If you’ve got your mind on your money and money on your mind, you may be in debt. When the Jones family (not their real name) walked into the Volunteer Income Tax Assistance (VITA) office at Arkansas Community Institute (ACI) this year, they were overwhelmed. Tax time was already stressful, but they were also dealing with several bills and debts. They were in a high-cost, rent-to-own home contract with a property owner who refused to make repairs. They weren’t sure how they would pay their bills, save the progress made on their home, and afford repairs they desperately needed.
According to a recent survey, 31 percent of Americans worry about their debt. Younger Americans are really feeling the pain. Nearly 70 percent of millennials say they’ve been negatively impacted by debt. About half of all baby boomers feel the same way.
The five most frequent sources of debt are:
For working families with limited income, debt can cause more than worry, it can be devastating. Most of these families have little savings and are unprepared to manage even a short-term loss of income without spiraling into unmanageable hardship. The National Center for Children in Poverty (NCCP) defines debt hardship as total family debt greater than or equal to 40 percent of total family income. Most families who live below the Federal Poverty Line (FPL) are facing debt hardship. As income levels increase, the rates of hardship decline considerably.
Race and ethnicity also play a factor. NCCP’s Asset Poverty and Debt Among Families with Children states that more than half of American families with children are “asset poor,” which means they lack the resources they would need to make ends meet if they lost employment income for three months. This number increases to a mind-boggling 80 percent for African American families. Families who are asset poor likely have to take on new debt or default on existing debt to weather a loss in income. Even in the middle class, African American and Hispanic families are more likely to file for bankruptcy than their white middle-class counterparts.
The Annie E. Casey Foundation (AECF) recently launched an initiative to provide grants, technical support, and space to learn as seven organizations tackle debt in their communities. ACI is one of them and is based right here in Arkansas.
With AECF’s support, ACI will learn how three kinds of debt affect people and how to reduce the negative impact on people of color:
Medical bills and hospital fees
High-cost consumer products, like payday loans and rent-to-own agreements
Criminal and civil judicial fines and fees
The Winthrop Rockefeller Foundation (WRF) has supported ACI for several years through its VITA initiative. What happens on Tax Day can have a huge impact on a family, and tax refunds can represent as much as 30 percent of a family’s annual income.
With WRF support, VITA sites across Arkansas help more than 1,600 people a year with taxes, counseling on housing options, financial security, and getting out of debt. Thirty-five percent of people who participated in WRF’s VITA site survey said they would use their refund to pay down debt. Organizations like ACI are helping Arkansans like the Joneses eliminate debt, prevent debt, and keep more of what they earn.
The tax service provided helped the Joneses avoid high-cost tax filing, claim tax credits they didn’t know about – like the earned-income tax credit (EITC) – and find opportunities to save a portion of their refund for the future. With the housing expertise at ACI, a review of the Joneses contract and records revealed that the property owner fraudulently signed and filed a document, giving title to the property to the family a few years ago without telling the family, and the owner continued to collect payments. ACI has helped the family keep the house and make repairs. And when the family is ready, ACI’s network of partners – with expertise in credit counseling, education, banking, and health – will help the Joneses navigate systems and make a plan to move from debt to lasting wealth.