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Wednesday, Jul 11 2012 05:41 PM

Kern consumers plagued by multiple types of debt

BY REBECCA KHEEL Californian staff writer rkheel@bakersfield.com

Medical debt, student loans and home mortgages are weighing on Kern County consumers, who have worse credit on average than their national counterparts, according to a report on debt released Wednesday.

On Wednesday, CreditKarma.com, a free credit report website, released a report of June's credit climate. It examined five categories: credit score, credit card debt, home mortgage loan debt, auto loan debt and student loan debt. Local experts also listed medical debt due to lack of insurance as a concern in Kern County.

Credit Karma found that while credit card debt is going down nationally, so are credit scores. In Kern County, credit card debt is lower than the national average, but credit scores are, too.

"My sense is that probably more people are defaulting on their credit card debt," said Ken Lin, CEO of Credit Karma. "Which means that their credit scores drop, and what they defaulted on no longer shows up as debt."

Credit Karma's data is based on a sample of more than 600,000 of its 6 million registered users. The Kern County numbers are calculated based on the ZIP codes users provide.

Nationally in June, credit scores averaged 655. That is six points lower than in January. Credit card debt averaged $5,576. That is 8 percent lower than in January. Credit scores can range from 300 to 850 on Credit Karma's scale.

In Kern County, credit scores averaged 635. And credit card debt averaged $4,147.

Here's how Kern County compared to the rest of the nation in the remaining three categories:

* For home mortgage loan debt: $181,760 in Kern County vs. $166,325 nationally.

* For auto loan debt: $17,402 in Kern County vs. $15,818 nationally.

* For student loan debt: $25,171 in Kern County vs. $29,390 nationally.

If someone in Kern County were to have all types of debt listed in the report, that would add up to $228,480.

"For certain, there are those people out there," Lin said.

Credit scores are what Lin called a "lagging indicator." That means after an economic downturn, they do not immediately drop because people can still pay their bills from savings and by collecting unemployment benefits.

"Even though the economy is rebounding, it's going to take a while for credit scores to bounce back," Lin said. Credit scores should start going back up by the end of the year, he added.

John Emery, dean of Cal State Bakersfield's School of Business and Public Administration, said the results are not surprising.

What's most distressing to him is that student loan debt exceeds credit card debt, he said.

"Ouch," he said, when he heard Credit Karma's findings that student loan debt in Kern County averaged more than $25,000.

Still, Kern County's student loan debt is lower than the national average. It is also lower than the average in California, $29,067.

There are a couple of reasons Kern County's students may be accumulating less debt than students elsewhere, Emery said. First, California still has a comparatively cheap public education system. Second, the large Hispanic population tends to have a cultural distrust in banking, he said.

"A lot of students are what's called 'stop-outs,'" he said. "They take a semester or a year off to work so they can save up money to pay tuition instead of taking out loans."

Chris Aasness, a local accountant, said most of his clients with debt have mortgage debt. Medical debt, which Credit Karma did not calculate, is also an issue, he said.

Mortgage debt is not necessarily bad, he said, if the monthly payments are manageable. But some of his clients got into unmanageable debt by buying homes or refinancing right before the housing bubble burst.

For example, one of his clients bought a house with land at the height of the market. The client then owed $1 million on the property and had to short sell it, or sell it for less than he owed.

"So many people are upside down, underwater on homes they bought at the wrong time and now the value's down," Aasness said. "Those are the people I feel bad for."

As for medical debt, he said people get into that when they do not have insurance. In Kern County in 2010, an estimated 180,290 people, or 22.2 percent of the population, were uninsured, according to the most recent data from the U.S. Census Bureau's American Fact Finder.

Aasness cited one client who recently had to have heart surgery. The client has to pay about $200 a month to chip away at the thousands of dollars in medical bills.

Medical debt and credit card debt tend to go hand in hand, said Courtney Clerico, a certified credit counselor for Consumer Credit Counseling Service of Kern and Tulare Counties.

"People with medical issues start living off their credit cards," she said.

She's seen people with a combined medical and credit card debt of more than $200,000, she said.

In the last year, at least 470 of Consumer Credit Counseling's clients filed for bankruptcy. That's because many came in for help after it's too late, Clerico said.

"When the recession hit, people didn't focus on budgeting," Clerico said. "No one had the tools or the know-how to tighten their bootstraps. And they use their credit card to keep up the same lifestyle."

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