December 5, 2008

Crazy lady named Dawn on Suze Orman

The other week we were watching Suze Orman show and she had a guest on named Dawn. Dawn is a woman in serious debt. She had $230,000 in credit card debt. Her house was mortgaged to the hilt up to $900,000. Their household income was $9,000 per month take home (after tax) and they spent $19,000 a month. That's a monthly deficit of $10,000!

It is very hard for me to see how someone could spend $19,000 a month. I don't recall the show giving too much detail on how exactly they managed to spend $19,000 a month. They probably pay around $10,000 a month or more on their debts. So that must be the bulk of it. But still that leaves another $9,000 or so a month they're spending. They showed video of their house and the back yard was landscaped to the hilt with nice rock paving stones, a pool with waterfalls, nice BBQ area and get this.. 2 large screen TVs outside. The woman did say she spent money on diamond jewelry and was upset she had missed the opportunity to buy a ring for $2,500 just the day before appearing on Suze Orman show.

So then Dawn gets on Suze Orman's show and asks what to do. She said her husband was thinking of declaring "BK". She said it like that "BK" rather than calling it Bankruptcy. I guess thats part of the lingo of the ultra financially irresponsible, words like Bankruptcy must be used enough that you feel a need to contract them to save time. (Sigh)

Their over spending speaks for itself. This was a pretty extreme example but its common enough for people to spend more than they make and accumulate debt. For Dawn, she was clearly living beyond her means and the debt kept piling up. Its a common story just taken to a sick extreme. Most of us aren't anywhere near this bad. Around half of Americans do not have credit card debt. According to the 2004 Survey of Consumer Finances only 46% of Americans had credit card balances and among those people with a balance the average debt was $5,100.

The worst part of it though was that Dawn refused to change anything. Suze recommended that they sell the $900,000 house immediately and find a 2 bedroom apartment to move into. The woman's answer was "not going to happen". I don't know what the woman thought would happen. Its not as if Suze could pull out a magic debt eraser and fix everything so she could keep on spending a lot more than she made. I was shocked at the woman's total desire to actually make any changes to her life or spending. But I guess I really shouldn't have been shocked. You don't get into that situation by being smart or responsible so I don't know why I should expect any responsibility now. It was still just amazing to see someone who was in such heavy debt and in denial about it.

Suze did say that they probably made too much money to actually qualify for a bankruptcy. I felt that was good news. I'd hate to see someone so irresponsible get a clean slate so easily. They'll lose their house to foreclosure before too long and the bank will eat a bad debt that they shouldn't have lent out. Then the credit card company will hound them for payment. If Dawn and her family doesn't change their ways then their creditors will force them to shortly.

The people who lent them that much money should have known better. Frankly those companies deserve to take a loss. Irresponsible lending is part of the problem we've had. If banks were more responsible and cautious about who they lent to then people wouldn't have been able to acquire all the bad debts they have.

This is just another example of how spending more than you make can lead to ruin. You can't spend more than you make forever and eventually it will come to an end. Dawn should find that out before too long when the bank takes the house.

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