$143 MILLION A DAY ON CREDIT CARDS U.S. ON PLASTIC BINGE AS BANKRUPTCIES SOAR

Just in case you missed it: The Federal Reserve reported this month that consumers went on a spending binge in August, adding $4.3 billion to their credit card balances.

“Spending binge” actually puts it mildly. Consumers went into a plastic frenzy over the summer, running up $5.9 billion in July balances on bank and department store credit cards. By the end of August, annualized consumer borrowing rose to more than $1.36 trillion.

That’s created more work for financial planners. Many say their toughest task is leading credit junkies down the path to reform.

“I’m not surprised,” says Victoria Long, a financial planner and faculty member at the College for Financial Planning in Greenwood Village, Colo. “Any time the economy is strong, that’s when people spend more.”

Aside from an occasional period of market jitters, the economic news has been rosy lately. The Fed also reported last month that productions of cars and trucks had reached unanticipated levels.

In August, companies operated at an average 80% of capacity. Economists generally consider an 83% production level to be a signal of possible inflation.

Add in the historically tight labor market and rising wage levels and you end up with a society that’s having a blast: According to the Wine Institute, sales of still wine and champagne are at all-time highs.

Figures from the National Center for Policy Analysis show that 23% of

all auto sales today fall in the luxury car category.

Here’s the dark underbelly to this rampant consumerism: Last year, 1.3 million households filed for personal bankruptcy in the United States – a rate eight times greater than during the Depression-plagued 1930s. Untold millions of others may not be bankrupt, but they’re staring at mountains of credit card debt acquired largely through purchases of clothes, jewelry, vacations, fancy restaurant dinners and other things they could well live without.

“They think it’s always going to be there,” says Ms. Long. “They’re making good money, and they’re used to having what they want, when they want it.”

It might seem that consumers with lower incomes are more prone to have big credit card debts, but many financial planners say they find just the opposite.

“The higher the income, the worse the problem,” says Ms. Long.

Almost any planner can cite horror stories. Debra White Stephens, with Houston Financial Services, recalls a couple she recently counseled who were neck-deep in consumer debt. “They made well into the six-figure range every year,” she says.

Ricardo Thomas, a planner at Thomas Waddell & Associates in New Orleans, counsels a number of married couples in their early 30s who make substantial salaries between them. “In many cases, we find that couples are carrying $15,000 to $20,000 in credit card debt,” he says.

“And they may have at least three or four bank credit cards.”

Calculating how much the average person owes in credit debt is difficult. But A. Gary Shilling & Co., a Springfield, N.J.-based economic forecasting firm, estimates that between them, mortgages and credit card payments gobble up nearly 99% of the average family’s disposable income.

“Particularly for younger couples, it’s virtually paycheck to paycheck,” says Mr. Thomas.

In many cases, advances in technology have only helped make things worse. Mr. Thomas cites those handy bank ATM cards as a rapidly developing problem. Many of his clients actually use the cards so frequently that they lose track of withdrawals and spending.

“In many cases we’ve looked at, the ATM was a killer on household finances,” he says.

“They’re going to the ATM every day and pulling out $40 at a pop. That’s $1,000 a month right there, and they have no idea where the money went.”

In addition, consumers are constantly suckered by invitations from bank credit cards with low introductory rates. “They like to play credit card roulette,” says Mr. Thomas.

“They’ll jump from one credit card to another, to get that low interest rate for the first six months. Some of them do it again and again.”

The result: The consumer keeps charging, and ends up transferring an ever-growing balance from card to card.

It’s all pretty grim, and financial planners say that by the time they see some clients, too much damage has already been done. “If they come in early enough, sometimes you can salvage it,” says Ms. White Stephens.

Planners use varying strategies to help credit-addicted clients, but all tend to involve the time-honored budget process.

“I don’t want to use the ‘B’ word, but we have to get them on some kind of budget,” Ms. White Stephens says. “We call it a ‘spending plan.’ ”

Like many planners, Mr. Thomas has new clients fill out a questionnaire on their financial lives – how much they make and how they spend it, including a list of credit cards and debt balances. But he also tries to use the list as a tool, to make the clients think.

“It’s all about money, attitudes and behavior,” he says. “We try to get them to do a lot of soul-searching as we go through the process.”

“We have to have an agreement that they’re going to go on some kind of budgetary plan,” says Ms. Long. If her clients’ problems are severe enough, she may even take away their credit cards. “I don’t want to be someone’s mother,” she says, “but sometimes you have to play that role.”

Often, she says, runaway debt is the result of a runaway ego. That must be tackled first, before other progress can be made.

“The biggest problem is pride and ego,” she says. “If you can get beyond someone’s pride, you can help them.”

Ms. White Stephens starts off with new clients by looking for telltale signs of credit abuse. When she spots excessive spending for clothing, vacations, and the like, she’ll ask the clients to list their financial priorities.

“A lot of times, people will come in and tell you what their priorities are, and that’s not where they’re spending their money,” she says. “So you have to ask, ‘if your first priority is getting an education for your kids, then why are you spending all this money on vacations?’ ”

Often, she uses a psychological approach with credit junkies, and looks for other problems that may be causing the actual credit card abuse. “When there is a money problem, generally there is a psychological problem driving it, whether it’s their marriage, or something else,” she says.

If the problem seems severe enough, she will refer clients to a local psychologist before even attempting to address their financial situation. “I can make the numbers work any day of the week,” Ms. White Stephens says. “But I can’t do anything if they’re not willing to work outside of that behavior.”

Lack of communication is a consistent problem Mr. Thomas finds among married couples who have serious credit woes. His strategy includes encouraging couples to join him in talking openly and honestly about their spending habits and credit.

“With the rising number of two-income couples and the increasing independence of women, we’re finding more differences of opinion over how the money should be spent,” he says. “Often, this is the first time both parties have sat down and talked about this.”