Laura Rowley Money & Happiness

"Maxed Out," a documentary that opens nationwide next week, examines the dark side of America's love affair with debt.

By turns humorous and heartbreaking, "Maxed Out" exposes the targeting techniques of credit card companies (the most profitable customers are broke); the gold rush mentality in the business of debt collection; an influential credit scoring industry riddled with errors; and the power of the credit card lobby at the highest levels of government. (MBNA, the biggest campaign contributor to President Bush, was behind the restrictive bankruptcy legislation of 2005.)

Submerged in Debt

"Maxed Out" is directed by filmmaker James Scurlock, a Wharton business school dropout and entrepreneur. Scurlock also wrote a book based on the film, which is due out next week from Scribner, a division of Simon & Schuster.

Scurlock says he started out hoping to do a lighthearted riff on consumer irresponsibility, but was shocked by what he found: College students and housewives committing suicide over their credit card debt, and the nation's biggest banks involved in predatory lending schemes.

In one case, the film shows Citigroup's lending arm foreclosing on a Mississippi shack owned by developmentally impaired woman and her severely retarded 44-year-old son after they were refinanced into a loan they couldn't afford.

"I wanted to know why people are living so close to the edge," says Scurlock. "A lot of people just haven't been able to keep pace with expenses like health care, education, and housing. Credit cards become the life raft that people don't even have to reach for -- they're just there." Scurlock points to new "medical" credit cards, for example, which invite consumers to dive deeper and deeper in debt.

Conservative Consumer Advocacy

This indictment of the industry comes from a 34-year-old who was voted "most conservative" by his business school peers at the University of Pennsylvania, and who worked on the election campaign for George H.W. Bush.

"It's not in anyone's interest to have a financial industry that behaves like a used-car dealership," says Scurlock. "I think it's conservative to expect that credit will be regulated in this country. People need to have to have a strong financial industry that's trusted -- and to the extent that that erodes, that's very bad for the country and the economy."

In the film, Scurlock interviews the two young founders of People First Recoveries, a Minnesota collections and debt purchasing firm, who purport to represent the "kinder, gentler" side of the debt collection business. And yet they describe themselves as "pirates" -- using swashbuckling techniques like calling neighbors and relatives to intimidate debtors into paying.

In another interview, Harvard law professor Elizabeth Warren recalls a presentation she did for financial services executives in which she discussed how many bankruptcies could be prevented simply by eliminating those customers on the financial edge. A member of the firm informed her that those consumers comprise the most profitable part of the business.

The Personal Accountability Gap

Unfortunately, Scurlock never directly addresses the personal-accountability aspect of debt in his film. I was hoping he would ask at least a few hard questions about the consumption choices that lead people into the red.

"A lot of people we talked to said, ‘Gee looking back at the level of debt, there should be a Mercedes or a Ferrari in my driveway, but I have nothing to show for it,'" Scurlock says. "Most Americans are very optimistic. They think things will always get better from here, they'll make more money, they won't have any emergencies. Credit has become so ingrained in the culture that so many people can't imagine living without it. Once you decide you're never going to be out of debt, you can afford anything."

Other than my mortgage, which is fixed for 30 years at a low interest rate, I don't do debt. No revolving credit card debt, no auto loans, no home equity borrowing. Would I like to bust out the back of my home and create a designer kitchen and family room? You bet. Am I going to sacrifice my children's college savings or retirement goals on the altar of my extreme makeover? No way.

I had the good luck to have wise parents born during the Depression, who drew a very clear line about debt. They taught me that you buy things you can afford -- not things on which you can afford a monthly payment. You don't shop for recreation. And the only thing you should borrow to buy is an appreciating asset that will very likely, over time, pay you back more than you put into it, such as a home.

Anything But Maxed Out

Here's my problem with taking on debt: I have a profound respect for the unknown. For instance, my husband and I work for ourselves. This is an excellent way to avoid ruthless bosses and layoffs. But if one of us were to get injured or become ill, it would be pretty hard to keep business hopping.

Meanwhile, I'm optimistic that if I work hard, my income will continue to rise. On the other hand, I have dozens of friends and acquaintances who, despite their hard work, were downsized or squeezed out after a merger, spent long periods unemployed, and/or returned to jobs that paid less. The rosy scenario of a steadily climbing income that peaks just before retirement is the stuff of economic models -- not the real life of the middle-income Americans I know.

Here's the other irony: Credit card companies market their products by claiming they offer you a world of choices -- take that dream vacation, buy the 60-inch television. But by steering completely clear of credit card debt and saving on a regular basis over time, I found myself with much richer options -- choices about how I would balance work with family, health, and friendship. That satisfaction is more enduring than anything I could have purchased with plastic.

Buying with Blinders On

Why, I asked Scurlock, don't people understand this? Why do so many consumers buy things on credit and then pay double for them over time? Why do they sacrifice what they want most in life for what they want this very second?

It's pretty simple, Scurlock says: "I think there's a lot of denial. Most people can't do the math. There is very little, if any, focus on the balance sheet side of the equation."