Many of us who are still doing time as renters yearn to join the ranks of home buyers someday. A major life transition -- marriage or children, for example -- or a coup at work such as a promotion or raise may provide the impetus for us to try to make that dream a reality. And many first-time home buyers can't take the rose-colored glasses off long enough to consider the myriad of responsibilities -- not the least of which is financial -- that they're about to assume. The American Collectors Association perhaps knows better than any organization about the ramifications which sometimes befall hasty home buyers.

The Minneapolis-based American Collectors Association (AMA) is an international trade organization of third-party debt collection businesses. AMA President James Henry has some sage advice for house-hunters. Granted, these tips may sound familiar, but they're well-worth repeating. And for prospective home buyers who shun advice, the AMA has some startling statistics to pass along. Those who jump into a major investment, such as a home, without all of their bases covered first could add to the growing numbers of debt-ridden in this country. Although it goes without saying, "Purchasing a home is a huge enterprise," Henry says. "By planning ahead, you can help avoid financial difficulties as a result of the purchase."

The following are some tips from ACA that may help when you are planning to purchase a house:

• Create credit. Start establishing a good credit rating long before you ever plan to purchase a house. This means paying your bills on time and using credit wisely. Most people are not able to purchase a home with cash up front and will need to seek financing. A poor credit rating could cause you to be turned down for a loan or to get approved for less money.

• Save. Start a savings plan that will help you handle some of the financial burden of owning your own house. There are many hidden costs when buying a home, and you should prepare for these expenses.

• Make a budget. Decide how much you will be able to afford for monthly payments. You may want to meet with a specialist to help you create a financial plan.

• Be aware of additional expenses. There are many other expenses you should be aware of when purchasing and owning a house. These include property taxes, utility costs and hookup fees, maintenance, moving costs, and closing costs. These additional expenses can add up quickly and may take you by surprise if you are not prepared.

• Get help. It often helps to get advice from a family member or someone who has recently gone through the experience of purchasing a house. They can be the best sources of information about problems or surprises you may experience. Have friends or family suggest a good Realtor.

• Owning your own home brings a lot of new responsibility and financial obligation. If you are prepared and plan ahead, the experience can be positive and rewarding. The most important thing is to think ahead and prepare for all possible factors, from securing a loan to paying for the house in the years to come.

The following statistics, provided by the AMA, provide some eye-opening perspective into the ramifications of outstanding debt in the United States:

• Bad debt costs every man, woman, and child in the United States $375 per year. This means that a family of four pays $1,500 more for goods and services during the year.

• In August 1997, outstanding consumer installment debt totaled $1.2 trillion, a 5 percent increase over August 1996.

• According to the National Foundation for Consumer Credit, 54 percent of people surveyed said it is tougher to pay their bills today than it was three years ago. And 89 percent said it was easy to get into debt today because of the availability of credit.

• For the first time in the history of the U.S. courts, bankruptcy filings surpassed the 1 million mark, or the equivalent of about one for every 105 U.S. households, in a single 12-month period ended June 30, 1996.

• In the first half of 1996, $32.7 billion was added to the nation's credit-card balance sheet, according to the Federal Reserve. This follows 1995's $77 billion increase.

• More than half (53 percent) of consumers surveyed by the Bankcard Holders of America said they were in debt due to overspending. Medical bills, college expenses, and job lay-offs were the top three reasons cited for overspending.

• There were 501.8 million active credit cards in force in second quarter 1996, compared with 456.1 million in the second quarter 1995, according to Card Management Information Services.

• A recent study by the American Bankers Association found that check fraud cases reported by the banking industry increased from 537,000 in 1991 to 1.3 million in 1993, the most recent year for which national statistics are available. Dollar losses associated with that fraud increased 40 percent, from $568 million to $850 million.

• Professional, third-party collection agencies collected and returned more than $20.4 billion to the U.S. economy in 1996.

Published: March 13, 1998

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