From Opportunity to Burden:

Profiles of Low-Income Households Caught in the Credit Trap

Jennifer Lowe, PhD
Ruth J. Liberman, MPA
Charlotte Benishek

A publication of Crittenton Womens Union in collaboration with

Asian American Civic Association, City of Bostons Earned Income Tax Credit Coalition,
Heading Home, Jewish Family & Childrens Service, Lawrence CommunityWorks,
Jewish Vocational Service Boston, and Rosies Place

Crittenton Womens Union would like to acknowledge and thank the many people and organizations that
contributed to this paper. Without their advice, expertise, and data collection efforts, this paper would not
have been possible.
Advisory Group:
Matthew Paradise (American Consumer Credit Counseling)
Sunny Schwartz and Chris Albrizo (Asian American Civic Association)
Kathleen ONeil (Single Stop at Bunker Hill Community College)
Joanne Evans (City of Bostons Earned Income Tax Credit Coalition)
Mabell Fernandez (Compass Working Capital)
Sarah Savage and Claire Greene (Federal Reserve Bank of Boston)
Beth Lundberg and Kim Selby (Financial Planning Association of Massachusetts)
Kathy MacDonald and Sarah Delaney (Heading Home)
Meredith Joy (Jewish Family & Childrens Service)
Barbara Greenberg and Barbara Fern (Jewish Vocational Service Boston)
Arleen Zorilla (Lawrence CommunityWorks)
Tim Potsaid (LIFT)
Melissa Jones (Local Initiatives Support Coalition)
Lydia Nelson (Massachusetts Business Educators Association)
Dana LeWinter and Doreen Treacy (Massachusetts Community and Banking Council)
Margaret Miley (The Midas Collaborative)
Robert Hobbs and Chi Chi Wu (National Consumer Law Center)
Laura Lucas (The Neighborhood Developers)
Andy Morgan and Sana Fadel (Rosies Place)
Gail Sokoloff and Julie Burkley (United Way of Massachusetts Bay)
Kimberly Zimmerman Rand
Nika Elugardo
Consumer debt survey translation from English to Spanish by Alexia Bosch via the Boston EITC Campaign.
CWU Student Interns:
Josh Balk (University of Pennsylvania Law School)
Charlotte Benishek (Wellesley College)
Brian Bevilacqua (UMASS Amherst)
Jacqueline McMahon (Boston College)

Copyright 2014 Crittenton Womens Union

All rights reserved.

From Opportunity to Burden: Profiles of Low Income Households Caught in the Credit Trap

Terms Defined:
check cashers: an alternative financial institution
that will allow people without a bank account to
perform financial transactions such as cash checks
and pay bills, charging a fee for each transaction.
consumer debt: debt incurred through the
consumption of goods that do not appreciate in
value, including credit card debt, educational debt,
and medical debt.
credit report: a summary of an individuals past
credit activity, including payment history, defaults
or bankruptcies, and credit availability and use.
Often used by financial service companies, service
providers, and landlords to determine a persons
creditworthiness and assign a loans interest rate.
debt collection agency: a third party company that
specializes in collecting loans in default. The company
buys the loan from a creditor at a discounted rate
and attempts to collect all or part of the debt by
persistently contacting the consumer for repayment.
debt consolidation: the process of taking out a single
large loan with a relatively low interest rate to pay
a collection of smaller individual loans with higher
interest rates.

debt settlement company: a company (usually

for-profit) that negotiates a legal settlement to
resolve unsecured debt with creditors. Usually the
settlement is a lump sum payment smaller than the
original debt, and the company charges the consumer
a fee that is a percentage of the amount by which
the original debt was reduced. These companies have
been prohibited in Massachusetts since 1971.
default: failure to pay interest or principal of a debt
when it is due, usually triggering a debt collection
process.
payday lenders: for-profit lenders that provide
unsecured small, high-rate, short-term loans. The
consumer grants the lender direct access to their
bank account so lender can collect on the entire loan
directly. Operations are restricted in Massachusetts
because the functional interest rate of payday loans
usually exceeds the states legal maximum of 23%
APR.
subprime credit score: a credit score that is low
enough that there is serious concern that the
borrower will not be able to repay the loan.
unsecured loans: a loan that is approved solely on
the basis of a borrowers credit worthiness rather
than a form of collateral.

Crittenton Womens Union

Executive Summary
This school loan has really
impacted my ability to think about
furthering my education because
I am afraid that when I apply for
financial aid that they will turn me
down. Martin, 55
Crittenton Womens Union (CWU), in partnership
with an Advisory Group comprised of colleagues
representing over twenty social service
organizations and advocacy groups, set out to gain
a comprehensive understanding of the prevalence
of consumer debt among low-income adults in
Massachusetts. In particular, the goal was to
understand how debt impacts their efforts to achieve
economic self-sufficiency and to determine whether,
and which, policy recommendations can alleviate
barriers. Through a truly collaborative process,
CWU convened the Advisory Group to design the
project, drawing from group members experiences
and expertise in consumer debt and low-income
populations. Guided by input and advice gathered
from Advisory Group members, CWU designed a
consumer debt survey, which was administered
through nine social service providers in the Greater
Boston region. In order to further illuminate the
subject, CWU researchers interviewed a subset
of survey respondents about their experiences.
Statements from these interviews are included
throughout the report, providing personal examples
of the acute barriers consumer debt presents on the
journey to self-sufficiency.
An analysis of the survey results revealed that:
1) limited income, 2) costly financial services, 3) health
expenses, and 4) education expenses contributed
most significantly to the debts of low-income
individuals. Aside from the direct consequence

of rendering some people unable to afford basic

necessities, the consequences of debt affect diverse
areas of peoples lives, ranging from degrading
physical and mental health, to preventing some from
accessing post-secondary education, to acting as a
barrier to securing employment. Some respondents
with debt and limited financial education also fell
victim to harassment by debt collectors, solicitation
by predatory for-profit debt settlement companies,
and were driven to seek costly alternatives such as
check cashers and payday lenders all of which may
further damage their already blemished credit history
or even cause them to accumulate more debt.
Given the acute and pervasive negative
consequences of consumer debt among low-income
households, we urge multiple policy changes to
counteract the downward financial spiral that debt
creates. The following policy recommendations are
designed to encourage a more equitable system for
dealing with consumer debt, especially for lowincome individuals.
CWU and its partners offer the following four
recommendations to help Massachusetts residents
combat the negative effects of consumer debt:
1. Support legislation to limit the use of employment
credit checks for hiring purposes,
2. Support legislation to protect consumers from
credit collection and debt settlement industry
abuses,
3. Support legislation to limit health care debt,
4. Support efforts to increase the financial capability
of consumers by helping them build the knowledge
and skills to manage resources effectively.

From Opportunity to Burden: Profiles of Low-Income Households Caught in the Credit Trap

I. Introduction
Read the fine print. Dont trust a
smile and a quick hand. If they keep
throwing papers at you to sign, not
good Youre going to be in debt
for the rest of your life.- Donna, 34

Donna is a single mother living in Boston. Several

years ago, after seeing persuasive advertisements
by a for-profit college that guaranteed she would
have a job upon completing its medical billing
program, she enrolled. The admissions counselor
instructed Donna to sign papers she was told would
give her money for school. She earned an associates
degree, but no job placement from her school,
which ultimately closed its Boston campus. Only
after graduating did Donna realize that she had
taken out more than $25,000 in student loans with
interest and fees she did not expect to mount so
quickly. With no clear prospects for employment, a
child to care for, and interest and penalties rapidly
accruing on her student debt, she began to use
credit cards to pay for basic needs. Donna feels
her poor credit from defaulting on student loans
presented a barrier to securing employment, as many
employers increasingly require credit checks. She also
attributes her employment struggles to employers
lack of regard for her degree from a for-profit school
with a dubious history. Today, Donna struggles to
maintain her physical and emotional well-being, and
is stretched to pay for even the most basic personal
care items such as toilet paper. She reports that her
growing debt situation severely impacts her mental
health sometimes being stressed to the point of not
sleeping for consecutive days.
Donnas story illustrates a few of the many ways that
consumer debt presents seemingly insurmountable
barriers for low-income adults striving to achieve
economic self-sufficiency. Crittenton Womens
Union (CWU), in partnership with an Advisory Group
comprised of colleagues representing over twenty
social service organizations and advocacy groups,
set out to gain a comprehensive understanding of
the prevalence of consumer debt among low-income
adults in Massachusetts. This partnership sought to
understand how debt impacts the efforts of lowincome adults to achieve economic self-sufficiency,
and to discern how policy changes could help people
like Donna, for whom overwhelming debt is a barrier

to achieving economic self-sufficiency. Surveys

administered by nine social service organizations1
and interviews conducted by CWU have revealed that
debt can present a direct barrier to employment and
post-secondary education. Debt can also contribute
to stress and diminished well-being, cause familial
strain and embarrassment, and severely restrict ones
ability to meet basic needs such as obtaining food,
shelter, and medical care.
While survey respondents targeted for this research
were low-income, with an average annual household
income of $19,380, which falls $710 below the federal
poverty level for a family of three, consumer debt
and the barriers it creates are not limited to those
in poverty. These problems affect an economically
diverse population including many middle income
households. In fact, 48% of Massachusetts residents
have subprime credit scores (Corporation for
Enterprise Development 2014). This is more than four
times the percentage of Massachusetts residents
(11%) living below the federal poverty level (U.S.
Census Bureau 2013), illustrating the broad impact of
credit and debt issues. Such widespread credit trouble
is significant as debt negatively impacts peoples
well-being, educational opportunities, employment
prospects, and access to basic mainstream financial
services. The research findings presented in this brief
reveal how the cycle of debt presents a distinctive
and significant obstacle for people living in poverty
as they make attempts to achieve economic selfsufficiency.
This brief describes the research design and
presents analysis from survey data and interviews.
The findings provide insight into the factors that
contribute most significantly to consumer debt in
Massachusetts, and demonstrate debts impact on
peoples well-being and economic opportunities. Also
presented are strategies currently being deployed
to address the problem and additional innovative
approaches are highlighted. Lastly, the brief
concludes by providing four policy recommendations
to alleviate the acute challenges of consumer debt
facing Massachusetts residents.

1 Asian American Civic Association, Bunker Hill Community College,

City of Bostons Earned Income Tax Credit Coalition, Crittenton
Womens Union, Heading Home, Jewish Family & Childrens Service,
Jewish Vocational Service Boston, Lawrence CommunityWorks, and
Rosies Place.

Surveys
administered
by nine
social service
organizations
and interviews
conducted
by CWU have
revealed that
debt can present
a direct barrier to
employment and
post-secondary
education.

Crittenton Womens Union

II. Project Design

CWU convened
group members
to get their
initial thoughts
on consumer
debt issues
and to identify
emerging trends.

Given the complex nature of consumer debt, this

project was designed to be collaborative, so that
the learning, methods, tools, and analysis could
be formed and shaped by many local experts, all
of whom contributed unique perspectives and
knowledge of debt issues. The project launched in
the summer of 2013 by assembling an Advisory Group
comprised of colleagues representing nonprofit
organizations serving low-income households in the
Greater Boston area as well as local and national
policy experts. CWU convened group members to get
their initial thoughts on consumer debt issues and to
identify emerging trends. The group considered the
following questions:
Which consumer debt issues are direct service
providers seeing in their work with low- income
households?
Which aspects of consumer debt are most
concerning?
Are new trends emerging in the issues people face
with their debt?
What policy work is already being done in this
area? Where do gaps in policy and practice exist?
Which areas/topics related to consumer debt
require further exploration?

Survey Respondents Demographics

48%

parent or
guardian
of a child
under 18

72%

female

36

average
age

44%

28%

English is not their

first language

have earned
a college
degree

Using emerging themes gathered at these meetings

and a review of relevant research and literature,
CWU, with guidance from Advisory Group members,
drafted a survey2. The survey was administered
by nine nonprofit service providers located in the
Greater Boston region between October 2013 and
June 2014. Each provider administered surveys to
program participants in a way that worked best
for the organization. Some handed surveys out to
workshop attendees, distributed surveys at individual
case management meetings, or made them available
in their lobbies for people to complete as they
waited for services. The surveys were voluntary and
confidential and did not impact whether services
were provided.
This collaborative effort resulted in the completion
of 127 surveys, with the majority of respondents
from Boston and Lawrence (see illustration).
Additionally, CWU reached out to survey respondents
who indicated interest in a follow-up interview
and conducted semi-structured interviews with
ten individuals. The interviews were designed
to gain a better understanding of the specific
debt issues low-income individuals face, to learn
whether and how consumer debt serves as a barrier
to achieving self-sufficiency goals, and to solicit
their recommendations for policy changes to help
remedy the situation. Given the limited sample
size, we cannot make generalizations about the
debt experiences of all low-income households
in Massachusetts, however, the analysis and data
presented highlight concerning trends.

Note: three surveys were collected outside of Greater Boston

2 Survey was available in English and Spanish

From Opportunity to Burden: Profiles of Low-Income Households Caught in the Credit Trap

$65,880

III. Factors That

Contribute to Debt
While debt may originate with the initial purchase
of goods and services, there are many reasons why
people become debt burdened. Research has already
uncovered that basic expenses such as food, rent,
and insurance are the greatest contributor to credit
card debt for nearly half of those who hold long-term
credit card balances (Traub and Ruetschlin 2012).
One of the primary objectives of this study was to
discern whether, in addition to debt origin, there
are other factors or circumstances that lead to the
accumulation of burdensome debt. The findings
demonstrate that the most frequently reported
factors are: 1) limited income, 2) costly financial
services, 3) health-related debt, and 4) student loans.
Each factor is reviewed in more detail below.
1. limited inCome

My income has been really

inconsistent because Ive been
substitute teaching. And you dont
get paid when you take days off.
And Im a single mom, so when my
daughter gets sick or I get sick then
I dont get paid for sick days it just
was inconsistent, so that was part
of the reason why I accrued some
[credit card] debt. Sabrina, 33
Respondents reported that limited income, whether
due to job loss/reduction in hours (71%) or low
wages (64%), was the most frequently cited factor
contributing to their debt. This may be reective of
a larger national trend as the majority of workers in
the United States have experienced wage stagnation
for more than a decade, and between 2007-2012,
wages actually fell for the bottom 70 percent of
wage distribution (Mishel and Shierholz 2013).
Only recently, in May 2014, has employment in
Massachusetts recovered to its pre-recession levels
(Federal Reserve Bank of Boston 2014). Yet many
well-paying jobs in the region remain out of reach
for under-skilled or undereducated workers (Dennett
and Modestino 2011).

Difference

$46,500

$19,380
Survey respondents
average annual
income

Mass. Index Wage

for a family of three

On average, survey respondents reported an annual

household income of $19,380 for a household
comprised of three people. As illustrated in the
graph above, for a family of three, this amount falls
just below the 2014 Federal Poverty Level and falls
significantly below the Massachusetts Economic
Independence Index3 - a basic needs budget of
what it costs to live in Massachusetts without
public support, such as housing subsidies and food
assistance. Meaning, there is a $46,500 difference
between respondents average household income
and what they actually need to earn to be selfsufficient in Massachusetts.
This gap is often filled through a variety of survival
strategies, including turning to friends and family
members for material support, accessing public
subsidies, settling for lower cost substandard
products and services, and relying on alternative
forms of borrowing such as high cost payday loans,
or using credit cards to makes ends meet. In fact, a
2012 study by Demos found that 45% of households
earning less than $50,000 use credit cards to pay
basic monthly expenses because they didnt have
enough money to cover them (Traub and Ruetschlin
2012).
3 CWUs 2013 Massachusetts Economic Index is a basic needs budget
calculated for various household compositions based on their
unique basic needs costs for each county in Massachusetts. For more
information and to access the Economic Independence Calculator,
visit www.liveworkthrive.org.

One of the
primary
objectives
of this study
was to discern
whether, in
addition to debt
origin, there are
other factors or
circumstances
that lead to the
accumulation
of burdensome
debt.

Crittenton Womens Union

How Debt Impedes Opportunity

44%

Unable to keep
up with their
loan payments
or credit card
balances,
respondents
debt quickly
rose as fees and
interest added
to the principal.

of respondents
indicated that their
ability to secure a job
is impacted by their
debt.

Employment credit checks, conducted by almost

half of all employers (Society for Human Resource
Management 2012), are an obstacle for low-income
adults seeking employment. According to a 2013
Demos report, one out of seven respondents who
have poor credit stated that they were not hired
because of their credit history. Donna, a single
mother who had been facing chronic unemployment,
found herself acutely affected by credit checks
performed by hiring managers as part of the
employment screening process, saying, I think [poor
credit] is a barrier for me in life period its like a
circle. I want the job to pay the [student] loans. I cant
get the job because I have the loans. So, it makes no
sense, you checking my credit, and its all screwed
up, but you wont give me the job so I can fix it. Like
Donna, people need reliable income to pay off debts.
Yet, poor credit itself can be a barrier to securing a job
and increasing income an essential step in resolving
debt and achieving economic self-sufficiency.

Promising Practice: Regulating Use

of Credit Reports by Employers
A growing number of states across the country
have passed laws to regulate and limit employer
consideration of an applicants credit history in the
hiring process. For example, Colorados Employment Opportunity Act (SB13-018) which took
effect on July 1, 2013, prohibits an employers use
of consumer credit information for employment
purposes if the information is unrelated to the
job, and requires an employer to disclose when
consumer credit information is being used to take
adverse action against an employee or applicant.
Massachusetts Senator Michael Barrett has filed a
similar bill, S.80 An act regulating the use of credit reports by employers in Massachusetts that has
not been passed into law.

Nationally, one in four unemployed individuals with

credit card debt reported that a potential employer
requested their permission to check their credit
report (Traub 2013). However, credit reports were
neither designed nor originally intended to serve as
hiring criteria. Credit reports are not only unreliable,
since they are prone to inaccuracies, they are also
invalid predictors of job performance (Wu 2010).
Furthermore, there is no evidence of a connection
between subprime credit history and poor conduct
on the job (Palmer and Koppes 2003).
2. Costly Financial Services

They allow me to pay [a minimum

payment of] $50, $50 every month
I am losing big time Its like Im
paying interest, interest, interest,
interest, interest. I could never get
closer. Martin, 55
Thirty nine percent of survey respondents indicated
that costly financial services, such as fees and high
interest rates, were contributing factors to their
debt. Unable to keep up with their loan payments
or credit card balances, respondents debt quickly
rose as fees and interest added to the principal.
Catherine, a parent living in a suburb of Boston, can
relate. She shared, [My debt] goes up and up every
month. Probably 50% of whats on the bill, 50% is
really not mine; its all of the fees. Another woman,
Katrina, shared how she fell behind on her student
loan payments after a disabling medical crisis, I had
school loans that with interest and penalties, because
I got behind in payments, grew to $111,000. Of course,
[this is] way out of whack from what I actually spent
on my education, and working in [social services] I
was never going to be able to make much. For those
unable to pay their balance in full or unable to keep
up with monthly minimum payments, snowballing
debt eventually feels insurmountable, with fees and
interest sometimes surpassing the principal balance.

One costly consequence of excessive consumer debt

is isolation from the mainstream financial system.
Banks may deny an application for a checking account based on a single past incident of overdrawing
a checking account (Silver-Greenberg 2013). For a
while unless it was a credit union, I couldnt get an
account, reported Nancy, a full time working mother
who faced this situation. Nancy was fortunate to

From Opportunity to Burden: Profiles of Low-Income Households Caught in the Credit Trap

How Debt Impedes Opportunity

26%

of respondents
indicated that their
ability to open a bank
account is impacted
by debt.

be able to access financial products and services

through a credit union. However, others who are
denied access or who are distrustful of mainstream
banking services often turn to costly alternatives
such as check cashers and payday lenders. These
businesses typically charge hefty fees and relatively
high interest rates compared to traditional banks. A
recent Consumer Financial Protection Bureau study
found that the average annual percentage rate (APR)
for payday loans is 322% (2013).
To protect consumers in the Commonwealth,
Massachusetts is among 15 states that either prohibit
payday lending or eliminate the practice by placing
limits on rates and fees charged for small loans
(Massachusetts General Laws Chapter 140, Section
96). An additional nine states currently regulate the
terms of payday loans. The Pew Charitable Trusts
estimate that as a result of this legislation, just 2% of
Massachusetts residents have accessed a payday loan
(Pew Safe Small-Dollar Loans Research Project 2012).

3.Health-Related Debt: Co-pays

and Deductibles

No, [insurance doesnt] cover over

the counter medications. Those
arent covered, and my co-pays for
my actual prescriptions, because I
take a lot of prescriptions, the copays are quite a bit. To me, theyre
quite a bit. - Jack and Katrina,
married couple with medical
disabilities

Jada, a single mother in her twenties with a young

son, has private health insurance, but she still faces
unmanageable co-pays and deductibles, causing her
to accumulate medical debt, and ultimately to put
off essential care for her son and herself. Jada shared
during an interview, I wouldnt go to emergency
rooms. I would try to wait it out sometimes if my son
was sick to bring him to the hospital the next day.
The prohibitive cost of co-payments and deductibles
that Jada experienced was also a source of debt
for 35% of survey respondents. For those who are
financially unstable, an illness, health crisis, or even
preventative care can push a family living on the
edge into financial crisis.
When an illness or health crisis occurs for individuals
or others in their household, such as children, a
spouse, or elder parents, they may need to take time

Promising Practice: Credit Counselors

Since 1971, for-profit debt settlement companies have been banned from operating in Massachusetts.
These companies typically require that the consumer stops paying the creditor, at which point the company
negotiates a lump sum payment with creditors that is less than what is owed. The consumer pays the
debt settlement company a fee that is a percentage of the difference between the original debt and the
negotiated sum. This process is risky since ceasing payment altogether often results in late-fees, penalty
fees, and may cause a company to intensify their debt collection efforts. It also negatively impacts credit
scores. Furthermore, any debt that is forgiven by creditors as a result of debt settlement companies efforts
will be considered taxable income, likely increasing the consumers tax burden. By contrast, non-profit credit
counselors, legal in Massachusetts, do not require people to stop paying their creditor. Credit counselors
negotiate with the objective of lowering monthly payments rather than decreasing the amount owed. The
consumer submits monthly payments, as well as a small fee, to the credit counselor, who in turn submits them
to the creditor. Credit counseling services also ensure that the creditor will cease collection efforts while the
consumer is following the debt management plan. Debt settlement companies make no such assurances.
Most importantly, credit counselors also provide financial education to the consumer to help prevent him or
her from accumulating debt in the future.

Crittenton Womens Union

How Debt Impedes Opportunity

20%

Costly health
issues can
contribute to
debt, and debt
can impact
ones health and
well-being.

49%

of respondents
indicated that getting
needed medical
attention is impacted
by debt.

of respondents
indicated that their
ability to live healthy
lives is impacted by
debt.

off, reduce hours, or stop working altogether. This

reduction of income combined with the medical
expenses further erodes economic stability. Jack, a
married 60 year-old disabled man, highlighted the
difficulty of covering basic expenses when falling
into the debt cycle started by illness, explaining,
Because of the medical issues, I got behind [on
paying] the gas, and I got behind on the electricity,
I got behind on the phone. Jack had to leave the
workforce because of his health issues, and as his
medical expenses rose, he fell behind on other
financial obligations as well.
Massachusetts led the nation in ensuring that
residents of the Commonwealth are better able to
access medical care through mandated universal
health coverage. Yet, as the survey findings indicate,
residents still face health-related expenses that
contribute to debt. As Jack shared, I have a lot of
medical debt. I might end up paying some, depending
on my financial circumstances in the next year. I
cant possibly pay it all. While insurance coverage
is critical, some insured families, like Jack and his
wife, still find themselves incurring relatively large
amounts of debt to pay for medication, healthcare
visits, and medical procedures.
These findings, that healthcare costs present a
financial burden even for those who are insured,
are not limited to low-income households. In fact,
a 2012 survey conducted by the Blue Cross Blue
Shield Foundation discovered that while 94.6%

of Massachusetts residents are covered by health

insurance, many still grapple with high health care
costs. According to the report, 42.5% of non-elderly
adults found it challenging to afford health care.
Furthermore, 27% reported that the previous years
health care costs caused them financial difficulties.
Many of these health care costs can be attributed
to underinsurance4. The Blue Cross Blue Shield
Foundation survey found that 13.4% of non-elderly
adults with insurance were underinsured, a group
that is disproportionately low income (Urban
Institute 2014).
Debt and health are inextricably linked. Costly health
issues can contribute to debt, and debt can impact
ones health and well-being. The correlation between
stress and decreased physical and emotional wellbeing has been documented, demonstrating that
sustained and severe stress can deteriorate both
physical and mental health and money is the
top source of stress for Americans (Anderson et al.
2013). In the case of financial stress, this relationship
manifests itself directly through sleep loss, and
indirectly by not being able to afford healthy food,
exercise, or health care.
Another finding from this study is that debt is a
stressor for almost all of the low-income households
surveyed, as 91% of respondents stated that their
debt causes them stress. Further, 53% of respondents
reported feeling acute stress levels related to their
debt and finances. During an interview with Donna,
a single mother seeking employment, she shared
her struggles with financial stress, I had to get help
from my doctor because one time I didnt sleep for
three days my mind was so all over the place What
am I going to do? How am I going to take care of
my family? How am I going to take care of my bills?
I just want to live comfortable. I just want to be
able to afford me. Such intense stress can result in
decreasing physical and emotional health, which may
ultimately present a barrier to employment and the
pursuit of other economic mobility goals.

4 Underinsurance is defined as having high out-of-pocket health care

costs while being covered by health insurance all year.

From Opportunity to Burden: Profiles of Low-Income Households Caught in the Credit Trap

4. Student Loans

[T]hey just had me signing all

I didnt even know what I was
signing. I didnt know the difference
between a loan and a grant. The
people at the [for-profit] school,
they really were like sneaky used
car sales people. Thats what it
was. Now that I think back, Im like,
Wow, they really, really reeled me
in on this one. Nancy, 45
Reeled in is how Nancy, the interviewee quoted
above, recalled her experience financing her
education for an associates degree at a Boston area
for-profit college. Another interviewee, Martin,
an immigrant who had also attended a for-profit
college, shared how he similarly felt deceived
in the student loan process, I had no idea and I
think [the for-profit college] took advantage of my
nationality because I was just new to the system
and that got me, now I owe more than $35,000.
Many consider post-secondary education a wise
investment given the increased earnings that come
with higher levels of education (Pew Research Center
2014). While the desired return on this investment
is an increase in income and employer sponsored
benefits, too often the reality that many students
face is seemingly insurmountable student loan debt.
27% of respondents5 in the survey conducted by
CWU indicated that educational expenses were a
contributing factor toward their debt.
While educational debt is a growing concern
for students from all socio-economic strata, for
economically disadvantaged students with limited
resources, the negative consequences of such debt
are greater, as their debt is proportionally larger.
One study found that the average student loan
debt carried by households in the bottom fifth of
the income distribution represented 24% of their
household income, whereas for households in the
60th to 80th income percentiles, student debt
only represented 7% of their household income
(Fry 2012). Further, a 2013 study found that 14% of
students from low-income families had debts that
5 Since not all survey respondents attended post-secondary school,
we suspect this percentage underrepresents the impact of student
loan debt for students and graduates.

exceeded $30,500, whereas only 9% of students from

families with incomes over $100,000 graduated with
similar levels of debt (Hiltonsmith 2013).
For-profit schools are particularly guilty of fueling
this debt epidemic. Consider the average annual
loans taken out by student parents at for-profit
colleges are more than ten times greater than those
taken by student parents at community colleges
(Institute for Womens Policy Research 2012). Jada,
a 29 year-old mother of a young son, recalled her
experience of feeling pressured by financial aid
staff at a for-profit school, saying, Nothing was
explained. It was all fine print. And its like, This is the
only way you can go to school, so sign it. Thats how
I felt. Jadas experience is not unique. Prospective
students, unfamiliar with the financing system for
post-secondary education, may accrue unreasonable
amounts of debt.
The experiences shared throughout the interviews
illustrate the complicated aspects of student loan
debt. Some students expressed they were unaware
of the full amount they were obligated to repay.
Some students felt deceived in the loan process. And
some students found themselves financially crushed
by the principal and accumulating interest and fees
- unable to keep up with payments. When asked
what advice she would have for prospective students
considering taking out a loan to finance a college
degree, one interviewee, Nancy, shared, Before you
do [go to college] research and get information, and
dont just sign up with just anybody. Honestly, for
every commercial you see about, Go back to school!
Go to this school! there should be another commercial
right after it saying, You know what? Before you
sign up with this school, why dont you check in with
this organization thats going to tell you whether its
a good choice or not. 6 Nancys advice, to counter
advertising with a public service campaign or
information on where to get financial guidance, could
help develop a more informed consumer society.
Education is one key to attaining economic selfsufficiency, and debt prevents prospective students
from pursuing or completing higher education. If
students federally-sponsored loans go into default,
they are unable to access additional federally
sponsored student loans until their outstanding loans
6 CWU, the Federal Reserve Bank, and the Massachusetts Office of
Consumer Affairs and Business Regulation have partnered to produce
Higher Education in Massachusetts: Smart Choices, Great Futures, an
informative brochure that helps students make more knowledgeable
decisions about post-secondary education. For more information and
to access the brochure, visit www.liveworkthrive.org

While the
desired
return on this
investment
is an increase
in income
and employer
sponsored
benefits, too
often the reality
that many
students face
is seemingly
insurmountable
student loan
debt.

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Crittenton Womens Union

How Debt Impedes Opportunity

21%

When debt
or negative
experiences
with student
loans become
an obstacle
in the pursuit
of higher
education,
opportunities
to access or
advance in the
labor market are
restricted.

of respondents
indicated that their
ability to pursue
school is impacted
by debt.

are in good standing. For most low-income students,

attending even the most inexpensive college
without financial aid is impossible. This experience
is described by Julie, who recalled her effort to finish
a degree at a community college, When I went to
sign up for school, thats when they said, You owe us
money. You cant get financial aid because you have
an outstanding student loan. Alternatively, students
might try to obtain loans from private lenders,
but often poor credit caused by their prior default
causes the loans to be denied. In addition, after
negative experiences with prior educational loans,
many prospective students are now wary of loans
altogether. Another interviewee, Donna, expressed
how her prior negative experience with student loans
has become a barrier for her today, saying, Yeah, I
wanted to [go back to school], but I cant because I
dont trust getting loans again. Its like it traumatized
me, it scared me When debt or negative
experiences with student loans become an obstacle
in the pursuit of higher education, opportunities to
access or advance in the labor market are restricted.

Promising Practice:
Financial Coaching
When survey respondents were asked which
services and programs they would recommend
to others to address a similar debt situation, the
most recommended - at 63% - was the practice
of individual one-on-one counseling. Individual
counseling, as opposed to a group workshop or
educational material, can specifically address the
unique circumstances of an individuals often
complex debt situation.
Financial coaching can be found through
a variety of nonprofit organizations in
Massachusetts below are a few examples:
The Midas Collaboratives Financial Confidence
and Coaching Campaign accessed through
MassSaves.org.
A growing network of United Way Financial
Stability Centers, several in collaboration with
LISC, are found throughout Greater Boston
communities, including Chelsea CONNECT,
Lawrence Community Works, and through
Lynn Housing Authority and Neighborhood
Development.
Crittenton Womens Unions Mobility
Mentoring Programs serving Greater Boston
and Worcester communities.
Jewish Vocational Service and the Asian
American Civic Association, both located
in Boston, integrate financial coaching into
workforce development programs.

From Opportunity to Burden: Profiles of Low-Income Households Caught in the Credit Trap

IV. Additional Obstacles

While carrying large amounts of debt is financially
burdensome, the results of this study reveal
additional concerns related to debt and credit that
negatively impact peoples ability to move forward.
Three of the most significant issues are: errors on
credit reports, identity theft, and debt collection
practices.
1.Errors on credit reports
CWUs survey found that 39% of respondents had
seen a copy of their credit report within the last
year, which is comparable to the state average of
38% (Financial Industry Regulatory Authority 2012).
Of this group, 28% reported that their credit report
contained incorrect information. One respondent
explained, A loan that was paid off [showed up].
Another shared that, [The report showed that I
was] late on two accounts, but I was never late.
Similarly, a Federal Trade Commission study of the
American public found that 21% of people had at
least one confirmed error that could potentially
affect the credit score on at least one of their credit
reports (2012). If someone reports an error to a
credit reporting agency, the agency is required to
investigate it within 30 days and correct it if it is
found to be inaccurate or unverifiable. However, if a
person has not seen their credit report, or is unaware
of their rights or the process, errors remaining on
credit reports can result in denied loans or being
required to pay higher interest than their accurate
credit score would dictate.
2. Identity theft

Someone opened an account

under my name ... and overdrew,
- Martin, 55

Similar to Martins experience (above), 15% of survey

respondents indicated that someone else opened a
line of credit in their name without their knowledge
or permission. False debt and its potential negative
consequences can wreak financial havoc. Debt
collectors will pursue payment on fraudulent
accounts, and incorrect information can linger on
credit reports impacting ones ability to obtain
competitive interest rates on loans or accessing
financial products.

Characterization of Debt Collection Practices

Always or Most of the time
High Pressure

53%

Intimidation

40%

Harassing

51%

3. Debt collection practices

They call me everywhere. They call

my cell phone 24 hours a day, on
Sunday, it doesnt matter The same
number [calls] 4,5,6 times a day. I
dont answer my phone. If I dont
know whose number is calling me, I
dont answer the phone,
Julie, 53
Massachusetts already has in place an array of laws
designed to protect consumers from harassment by
debt collection agencies (Massachusetts Attorney
General Regulations 940 CMR 7.00). Yet, the majority
of respondents who had been contacted by a debt
collection agency or bill collector reported feeling
harassed, intimidated, and pressured. The graph above
illustrates the frequency of various negative experiences
survey respondents encountered with debt collection
agencies.
Despite existing laws, people still experience
intimidating debt collection practices, as Jada described,
[Dealing with collection companies] was one of my
most traumatic experiences because the person who
was calling was saying, What kind of person are you?
and just saying mean, mean things to me. I remember
crying. This intimidation and harassment pressured
Jada to provide her debt collectors access to withdraw
funds directly from her bank account with negative
consequences as Jada explains, They [bill collectors] said
theyll go in my bank account so I dont have nothing;
they will empty it out. I even tried to work out a payment
plan with them and I gave them access, being so scared,
access to my account, to take out money monthly, and
they took out more money than what I told them. So
I had to fight with them through my bank. In Jadas
situation, the existing laws did not prevent harassment.

11

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Crittenton Womens Union

V. Policy
Recommmendations

Given the acute

and pervasive
negative
consequences
of consumer
debt among
low-income
individuals, we
urge multiple
policy changes
to counteract
the negative
financial spiral
that consumer
debt creates.

Given the acute and pervasive negative

consequences of consumer debt among lowincome individuals, we urge multiple policy
changes to counteract the negative financial spiral
that consumer debt creates. The following policy
recommendations are designed to encourage a more
equitable system for dealing with consumer debt,
especially for low-income families.
CWU and its partners offer the following
recommendations to help Massachusetts
adults combat the negative effects of consumer
debt:
1. Support legislation to limit the use
of employment credit checks for hiring
purposes
As of 2013, 10 states have passed legislation limiting
employers ability to use credit history as a criterion
for employment; a practice which places undue
hardship on low-income job seekers yet which
is not a proven indicator for future job success.
Massachusetts Senator Barrett filed a bill limiting this
practice but it did not pass during the last legislative
session.
We support the filing of a new bill to limit the use of
employment credit checks for hiring in January 2015.
We believe the state should be required to inform
employers that the practice is illegal and that it is
not a valid predictor of job performance.
2. Support legislation to protect
consumers from credit, collection, and
debt settlement industry abuses
While Massachusetts consumers benefit from some
of the strongest consumer financial protection
measures in the country, many individuals still
face hardships ranging from harassment by debt
collectors to being brought to court for erroneous
amounts of debt or debt that is no longer actionable.
Sometimes the organizations that individuals go to
for help with their debt make their problems worse
by deploying risky strategies that backfire and
increase rather than decrease debt.

We encourage support for legislation that will

be filed in 2015 to protect consumers from the
most common abuses in the credit and collections
industries, restoring balance to an increasingly
lopsided system of justice. The bill will:
Ensure that consumers receive basic protections
from creditors who pursue legal action.
Modernize protections related to shielding personal
and residential property- including personal income
for low-income individuals- from debt collectors,
allowing families a chance to get back on their feet
after a period of financial hardship.
Protect consumers from unscrupulous practices of
for-profit debt settlement/management companies.
3. Support legislation to limit health
care debt
In a state where 95% of the population is insured and
which led the nation in requiring health coverage, it
is surprising to learn how many families are burdened
by health care debt particularly from co-payments
and deductibles. Two bills that were filed in the last
legislative session would not only help limit this kind
of debt but would also lead to improved health care
access and outcomes for low-income patients.
We support the filing of a new bill that would
eliminate cost-sharing (like co-pays and deductibles)
for high-value and cost-effective medical services,
treatments and prescription drugs under all health
plans.
We also support the refiling of Representative
Sanchezs bill that would prevent hospitals from
setting higher charges for uninsured versus insured
patients, provide greater consumer protection to
low-income patients, and offer more transparency
about services offered that are not in-network
and thus cost more.

From Opportunity to Burden: Profiles of Low-Income Households Caught in the Credit Trap

4. Support efforts to increase the

financial capability of consumers by
helping them build the knowledge and
skills to manage resources effectively
We encourage the development of a continuum of
knowledge and skill building supports tailored to the
developmental needs of various audiences.
Students
The earlier consumers learn to protect their
resources, the fewer problems they will encounter
as adults. We support a bill filed by Senator
Eldridge that would require the Department of
Elementary and Secondary Education to create
standards and objectives for personal financial
literacy for K-12 students. The curriculum should
include topics such as educational and credit card
debt, identify theft, on-line purchases, renting
or buying a home, and banking services, among
others.
College students We support efforts to help lowto moderate-income students attending public
two- and four-year institutions to better manage
their financial lives. This includes efforts that
effectively help students to spend less and save
more, plan for their financial future, and borrow
and repay responsibly.

13

Adults
o Support existing statewide financial coaching
services that reach underserved residents
across the state via phone, Skype, and online
platforms. One example is the MassSaves
Financial Coaching Program.
o Re-invest in the previously funded
Massachusetts matched saving program to
help low-income individuals build assets and
learn to increase their financial capabilities.
In this program, as an example, incomeeligible participants deposit a minimum of
$25 per month into savings for two years and
receive a 3:1 match made from a combination
of public and private sources. Participants
in the program must also attend financial
literacy workshops and engage in one-on-one
financial counseling provided through local
non-profit organizations.

The earlier
consumers learn
to protect their
resources, the
fewer problems
they will
encounter as
adults.

14

Crittenton Womens Union

VI. Resource Section

American Consumer Credit Counseling

The Consumer Financial Protection Bureau

Provides credit, bankruptcy, and housing counseling,

as well as debt management and financial education
information.

A good place to find information, file a complaint,

or tell your story about mortgages, school loans,
or other financial products. They aim to make the
financial marketplace safer for consumers so we
dont suffer another economic meltdown, and their
site is easy to use in English or Spanish.

Visit: http://www.consumercredit.com
American Student Assistance
National, Boston-based nonprofit that provides
education about student loans, information about
repayment strategies, and general support for
consumers with student loans.
Visit: http://www.asa.org

Visit: http://www.consumerfinance.gov
Federal Reserve Consumer Help
Provides information about how to file a complaint
with federal regulators about a bank or collection
agency that has violated federal law.

Attorney General Martha Coakleys Guide to

Consumer Credit (2010)

Visit: www.federalreserveconsumerhelp.gov

Summarizes Massachusetts laws concerning

consumer credit, lending, billing, credit reports and
debt collection.

Health Care For All

Visit: http://www.mass.gov/ago/docs/consumer/
consumer-credit-050510.pdf
Beyond Financial Aid: 2010 Guide to Extra Help for
Low-Income Adult Students
This is a CWU publication done in collaboration
with the Massachusetts Law Reform. It provides a
comprehensive review of family supports that may
be available to students attending college or in
vocational training programs.
Visit: http://www.liveworkthrive.org
The Boston Home Centers CreditSmart Class
Provides free six-hour course to learn everything you
need to know about establishing and maintaining a
record of good credit, and how to avoid credit traps.
Call the Boston Home Center: 617-635-4663
Visit: http://www.cityofboston.gov/dnd/bhc/
credit_smart.asp

Runs a free hotline to connect Massachusetts

residents with insurance and answer questions about
health insurance.
Visit: https://www.hcfama.org
Identity Theft Resource Center
Provides free assistance to identity theft victims and
educates consumers about identity theft detection,
reduction and mitigation.
Visit: http://www.idtheftcenter.org/index.php
Mass Saves Financial Coaching Program
A general resource for financial education, including
free personal training. The hotline provided on the
MassSaves website is an excellent starting point
for anyone looking to gain control of their financial
health.
Visit: www.MassSaves.org

From Opportunity to Burden: Profiles of Low-Income Households Caught in the Credit Trap

VII. References
An Act Regulating the Use of Credit Reports by Employer. 2013. Bill S.80. 188th General Court of the
Commonwealth of Massachusetts.
An Act Relative to the Licensing and Supervision of Debt Management Services. 2013. Bill H.3569. 188th
General Court of the Commonwealth of Massachusetts.
Anderson, Norman B., Cynthia D. Belar, Steven J. Breckler, Katherine C. Nordal, David W. Ballard, Lyn F. Bufka,
Luana Bossolo et al. 2013. Stress in America: Missing the Health Care Connection. Washington, DC: American
Psychological Association.
Better Business Bureau. 2010. Complaints to BBB Against Debt Settlement Companies On the Rise. April 29.
http://www.bbb.org/us/article/complaints-to-bbb-against-debt-settlement-companies-on-the-rise-19186.
Bureau of Labor Statistics. 2014. Earnings and Unemployment Rates by Educational Attainment. Available
online at http://www.bls.gov/emp/ep_table_001.htm.
Burhouse, Susan and Yazmin Osaki. 2012. National Survey of Banked and Underbanked Households.
Washington, DC: Federal Deposit Insurance Corporation.
Consumer Financial Protection Bureau. 2013. Payday Loans and Deposit Advance Products. Washington, DC:
Consumer Financial Protection Bureau.
Corporation for Enterprise Development. 2014. Assets and Opportunities Scorecard: Massachusetts.
Washington, DC: Corporation for Enterprise Development.
Dennett, Julia and Alicia Sasser Modestino. 2011. The Middle-Skills Gap: Ensuring an Adequate Supply of
Skilled Labor in Northern and Southern New England. Boston: New England Public Policy Center at the
Federal Reserve Bank of Boston.
Financial Industry Regulatory Authority. 2012. U.S. Financial Capability Study Massachusetts. Washington,
DC: Financial Industry Regulatory Authority, Investor Education Foundation.
Fry, Richard. 2012. A Record One-in-Five Households Now Owe Student Loan Debt. Washington, DC: Pew
Research Center.
Hiltonsmith, Robert. 2013. At What Cost? How Student Debt Reduces Lifetime Wealth. New York: Demos.
Hobbs, Robert J., and Chi Chi Wu. 2013. Model Family Protection Act. Boston, MA: National Consumer
Law Center.
Institute for Womens Policy Research. 2012. Single Student Parents Face Financial Difficulties, Debt, Without
Adequate Aid. IWPR#C394 Fact Sheet, April 2012.
Javelin Strategy & Research. 2012. 2012 Child Identity Fraud Survey. Washington, DC: Identity Theft Assistance
Center.
Langton, Lynn. 2010. Identity Theft Reported by Households, 2005 2010. Washington, DC: U.S. Department
of Justice, Office of Justice Programs.

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Crittenton Womens Union

Leibowitz, Jon, J. Thomas Rosch, Edith Ramirez, Julie Brill, and Maureen Ohlhausen. 2012. Report to Congress
Under Section 319 of the Fair and Accurate Credit Transactions Act of 2003. Washington, DC: Federal Trade
Commission.
Massachusetts Attorney General Regulations. 940 CMR 7.00. Debt Collection Regulations.
Mishel, Lawrence and Heidi Shierholz. 2013. A Decade of Flat Wages: The Key Barrier to Shared Prosperity and
a Rising Middle Class. Washington, DC: Economic Policy Institute.
Morton, Heather. 2013. Use of Credit Information in Employment 2013 Legislation. Denver: National
Conference of State Legislatures.
New England Public Policy Center. 2014. New England Economic Indicators. Boston: Federal Reserve Bank
of Boston.
Palmer, Jerry K. and Laura L. Koppes. 2003. Further Investigation of Credit History as a Predictor of Employee
Turnover. Presentation to the American Psychological Society, 2003.
Pew Research Center. 2014. The Rising Cost of Not Going to College. Washington, DC: Pew Research Center.
Pew Safe Small-Dollar Loans Research Project. 2012. State Payday Loan Regulations and Usage Rates.
Washington, DC: The Pew Charitable Trusts.
Silver-Greenberg, Jessica. 2013. Over a Million Are Denied Bank Accounts for Past Errors. The New York Times,
July 31.
Society for Human Resource Management. 2012. Background Checking the Use of Credit Background Checks
in Hiring Decisions. Available online at http://www.shrm.org/research.
Traub, Amy and Catherine Ruetschlin. 2012. The Plastic Safety Net: Findings from the 2012 National Survey on
Credit Card Debt of Low- and Middle- Income Households. New York: Demos.
Traub, Amy. 2013. Discredited: How Employment Credit Checks Keep Qualified Workers Out of a Job. New York:
Demos.
Urban Institute. 2014. Health Insurance Coverage and Health Care Access, Use, and Affordability in
Massachusetts: An Update as of Fall 2012. Boston: Blue Cross Blue Shield Foundation of Massachusetts.
U.S. Census Bureau. 2014. State and County QuickFacts.
Wu, Chi Chi. 2010. Testimony before U.S. House Committee on Financial Services Subcommittee on Financial
Institutions and Consumer Credit. Use of Credit Information beyond Lending: Issues and Reform Proposals.
111th Cong., 2nd sess., May 12. Boston: National Consumer Law Center.

Crittenton Womens Union

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Boston, MA 02108
Tel: 617.259.2900

www.liveworkthrive.org