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CNN LIVE EVENT/SPECIAL
Financial Security Watch; Getting Debt Under Control
Aired February 25, 2008 - 12:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: All week, during this hour, we're going to focus on what matters to you and your money -- your house, your debt, your savings, your job. Now is the time to get your finances under control.
Over the next hour, we'll give you tools, tips and strategies that will help you make sense of your money. And best of all, call in. We'll answer your questions live right here.
CNN FINANCIAL SECURITY WATCH starts right now.
Here's the very latest. Today on your financial security, the mortgage meltdown and the credit crunch taking the spotlight on Capitol Hill this week. The Senate floor will likely be the focus of a debate on Tuesday. To be discussed, a bill which includes proposed changes to the bankruptcy code.
Now, the new rules would allow a judge to reduce the amount of a mortgage for struggling homeowners. And on Thursday, lawmakers will question several high-profile mortgage and banking executives about the subprime mess, including former Countrywide CEO Angelo Mozilo.
Meanwhile, another week, and yet another indication of the sad state of the housing market. Existing home sales fell to their lowest level in nearly a decade last month. That according to the National Association of Realtors.
And another blow to struggling homeowners. Some of the nation's largest lenders are cutting off access to home equity lines of credit in some struggling real estate markets. Now, lenders are worried they won't be able to collect money on current loans extended to borrowers, so they're tightening credit limits or eliminating them altogether.
Now, CNN's FINANCIAL SECURITY WATCH and the biggest threats to your money in the economy.
WILLIS (voice over): The credit crunch, the mortgage meltdown, up-and-down investments, uncertainty in the job market -- your financial security is under assault.
UNIDENTIFIED MALE: There are already budget cuts where I work.
UNIDENTIFIED MALE: I just have no money for anything apart from bare essentials at this point.
UNIDENTIFIED FEMALE: People are just finding a really tough time just finding a new job.
UNIDENTIFIED FEMALE: We're concerned about the younger generation. I think that it's going to be a little tougher for them.
UNIDENTIFIED MALE: People don't have discretionary income.
UNIDENTIFIED FEMALE: There's just so many things that impact your finances nowadays, it's not even funny.
WILLIS: The average American household with a credit card owed nearly $10,000 in 2007 according to cardweb.com, which serves the credit card industry.
Adam Levin of consumer information Web site credit.com.
ADAM LEVIN, PRESIDENT & CEO, CREDIT.COM: It's a disastrous threat. And it's a threat based on the fact that the more debt that you get yourself involved in, the less income you're going to have available to pay for other things.
WILLIS: The nation's housing crisis doesn't help with debt problems. Even if you make your mortgage payments, the more than 400,000 foreclosures last year affect the value of your home. A Center for Responsible Lending reports says nearly 41 million homes will lose value because of foreclosures in their neighborhoods.
If the loss in home value wasn't enough to pinch your pocketbook, the loss of value in your investments certainly could. The stock market started this year with one of the worst Januarys on record. Those declines lead to fears of recession. And with recession comes the possibility of job losses.
UNIDENTIFIED MALE: Job loss is about as serious a threat to your financial security as there is. It's not terrible right now. The problem is the trend is going in the wrong direction. Jobless claims are creeping higher.
WILLIS: In last U.S. recession in 2001, nearly two million people lost their jobs in mass layoffs. Mix all of these factors together, it signals a threat to your bottom line, a threat to your money.
WILLIS: Personal finance expert Manisha Thakor is in Houston. Lynette Khalfani Cox is in New York. And Greg McBride is -- well, he's in New York, too, from bankrate.com.
Welcome all. Good to see you guys.
LYNETTE KHALFANI COX, AUTHOR, "YOUR FIRST HOME": Thanks for having us.
WILLIS: All right.
MANISHA THAKOR, AUTHOR, "ON MY OWN TWO FEET": Good to be here. WILLIS: Well, you know, I want to get to some solutions already. I think people pretty much understand the problems, because they're facing it themselves. They've got the pressure on their wallets from debt, from their mortgage, et cetera.
Lynette, I want to start with you. Let's talk a little bit about solutions for folks. What is the very first thing you would tell people who are suffering with high levels of debt right now?
COX: I think the biggest thing is that you really do have to shore up your credit standing in a lot of ways. It's not good enough, you know, to rely on past standards where, you know, you could put down no money to get a mortgage, you could skate by and be late on a credit card payment, those kind of things. You really do have to protect your credit rating at all costs...
COX: ... and also shore up your cash position as well.
WILLIS: All right. Greg, weigh in here. It's not always been this way. People have not always had levels of credit card debt that they simply couldn't handle. What happened?
GREG MCBRIDE, SENIOR ANALYST, BANKRATE.COM: I think a lot of this is trying to keep up with a certain lifestyle at a point in time when income has been growing very slowly. If you look at the last five or six years, income has grown very, very slowly for the average American household, but at the same time, spending and debt have grown at an even faster rate.
So I think it's time for a reality check. Cut back where you can, shore up your emergency savings so that you can better weather a financial storm, and then focus on paying down that debt, starting with the highest rate debt first.
WILLIS: Well, Greg, you're making some good points now. And I know that Manisha agrees with you on some of this.
You even go so far as to say that people have unrealistic expectations about how far their money's going to go. Tell us about that.
THAKOR: It's so true, Gerri. So I think the root problem here is most Americans, to be honest, don't have a solid grasp of the basics of personal finance. And it's not to fault Americans, it's -- unfortunately we are in a society where personal finance, like parenting, is one of those things we're expected to pick up as we go along. But unlike parenting, we don't have widespread societal support for admitting any degree of lack of understanding or disease with the subject.
WILLIS: All right, Manisha. Thanks for that.
Manisha, Greg and Lynette, we want you to stick around. We're going to be right back to you with our viewer phone calls later in the show.
We're here to help answer some of your questions about money. Give us a call at 866-792-3399. That's 866-792-3399.
Give us a call. We'll answer your questions about money. You can also e-mail us at FSW@CNN.com.
We'll get your phone calls a little later in the show. And everyone we put on the program, hey, they're going to get a copy of my new book, "Home Rich."
So much more ahead. We'll take a look at one organization whose sole mission is to get you out of debt. We'll take you there.
And I'll be talking with the Reverend Jesse Jackson when CNN FINANCIAL SECURITY WATCH continues.
WILLIS: If you've never heard of the Consumer Credit Counseling Service, you might want to listen up. Now, these folks are trained to get you out of debt.
CNN's Rick Sanchez is live at the CCCS call center. It's right here in Atlanta -- Rick.
RICK SANCHEZ, CNN CORRESPONDENT: You know, you can talk all you want, Gerri, about all the different federal statistics and all of the numbers that are coming out that seem to indicate that there are problems. But this office, this is the area where people actually talk to real people going through real problems, families who are really having a tough time of it, especially in the area of housing.
As a matter of fact, Gerri, let me give you a number. Last year in January, they took 900 calls, 900 phone calls from people who are having tough times, who feared that they were on the brink of foreclosure, or were actually going through some kind of foreclosure process this year, in January. So let's look at the numbers again -- 900 January last year, 3,600 is the number this year.
They've got 175 counselors. They're taking calls from all over the country. And they're taking 75 more people they're going to be adding here.
So, we're going to be talking to some of them in just a little bit. We're going to bring you up to date on what the process is for people who call here, and we'll bring it all to you when we talk to some of these folks in about a half hour. Gerri, back to you.
WILLIS: Rick, thanks for that.
The foreclosure crisis has driven many families into debt in this country. My next guest has described the housing crisis as an economic tsunami. I'm talking about the Reverend Jesse Jackson, and he's joining us now from Las Vegas.
Welcome, Reverend Jackson.
REV. JESSE JACKSON, PRESIDENT, RAINBOW PUSH COALITION: Yes, we're here in one of the great mortgage explosion crisis cities, Las Vegas.
WILLIS: That's right. You know, I want to start by talking about the kinds of pressures that average American families are under right now. Prices are rising. Their home values are losing ground, jobs are scarce. Folks are really scared.
What are people telling you, Reverend Jackson?
JACKSON: Well, in part, when your home is foreclosed, your neighbor's house loses value. And when that happens, you lose your tax base.
Now cities are facing loss of their tax base revenue. So cities are asking now for a kind of bailout. I read yesterday Bank of America is saying we want federal intervention. The banks have been avoiding intervention. Now you need some kind of federal intervention for reconstruction of loans in mass over-repossession of homes.
WILLIS: Right. Well, you know, we have had several programs come out from the president. The administration has come out with Hope Now, Project Lifeline. Are you saying that's not enough?
JACKSON: They don't correspond to the magnitude of the problem. For example, if you get a $900 rebate from the president, and you are three months behind in your note (ph) because of the reset that's taken in, that $900 is good for a Wal-Mart gift package, but not for reconstructing your loan and to stop repossessing homes.
And that's why I'm concerned now that we are underestimating -- I have an article this week in "Nation" magazine, online -- .com -- because what we've found -- I (INAUDIBLE) from Illinois.
JACKSON: She found that 20.4 percent of all subprimes went to African-Americans and 20.4 went to Latinos, as far as percent. And half of those persons were eligible for prime and got subprime. So we see some deviousness here because...
JACKSON: ... banks were unregulated at the top, the laws of lending unenforced at the bottom.
WILLIS: Well, let's just be clear about that. If you get a subprime loan, and instead of a prime loan, you're paying more for it.
JACKSON: You're paying more...
WILLIS: You're paying more in fees, you're paying more in interest, right? JACKSON: ... for less. And we see patterns of targeting, a kind of reverse red-lining. A, they would not lend the people in a certain area because of zip code. Then they decided to lend to them on (INAUDIBLE) basis and explorative basis. And so it seemed that the Department of Justice fell asleep at the wheel...
JACKSON: ... while that was taking place. Now I'm convinced we need some serious federal intervention because cities and states' tax budgets are now going to affect schools and public transportation. It's going to affect libraries and police and fire departments. We can no longer avoid the need for a major intervention. A moratorium loan for reconstruction...
JACKSON: ... to start -- and then to start repossessing so many homes.
WILLIS: Well, Reverend Jackson, you say that federal intervention is needed. Clearly, we're going to have a new president here very soon. I know you're an Obama supporter. Tell me specifically what the next president needs to do to steer us away from all of this trouble.
JACKSON: Well, first of all, the Fair Housing Committee must be convened, bankers must be convened. At this point, not so much find the blame as to find the solution. I'm convinced that what must now happen is that there must be a temporary moratorium. So you can have time to reconstruct loans.
If you, for example, are paying $900 a month and you can pay $900, you shouldn't be resetting into $1,500 a month. When you're put out your house, your neighbor's house loses value. So you have -- as we did in the 1930s, as we did in the farmers in 1980s, that's why the bankruptcy code now takes on I think big meaning as it did with S&L. It's a big commission (ph) here.
JACKSON: It's driving the recession. And I think that becomes the biggest issue on the next presidential table domestically because it's driving the agenda.
WILLIS: Well, Reverend Jackson, thanks so much for being with us today. I know we'll continue to discuss all of the potential solutions as we go ahead in this crisis.
Still ahead on FINANCIAL SECURITY WATCH, one woman's new innovative way to track her spending so she gets out of debt.
And we'll check in with two best-selling authors and investors on the best plan right now for your money.
(COMMERCIAL BREAK) WILLIS: Every day we hear from CNN's business correspondents about how the market is doing on that particular day. And today we're turning the tables on Wall Street, asking those who work in the business how they're handling their personal finances.
CNN's Susan Lisovicz is standing by on Wall Street.
SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Hi, Gerri. And the man standing next to me has been capitalizing on market opportunities for the last 24 years as a professional trader.
Now, Kenny Polcari, I'll ask you, have you made any changes in your own portfolio?
KENNETH POLCARI, MANAGING DIRECTOR, ICAP EQUITIES: Absolutely. I think you have to be very sensitive to what the current market conditions are now, I think you have to sensitive to the type of money you've got invested.
So, long-term money, retirement money that's 15 or 20 years out, I've made no real change to other than making sure that I'm completely balanced across the different markets -- Europe, Latin, America, U.S., high growth stocks, and big cap named. And Eastern Europe, which is actually a new kind of area that I've gotten into. But for long-term money it's relatively stable.
Short-term money, money that, you know, you're not using tomorrow that maybe you need in a couple of years, I've been much more sensitive to. I've actually taken 50 percent of that out of the market and put in money market funds because three percent or 2.5 percent is certainly better than minus eight percent.
LISOVICZ: Right. So, in other words, what you did was, your retirement money, you didn't touch that at all. But the other savings that you had, you decided to put it in something where you would get some kind of return because the market, let's face it, is down year- to-date, and doesn't show any sign of recovery right now.
POLCARI: That's right. But also, I can sleep at night. You know, it's -- and it's interesting, because the money that I took out of the market two months ago, the market was right about where it is today. So, the balance of the money that I started to invest in the market, you know, I've seen it go down in value and it's back up in value. But the balance of that money now sits in a money market fund. And it's safe, it's there every night.
I can go to sleep at night. I can feel secure that, in the event that I should need that money, that I have it, I'm not really at risk with it.
LISOVICZ: A lot of people call that cash, because you can access it at any time, unlike, say, a certificate of deposit.
POLCARI: That's correct. And that is exactly just cash. It's not -- it's not tied up in a CD that might be six months or eight months or a year out. It is strictly cash in a money market savings account. That's it.
But, you know, don't forget, stocks that are invested -- money that's invested in stocks is also considered cash. It's liquid, it's easy to get out of. It's just that it's subject to the -- it's subject to the market action. And right now in such an environment, people want to feel a little bit more secure.
LISOVICZ: Right. And you might be penalized if you take that -- if you access that cash ahead of time?
POLCARI: Well, you might be only because if stocks that you want to sell are down in value that you didn't really want to sell but you need to, because you need to get that cash, you're going to get penalized because you made a bad sale.
LISOVICZ: But the ultimate lesson to take away here is that, retirement, because you've got 20 years down the road, you're not touching?
POLCARI: Well, that's me. And anyone that's -- you know, anyone that's my age or younger should not really be necessarily so concerned about their retirement money because it is, in fact, 15 or 20 years down the line.
If you're closer to retirement, if you're 55 or 60, and your retirement is only a couple of years away, you should have already been rebalancing your portfolio to take that into account. You should moved out of equities and more into fixed income.
LISOVICZ: OK. Kenny Polcari, thank you so much. He's the managing director of ICAP Equities.
And Gerri, just so you know, it really is cold out here, but, you know, Wall Street is kind of a macho environment, so he's going without the coat. I'm wearing the coat and gloves. Back to you.
WILLIS: Susan, thank you for that. Appreciate it.
Saving for the future is something we all should be doing, but with the stock market in turmoil and the housing market in a slump, you know, it's tough to figure out where to put your money.
Robert and Kim Kiyosaki wrote the best-selling book "Rich Dad, Poor Dad" and "Rich Woman. They join us now from Phoenix.
Welcome, guys. Great to see you today.
KIM KIYOSAKI, AUTHOR, "RICH WOMAN": Oh, thanks, Gerri. Thanks for having us on.
ROBERT KIYOSAKI, AUTHOR, "RICH DAD, POOR DAD": Thank you.
WILLIS: Well, let's get right down to it. You just heard this professional say that with at least a part of his portfolio, he's doing a little market timing, taking it out of the market.
Robert, first to you. What do you think people should do right now? Where is the opportunity in the market?
R. KIYOSAKI: I think the market is best place to be right now, because prices are low, as in real estate, as well as in the stock market. But I think he's correct -- if you have no financial education or experience, you know, you should follow his advice. But personally, I'm going very heavily into the market because I'm looking for bargains right now.
WILLIS: Kim, do you agree? Are stocks on sale? Is now the time?
K. KIYOSAKI: I do think stocks are on sale. And kind of piggybacking on what Robert said, if you don't have financial education, there's two things you can invest.
You can invest time and you can invest money. So, if you don't have the financial education, right now is the best time to start getting educated. And don't put your money in the market necessarily, but invest in your own financial education, learn about what to do, and then start small, put a little money in.
WILLIS: Great advice. You know, Robert, another market where there have been lots of price cuts, obviously real estate. Some folks are looking at foreclosures. Do you recommend that?
R. KIYOSAKI: Well, in real estate, there's three things. You've got it buy it right, you've got to finance it right, and you've got to manage it right. So, if you don't do all three, I don't care if it's buying it right, with the foreclosure price, real estate's a horrible investment at that point.
So we've always stood for financial education. And I think the real problem is that our school systems treat money like it's an evil subject rather than being an everyday thing we all go through.
So we should have financial education. That's all we've ever said. So real estate's great if you know what you're doing. If you don't know what you're doing, it's a nightmare.
WILLIS: I couldn't agree more. Yes, there could be more financial education out there. Kim, I know that you actually got into a market which was in a similar shape like the one we have today. And I'm talking about the stock market.
K. KIYOSAKI: Right.
WILLIS: How did you do that? How did you have the nerve, the stomach to jump in? And were you scared when you did it?
K. KIYOSAKI: Oh, that's a great point, because back in 1987, when the market was turning down as well, in 1988 was when I started learning about real estate and investment real estate. There's a difference between your residential real estate, of course, and your investment real estate.
And so I started learning about investment real estate and I found this little two bedroom, one bath house in Portland, Oregon -- and again, this is 1989 now -- $45,000. Had to come up with $5,000 down. Yes, I was terrified.
It was new, it was unknown. I was, you know, breaking new ground. And it came down to it, I did my homework, I did my research, I checked it out. And as Robert said, I had to buy it right, I had to finance it right, and then I had to learn how to manage it.
K. KIYOSAKI: So, there is that emotional -- that emotional fear. But you've got to -- at one point, you've just got to step over that line. You've got to take that first step.
R. KIYOSAKI: I think the hardest thing was everybody was telling her that she was nuts. And we all know...
K. KIYOSAKI: They were.
R. KIYOSAKI: We all know you should buy low, sell high. But why people are in trouble today is they buy it high, and now it's low, when they should be buying. So, you know, that's why they get in trouble.
WILLIS: You couldn't be more right, Robert. Absolutely true. Thanks so much to both of you. I wish we could go on, but we're out of time.
Up ahead, a different approach to tracking your money -- saving by keeping a debt diary. We'll check it out.
Then, debt and stress. Digging out of a hole can cause all sorts of health issues. We'll tell you how to deal with then when CNN's FINANCIAL SECURITY WATCH returns after a quick look at your headlines.
T.J. HOLMES, CNN CORRESPONDENT: Well, hello there, everybody. I'm T.J. Holmes at the CNN Center in Atlanta, Georgia.
CNN's FINANCIAL SECURITY continues in just a minute but got a few headlines here for you.
The field of presidential candidates, you know, it's not dwindling. We're adding folks now. Getting a little more crowded. Consumer crusader Ralph Nader making another bid for the White House. This time he's doing it as an independent. Many Democrats still see Nader as the spoil who are cost Al Gore the election back in 2000.
In terms of the Democrats and Hillary Clinton and Barack Obama, they're starting the week in the East and the Midwest. Clinton is in Washington to deliver what's being described as a major foreign policy speech, happening this hour. Obama campaigning in Ohio. John McCain also in Ohio. He's close, but not quite over the top in his bid for the Republican nomination.
Well, an American Airlines passenger begs for help. She couldn't breathe. She pleaded with a flight attendant, don't let me die. But Carine Desir did die on a flight from Haiti to New York on Friday. Her cousin says she was twice refused oxygen and then the medical equipment failed. A short while ago, American Airlines issued a statement saying oxygen was, in fact, administered.
The company says there were 12 oxygen bottles on that flight. A defibrillator was there as well. It was applied. The airline says it's now investigating. Doctors and nurses on board tried but could not save the woman. The medical examiner says Desir had a bad heart and died of natural causes.
Those are just some of the headlines for you this hour. Now want to get you back to CNN FINANCIAL SECURITY WATCH with Gerri Willis.
In the meantime, I'm T.J. Holmes.
WILLIS: You know, you never realize how much money you spend until you start to keep track of it. Our next guest is in the middle of doing just that, tracking every single dollar she's spending in the month of February. Natalie McNeal is with the "Miami Herald."
Welcome, Natalie. Good to see you.
NATALIE MCNEAL, "MIAMI HERALD": Thanks for having me, Gerri.
WILLIS: I think this is a great experiment. I'm really interested in this. And you're writing about it every day on the web. Tell me why you decided to stop spending.
MCNEAL: Because it was coming off the Christmas holidays and I read about some other people who had done the same experiment and I wanted to see if I could just cut cold turkey.
WILLIS: Well, did you have a wake-up moment? Was there a point where you said, holy cow, my spending's out of control?
MCNEAL: I think my wake-up moment was that, you know, for some time I've been feeling like I needed to get a grasp of my finances, but then, you know, the years go by and you realize things aren't really getting better. So I just decided to just outright do something like really tough, you know, extreme to really kind of get the goal that I wanted.
WILLIS: It is extreme. Now where did you find out that you were spending too much without even thinking about it?
MCNEAL: Well, I just went back over my financial records and I realized, I always thought I was pretty good with money because as long as it was under $35, that was like my threshold, I figured I was doing pretty well and I didn't think that there were that many areas to cut. But after going over my records, I realized, you know, these things really do add up. So I just had to take this, you know, no holds barred approach. WILLIS: And we were just seeing a list of those just a second ago, the nail salon, the hair salon. I know how it goes. What are you doing now to cut back? How are you able to spend less?
MCNEAL: Well, basically, like I had a girlfriend help me do my hair for this segment. With my nails, I just don't worry about them not being done as more. With getting my eyebrows arched, I got them done in January, before I started the experiment, do I just do it at home and follow along with what had been done before at the salon. So I've just been managing it. It's been going well, though.
WILLIS: Well, have you failed? I mean was there any point where you just couldn't help yourself and had to spend?
MCNEAL: No because I've been look at my account and I like the way it looks and I've just noticed such a major change. And because I blog about it every day, a feel like I have hundreds of readers who, if I failed, they would be so disappointed. I've had a lot of support from people within the newsroom and just from readers in general. So I don't want to let people down. So it's been a good experiment.
WILLIS: Well, I have to tell you, you look great. You don't look like you're suffering because you're spending less money.
MCNEAL: Thank you.
WILLIS: Tell us a little bit about where you're writing about this so folks can catch up with you. Because it's a great experiment and I think people would like to hear how you're being successful so they can take those lessons and apply them in their own life.
MCNEAL: Well, you can reach my blog, it's called "The Frugalista Files" and it's at miamiherald.com in it's in the business section of the paper.
WILLIS: Well, Natalie, thank you so much for that. And I think we're going to be checking back in with you on Friday for an update on how it's all going. We look forward to that.
MCNEAL: Well, thank you so much, Gerri.
All right. Up next on CNN's FINANCIAL SECURITY WATCH, we're going to go back to Rick Sanchez, who's standing by at the Consumer Credit Counseling Service right here in Atlanta. You see him right there. And we're going to be taking your phone calls, answering your questions about debt.
Now let me give you that number again. It's 866-792-3399. Call in. Don't be embarrassed. We want to talk to you. We want to hear about your problems with money. We've got solutions, coming up next.
WILLIS: A little earlier in the program we checked in with CNN's Rick Sanchez live at the Consumer Credit Counseling Center.
Rick, what's the feeling there?
SANCHEZ: You know what this is, Gerri? I mean, this is how the folks here explained this building -- this room that I'm in right now. This is a financial emergency room because the people who are calling here are in a crisis. Maybe not a severe medical crisis, but certainly a big crisis in their life. They say this is one of the most difficult phone calls that anyone can have to make to a counselor like this to tell them that they are in really dire straits, that they're having a tough time making ends meet and that they're at risk of losing their home.
We talked about the number a little while ago. I mean the folks that these people are talking to, last year in January, 800 phone calls from people like that. This year, 3,600. Now that's an awful big number. So they're talking to people about all kind of problems.
Sue Hunt's joining us now. You're one of the managers here for these counselors.
SUE HUNT, HOUSING COUNSELING MANAGER, CCCS: That's right.
SANCHEZ: And, you know, look, for a long time people have had these kind of problems because there's divorces, there's medical problems. But now we're seeing a couple of other variables come into the equation. One of them is inflated costs.
SANCHEZ: It costs you more to get gas.
SANCHEZ: It costs you more to do things. So, as a result, it's hard to make that -- you know, pay that nut for your mortgage. But the other thing that we've been talking about, I think Gerri was having a conversation just moments ago with the Reverend Jackson about this, a lot of people are seeing their interesting rates escalate.
SANCHEZ: What kind of conversation are you getting on that?
HUNT: We're getting a lot of calls from people who went into adjustable rate mortgages two or three years ago and now those interest rates are increasing. And what's happening is, it's sticker shock. They had no idea how much those prices were going to increase in their mortgage payment and they're already paying increases in gas prices and increases in food prices and other costs of living.
SANCHEZ: They call you. But sometimes not soon enough?
HUNT: Right. Well, sometimes they wait until they're three or four months past due before they call us, and that makes it more difficult for us to help them find a solution. We find that if people call us early, like as soon as they're worried that they might not make that first payment, that's the time when we can be of most assistance to them.
SANCHEZ: Well, we were talking earlier and you said, and this is interesting, Gerri, because we gave you that number, it's 3,600 people.
SANCHEZ: Of those 3,600, can you give us a breakdown of how many you were able to salvage?
HUNT: What we find is, if people call us before they're three months delinquent, we can help about 75 percent of the people that call us avoid foreclosure on their home.
SANCHEZ: Seventy-five percent. Seventy-five percent is a pretty good track record.
HUNT: That's right. We're really proud of that.
SANCHEZ: What's it like when you get phone calls from these folks because, you know, there's got to be an emotional component to this?
SANCHEZ: I imagine there's a lot of tears on the other end of the line.
HUNT: It's an amazing process. So many people who call us, it's the worst day of their life, as you said earlier. And we have a lot of tears and a lot of anger and a lot of emotions to work through before we can help them.
SANCHEZ: But if they don't call, if they don't call, it's only going to get worse.
HUNT: It only gets worse. They say that 50 percent of the people who lose their homes to foreclosure never talk to their lender or a credit counseling agency to get help. And we believe that we could have helped them -- many of those people avoid foreclosure.
SANCHEZ: Sue Hunt, you're wonderful. You guys are doing great work. We appreciate your time.
SANCHEZ: And what's interesting about this is, it's really a matter of steps. Once someone calls and, as she said, is maybe two or three months behind, what they need to do is start the process rolling and talking to the lender. Perhaps even starting with something as simple as budgeting correctly. And that's what they help people do, as well as talking to their lenders for them. Gerri, back to you.
WILLIS: Well, Rick, thank you for that. And thanks to Sue Hunt. I know she does great work out there working with people. And a lesson learned from out there, 50 percent of folks in trouble with their mortgage never, ever even speak to their lender. You've got to make that phone call to get help. Thank you, Rick.
WILLIS: And, of course, we want to give you the chance to speak up, to be heard and have your questions answered. Back with us now to do just that's, Manisha Thakor, Lynnette Khalfani Cox and Greg McBride. We're on FINANCIAL SECURITY WATCH. Let's go straight to our first caller.
Barbara in Pennsylvania, let's hear from you.
CALLER: My question is, there's going to be a change in my income and I do have some money put away in bonds and a couple of CDs and money markets for my retirement. And I was wondering if it would be better to take the money that I have in the bank and pay off my mortgage and save that $15,000 a year in interest or to keep that money where it is. It would just be easier to make a lower house payment or no house payment at all.
WILLIS: Right. Right. Well, paying off your mortgage can be a good idea, but you have to be making something on your investments as well. It's a real comparison there.
Greg, why don't you jump in with this. It's an interesting question. When do you pay off your mortgage and when don't you pay off your mortgage?
MCBRIDE: Well, two things you have to look at. First, what is that mortgage costing you in terms of the interest rate relative to what your investments are earning. But the other thing that you have to consider is, you cannot sacrifice your financial flexibility in the name of paying off that mortgage because the mortgage, if you pay it off, that money's then tied up in your home. You can't access it easily in an emergency as you could if you had that tucked into an emergency savings account or other short-term investments.
WILLIS: Well, that's absolutely right, particularly now when we could be going into a recession, you want to make sure you have some free cash flow, that you have some money on the sidelines in case the worst happens, you lose your job, to pay, you know, your regular expenses each and every month. Great answer, Greg.
Let's go to James in Atlanta. James, are you there?
CALLER: Yes, I'm here.
WILLIS: Go right ahead with your question.
CALLER: I have a student loan question. I've got $75,000 in student loans. And then my question is, should I just make the minimum payment over 10 years or just try to pay ahead because I'm in law enforcement and then if I make a minimum payment in 10 years, I can do a federal loan forgiveness program.
WILLIS: Interesting question. I believe what he's asking here, Lynette, is, I've got $75,000 in student loans. Very typical. People have high student loan debt. It's a real problem for folks out there. What's the best way to pay that down? Do you pay it down fast? Do you pay it down slow? What do you think, Lynnette?
KHALFANI COX: Well, I think that you pay it down as quickly as you possibly can. You know, sometimes people say, don't worry about student loan debt because it's a quote/unquote good form of debt. And I say, listen, anything that's an albatross around your neck, you want to get rid of as soon as possible.
He has an advantage because as a law enforcement officer or somebody who has the potential to work for a government agency, he actually might be eligible to have up to $60,000 worth of his student loans paid off by the federal government. There is a program . . .
WILLIS: I like that. That's great news.
KHALFANI COX: Absolutely.
WILLIS: How does that work, Lynnette?
KHALFANI COX: Well, it's the Federal Student Loan Repayment Program and it's administered through the Office of Personnel Management. Go to the government Web site. It's opm.gov and learn more about it. But in a nutshell, they'll pay off up to $60,000 worth of your student loans for you, up to $10,000 a year if you're willing to work for a federal government agency.
WILLIS: Well, and that is the kind of answer I like to hear.
Manisha, I want to get to you for a second here because I know people out there are worried about the economy, they're worried about their jobs, they know they've got climbing debt. What is the first step that you would tell people to take out there who are concerned about the future?
THAKOR: I think the most important thing is to remember the three most powerful words in personal finance are start saving now. So as painful as this environment is, in a way it can be a blessing in disguise because it can force you to get back to where Americans were 20 or 30 years ago where we're not today, which is living within our means.
WILLIS: Right. Well, and that is a great idea and it's not something that we always think about. Thanks for reminding us. Thanks to the panel.
More of your phone calls coming up next. Plus, a way to deal with the stress of debt. We know it's getting to everybody out there. We'll be right back.
WILLIS: We're back on CNN FINANCIAL SECURITY WATCH.
Manisha Thakor, Lynnette Khalfani Cox and Greg McBride, they're all here helping us answer your questions about money.
Let's go right back to the phones. We have Shelley in Michigan.
Shelley, what's your question? Shelley are you there? It doesn't appear that we have Shelly right now. Let's try to move on to Lashawn in New York.
Lashawn, are you there? Hello?
WILLIS: Hello, hello. Do I have Shelley or Lashawn.
CALLER: This is Shelly.
WILLIS: Oh, Shelley, go right ahead. We're glad to hear from you ask your question. Ask your question.
CALLER: Hi. Hi. It's kind of lengthy.
CALLER: I went through a foreclosure last year. I rented a town home for $1,500 thinking that if I were able to show the bank that I could pay this for a few years, that they would look favorably on me and lend to me again. It doesn't seem like that's the case now because things have changed so. Now I'm thinking of going into a cheaper apartment of $800 and then taking extra money, some of the extra money, and putting that towards my 401(k).
WILLIS: All right. OK. Well, you know, I'd like start here with Greg, I think. Let's talk a little bit about when you go into foreclosure, when do the bankers start thinking, if you can prove that your paying your bills on time after that, that you're going to be a good credit risk again? When do they become comfortable with you as a borrower?
MCBRIDE: In this credit environment, where risk is being viewed through a different lens, it's going to take a lot longer than if that foreclosure had happened, say, four or five years ago when we were in a comparatively easy credit environment. I do commend her idea about putting money into the 401(k).
Build a financial base for your future, but don't ignore that emergency savings. You need to build that up so you can better weather those debts the next time around, whether it's homeownership or any other form of borrowing she does.
WILLIS: She's also got to think a little bit about if she's going to move to, you know, lock into a lower rent, she's going to have moving costs. She's probably going to have to put down, you know, some other kind of down payment. There are going to be costs involved with that and she's going to have to do that math and see if it actually makes sense.
Lynnette, did you want to weigh in here?
KHALFANI COX: Yes, I really did because, you know, one of the things that a lot of renters need to know is that, even if you don't have a traditional form of credit to show you're not paying a car note or you don't have a credit card or you're not making a mortgage payment, there are ways to establish your credit record without taking on debt. You know, there's a great resource out there for all consumers called Payment Reporting Builds Credit.
Again, a great Web site for consumers to go to prbc.com. Essentially you enter in your information for your utility bills, your cell phone payment, your rent that you're paying for your townhouse. You use those nontraditional means as a way to establish credit and to show lenders that you are a good credit risk.
WILLIS: Lynnette, great advice.
Let's move on to the next caller. It's Lashawn.
Lashawn in New York, go right ahead.
CALLER: Hi. I was wondering, I have a lot of debt. And I had a daughter in 2007. And it was an emergency, so I have some medical debt. I also -- that also led me to be late in a lot of my credit card payments and I co-signed a car loan for my sister which she's not -- she's not making her payments, so I'm obligated to pay that. Upon returning to work, I've been back to work four months now, I already have both credit card and the automobile loan garnishing my check. I'm only working part time right now and I was wondering, should I file for bankruptcy or I don't know what to do at this point.
WILLIS: Wow, that is a tough situation. You know, I think we all feel for people in Lashawn's situation. Not employed full time, facing a lot of debt. Manisha, what would you say would be the best solution for Lashawn right now? What should she focus on? I hate to send people to bankruptcy court.
THAKOR: As well. Lashawn, I think the first thing you want to do is make sure that you're making your minimum monthly payment on all your bills because that will at least help establish a solid foundation for your credit score. I think you're a classic candidate to go talk to somebody at credit counseling and I encourage you to self-educate about personal finance. There's some wonderful books and magazines out there which can help you make smart choices when it comes to spending your money in the future so you don't end up in a hole like this again.
WILLIS: All right. You know, and just another word for Lashawn, you can fix this. It's possible to find your way out. That's why we're here today, to help people find answers.
I want to thank Manisha, Lynnette and Greg. Thank you for being with us today. Every caller we spoke to today will receive a copy of my new book, "Home Rich." For more on "Home Rich," log on to cnn.com/openhouse. And, hey, if you didn't get through today, and I know there are a lot of folk whose did not, make sure you e-mail us at FSW@cnn.com.
Up next on CNN FINANCIAL SECURITY WATCH, the mental and physical side of debt and action you should be taking right now to deal with them.
WILLIS: Debt is not just about the money that you owe. Being in debt can cause a great deal of stress, physical, mental effects that you really shouldn't ignore.
CNN medical correspondent, Elizabeth Cohen is here with more -- Elizabeth.
ELIZABETH COHEN, CNN MEDICAL CORRESPONDENT: You know what, stress is a whole body experience, Gerri. It can affect you in so many different ways. People know it affects your head. They forget that it affects the whole body. So we're going to go through several different ways that stress can affect you so that people will take care of it and not just suffer.
WILLIS: Good. I like this.
COHEN: First of all, it can affect your jaw. I'm sure you've heard of TMJ. That's a problem that people have with their jaws and they end up wearing these horrible things in their mouth and whatnot. It can affect your jaw.
It can affect your heart. Stress can make your blood pressure go up. High blood pressure is bad for your heart and it can affect your digestive system. In other words, what can happen there is people get ulcers, people get problems with heartburn and it can affect, as we said, the whole body. And the reason for that is, as we said if that little factoid we had, is that it keeps people from sleeping. If you're not sleeping, your immune system isn't functioning right. So it really affects everything.
WILLIS: All right. So what can you do? Now I know some people say, go to the gym, blow off some steam, that will relax you. What's the best solution?
COHEN: You stole one of my tips.
WILLIS: Oh, good. Good, I'm doing it right. OK.
COHEN: But, that's right. You're doing something right. you're doing something right. But let's talk about a bunch of different things that you can do on your own without consulting a professional to help limit stress. And so the first thing that you can do is express yourself. Talk to someone. Talk to a friend. Write it out. Do a little stress dance in the living room. Just something. Just express yourself.
WILLIS: I love the stress dance. COHEN: Get it all out. We can do one right now, you and me, in the middle of the newsroom.
Also, manage your time well. If you're always feeling like you're running behind, that's not good. That's going to add to your stress. Get rid of what you can so that you're not always running behind. Relax whatever you can.
WILLIS: Deep breaths.
COHEN: Deep breaths. Do something. Yoga. Something.
WILLIS: You know, just distracting yourself sometimes is a great way to go.
COHEN: Yes. Act like that stupid sitcom from the 1970s. That's what I do. Just plant yourself in front of one of those. It works every time.
Exercise is really crucial and so is spending time with positive people. If you're stressed out because your house is being foreclosed, don't hang out with other people in the same situation. Hang out with some rich people, you know. Hang out with someone else.
WILLIS: That can be tough to do, but it's great advice to find folks who are upbeat about what to do and what steps to take next.
Elizabeth, thank you so much for helping us out today.
WILLIS: We want to thank you for joining us for the very first CNN FINANCIAL SECURITY WATCH. We'll be back here tomorrow, same time, 12:00 p.m. Eastern. The latest on a Senate debate to change bankruptcy rules coming up then. Plus, how to make sure you're not the victim of mortgage fraud.
That's on tomorrow's FINANCIAL SECURITY WATCH at noon Eastern.
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