Sunday, November 30, 1997

Young deadbeats pose problems for credit-card issuers

By SARAH MCBRIDE / The Wall Street Journal

Calls from bill collectors don't faze Drew Hart, 26 years old. On a recent night, he tells one credit-card issuer that he'll get around to paying his $200 bill later, rather than write a check on the pay from his $40,000-a-year job in Washington. "Nothing personal, I just want to veg out and watch TV tonight," he says. After all, he's filed for bankruptcy before.

Mr. Hart epitomizes a tough challenge for credit-card companies: the deadbeats of Generation X, dazzled by easy credit and unabashed by financial obligations. For this small group of people in their 20s and early 30s, dunning letters are merely pesky disruptions, and bankruptcy is an acceptable debt-management technique.

"I have no problem putting off my bills for something more important," says Mr. Hart.

Though any large group has its share of deadbeats, young people's share is growing especially fast. And credit-card companies have grown so worried about the problem that they're starting a public-relations push to teach Gen-Xers fiscal prudence and to rein in their spending.

According to the Federal Reserve, the median debt for people under 35 rose 32 percent between 1992 and 1995, faster than the rates for most older groups. The debt tally, which includes student loans and home mortgages, rose to $15,200 per household -- often, in this group, a household of one.

With 8.8 percent of debtors under 35 at least 60 days behind in their payments of all kinds of debt, they are the most likely to be considered delinquent. And more are choosing bankruptcy; a Visa U.S.A. Inc. survey of 1996 filers found 8.7 percent were under 25. A few years ago, bankruptcy experts say, the share was about 1 percent.

Of course, most of the under-35 generation does manage bills responsibly; Visa U.S.A. says 56 percent of all college students pay up in full each month, compared with 40 percent for all cardholders. And, with fewer mortgages, young people don't carry as much total debt as other age groups. Yet backsliders make up a growing portion.

It's hard for Christian Robeson, 31, to remember just how she racked up $16,000 on her 10 or so cards before she declared bankruptcy in 1995. "Just stuff," she says, though she does recall a Hawaii vacation, a mountain bike and Oakley sunglasses. She put nearly $45,000 in loans for undergraduate and master's degrees on her card. She also used her plastic to make car payments on a new Toyota. "I was a 21-year-old with a $30,000-a-year-job going, 'Yeah! Credit cards!' and not really having learned how to save," she says.

Tara Bitschenauer, 23, of Springfield, Ill., declared bankruptcy in the fall of 1995 just after she had a baby. She was $9,000 in debt from a combination of a car loan, credit cards, and medical bills. Her 25-year-old boyfriend, himself in $60,000 worth of debt from a failed business, couldn't help. A few months later, she easily secured another car loan to purchase a used Ford Taurus. "I was kind of surprised," she says. "I didn't think I could get financed."

One bankruptcy expert sees the easy availability of credit as a big part of the problem. "Younger people were underrepresented before because they didn't have credit," says Alexander Gordon IV, a bankruptcy lawyer in Easton, Md. Now, people in their early 20s can amass "a significant amount of credit, far in excess of their ability to pay," Mr. Gordon says. When itemizing assets, he says, some of his young clients include their available credit on charge cards.

Some credit-card companies point out that the rise in youth debt doesn't stem entirely from their marketing to young people. "The onus is on the student to manage the credit card," says Carolyn Bretschneider, a spokeswoman for Visa U.S.A.

But the industry, which faced criticism about its marketing in recent Senate hearings, is taking a bigger role in educating youngsters about credit. "The industry has a commitment that we educate these young people, so they use their cards wisely," says Charlotte Newton, vice president of consumer affairs for MasterCard. The burden rests equally on parents and schools, she adds.

The efforts include MasterCard commercials, aired on MTV, that show a young man's possessions disappearing one by one. A voice threatens: "If you max out on your credit card and buy things you can't afford, you won't have anything to worry about." Visa is touring a new financial-management game show around college campuses this winter. Meanwhile, Sears has launched a starter card with extremely low credit limits and constant reminders to pay on time.

Dwayne Heisler, co-owner of Remit Corp., a collection agency in Bloomsburg, Pa., spends hours on the phone trying to cajole youthful debtors into paying. Along the way, he has to dispel a lot of half-truths. One recent Monday, Mr. Heisler tried to get a young man on the West Coast to pay his $1,269.23 credit-card debt. The borrower replied the charges are several years old and his liability for them will soon expire. "By law, it's only seven years," he said with authority.

But Mr. Heisler points out that while overdue accounts stay on credit records only seven years, collection agencies do have other options. If the debt leads to court action, Remit could arrange to dock the borrower's wages or have a sheriff sell some of his property. Mr. Heisler doubts his warnings will convince the young man. "He thinks it's going to go away, and it's not," he says.

Mr. Hart, too, figures nothing terrible will happen as long as he eventually pays his bills, interest and late charges, and doesn't let any single debt exceed a few hundred dollars. Late fees and interest are simply the price of convenience, the way he sees it.

He adds that creditors have themselves to blame, at least in part. "They make it too easy for you," he says, recalling the many credit-card applications stuffed into shopping bags at his university bookstore or flapping from campus bulletin boards. Though he didn't have any income, he got 14 charge accounts, including a gold card from American Express.

In 1991, he wiped out $20,000 in creditcard debt by filing for bankruptcy under Chapter 7 of the Bankruptcy Code. Though he never showed up in court to complete the process, creditors couldn't pursue him because he went overseas with the military. Now, Mr. Hart has few regrets about running up big bills. "It's not that hard to rebuild your credit," he says.

Still, there's some faint hope. Mr. Hart believes his recent acquisition of a springer spaniel named Fox will force more responsible behavior. And if he found a significant other, he says, he'd shape up quickly because "I don't want to be a deadbeat on dates."