said he sees a lot of the same mortgage clients and he feels better being able to offer them an alternative to a refinanced loan. Some of his clients, Shriver said, have hit dangerous areas of debt. This past Christmas, Shriver sent Financially Strong America information with his Christmas cards. Shriver is alerted when a consumer visits his company’s Web site inquiring about the program. He will then call the consumer and refer them to products and literature about debt management.
Saso said refinancing can be good or bad, depending on the consumer. According to Saso, 70 percent of those who refinance go back into debt again. His hope is that people that go through the Financially Strong America program will learn to take money from refinancing and pay off debts.
‘Something Tangible’
Jay Austin, president of Star Mortgage in West Bridgewater, said he signed up to become a licensed representative because it provides added services to his customer base. Austin said he has noticed a trend when people buy a home or refinance – they often don’t have a personal financial advisor.
“They don’t know what their circumstances are,” Austin said. “This [program] allows them to create a budget.”
Austin said he likes that the program can guide consumers to fix problems they might not otherwise know how to fix.
Referred to Financially Strong America by a local real estate agent, Austin said he makes both prime and subprime loans and sees all types of borrowers.
Austin adds that this program can be better than credit counseling for some people. He said he has seen people use credit counseling and go into further debt. Other times, first-time homebuyers are unsure of what avenues to take with their budgeting.
“If they can prepare their budget Â… it gives them something tangible to work with,” Austin said.
Companies providing local representatives to Financially Strong America pay a bi-annual licensing fee of $1,000, which includes training and listing on FSA’s Web site. Consumers may work directly with FSA or with a local affiliate. Saso said the fee is charged every six months so companies can determine if the program works for them without investing too much time or money.
Jim Schmidt, loan officer at Poli Mortgage in Norwood, said because the program is still in its infancy, he is unsure if offering it will be profitable for the company. From a business standpoint, Schmidt said is concerned whether offering the program will actually translate into customers and mortgages for the company. Schmidt said it is risky for Poli Mortgage because the program is unproven. If the company can score referrals from the program, Schmidt said it could be profitable.
However, he supports the idea behind Financially Strong America.
“The concept is a strong one,” Schmidt said.
Financially Strong America is offering free access to the budgeting tools and workbook. The workbook typically costs $29.95, but is being offered free to Boston-area residents through March 31.
Saso said the lenders involved with Financially Strong America run the gamut between prime and subprime lenders. He also said many of the consumers are not subprime borrowers, adding they make their monthly credit card payments but are simply not left with any money by the end of the month. Saso said there are many types of consumers who respond to a program like Financially Strong America, including first-time homebuyers and seniors concerned with living on a fixed income. He does point out that this program is not meant for people facing bankruptcy.
One national organization has been referring people to credit counseling for a number of years, but say there are new alternatives emerging.
The National Legal Debt Centers negotiates, through mediation, debt settlements on unsecured and credit card debt. According to their Web site, there are several debt solutions, including credit counseling. Jonathan Hernandez, spokesman for NLDC, said the company has referred many clients to credit counselors over the years, but are finding other options becoming much more effective, like debt consolidation loans.
Another program, in existence for many years, has continued to promote financial literacy to prevent money woes before they start.
The National Endowment for Financial Education is hoping more people will learn to manage their money earlier, primarily in their teenage years.
According to NEFE, American teenagers spent over $172 billion last year. NEFE offers a program called NEFE High School Financial Planning Program that will teach teens to have “sound fiscal habits that will let them manage their money – before it manages them.”
The program is offered in partnership with the U.S. Department of Agriculture Cooperative State Research, Education and Extension Service, the Credit Union National Association and America’s Credit Unions. It introduces fundamental financial concepts to young adults throughout the country. According to NEFE, since its inception in 1984, the program has been presented to more than 2.5 million students in more than 20,500 schools in all 50 states. The program is available free-of-charge to public and private schools and is designed to integrate seamlessly into a variety of high school courses.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
