S. and her husband moved to Jerusalem in 1995, ready to work hard to provide for their five children. Unlike many new olim, S. had little trouble finding work, beginning a new job right after ulpan. Her husband, however, needed time to launch his new business and the money S. earned on her own wasn't enough to meet the family's needs. When their modest savings ran out, they turned to their bank for help. The manager offered an easy solution for their problems. "The bank manager encouraged us to go into overdraft," S. says. "We had heard that everyone here is in overdraft. The manager said he was NIS 90,000 in minusâ€š himself." Chronic debt is pervasive in Israel, where 35-55% of the population hold a negative bank balance. Some people treat their overdraft limit as their spending allowance, overdrawing their account without guilt. Others simply lose track of their spending, making large purchases on credit cards or monthly payment plans without paying attention to the accumulating totals. It is one of the unifying elements in Israeli life, connecting people in every region of the country and every sector of the population - rich and poor, religious and secular, Sephardi and Ashkenazi. Using overdraft seemed like a good answer for S. - at first. It allowed her family to purchase what they needed for their home without applying for loans or worrying about expenses. But the lure of unlimited credit eventually began to take its toll. The family developed careless spending habits. Within four years, their overdraft swelled to a whopping NIS 130,000. Eventually, the debt caught up with them. Creditors started calling their home at all hours. Litigation followed. Finally, they hit rock bottom. Debtors Court arrived at their door to impound their property. "They took all our stuff, everything we got at a cheaper price with our aliya rights; TV, couches, microwave, stereo, washing machine. Everything," S. recalls. "We developed a spending addiction," she explains. "We didn't have any limits and it traumatized our entire family." Today, S. has regained control of her money with the help of Debtors Anonymous, a 12-step program that helps people recover from compulsive spending. With the active support of her peer group, S. stopped writing post-dated checks and tore up her credit cards. She began to pay attention to her spending patterns and looked for ways to change. "People sit with you and go over where the pressure is," S. says. "There is often a lack of awareness of where the money goes. They tell you to write everything down. They also have a spending plan. You see what you earn and what you need for your daily needs." Within two months, the family managed to limit spending to their immediate necessities. They also began calling their creditors and making arrangements for payments. Through great effort and sacrifice, the family brought its debt down substantially - to NIS 50,000. "We help each other," S. says about her Debtors Anonymous group, which holds meetings in English and Hebrew in Jerusalem every week. "The whole approach is one of no credit. For example, I would love right now to buy some new couches. But that's a want, not a need. There is a difference." Like all 12-step programs, Debtor's Anonymous addresses the issue of compulsive spending as an addiction that requires a spiritual as well as a practical solution. "Because of our feelings of deprivation, we get into bad spending habits," S. reveals. "But there are also things that happen that are beyond our control - big expenses, bad business - and you turn to a higher power for help." Debtors Anonymous provides a strong support network to help compulsive spenders regain control of their lives, but most debtors are not problem spenders. They tend to keep their overdrafts small - around NIS 10,000 - and slowly chip away at the principal while paying interest rates as high as 12%. In most cases, their debts are a product of financial mismanagement that could be reversed with better planning. However, having an overdraft has little to do with one's income or ability to pay one's bills on time. One wealthy Jerusalem resident, for example, maintains an overdraft of NIS 50,000. At the start of each year, she pays the debt with money from her family trust fund. By the end of the year, her overdraft is back at NIS 50,000. "We call it the overdraft mentality," says Baruch Labinsky, a financial planner with the Israel Resource Network. "Overdraft functions like credit cards do in America. It's an easy line of credit, and people run it up." According to Labinsky, people who remain in overdraft without a plan for paying their debts are unwittingly mortgaging their future. "People are basically saying, 'I can't afford it now, but I'll pay for it later.' They just don't realize what their future is costing them." Labinsky says that people often find that their expenses increase over time, not decrease, and the extra money they pay in interest on their overdraft puts a heavy strain on their finances. "It really starts to catch up to people when they are raising children," he explains. "They can't afford the vacations or the bar mitzvas, or sometimes even their home mortgages. There are more and more defaults on homes today. If you are continually spending more than you earn, you eventually hit a wall." Labinsky says some people use the money from their preferred saving plans to pay off their overdraft. Then they have no option but to go into debt again because their savings are gone. "Ultimately, they could find themselves without the resources for the things they want, helping their children, or retirement. A large percentage of elderly today are living under the poverty line." Jody Blum, who offers financial coaching through her organization, MinusPLUS, says people often don't realize how much money they are wasting on overdraft interest. "Lets say they are paying NIS 1,200 a month to the bank in interest," she says. "That could be savings for bar mitzvas or their retirement." "Wouldn't it be better for people to be accumulating wealth rather than constantly scraping themselves out of debt?" she notes. "With some sacrifice for a short time, the money they used to get out of debt is now free. All that money is extra money now." WHILE RELATIVELY small overdrafts remain a fact of life in Israel, the larger, out-of-control accounts appear to be on their way out. Last year, in an effort to tighten the reins on unchecked credit, the Bank of Israel issued Directive 325 on Credit Arrangements, requiring banks to reach an overdraft limit agreement with each client (usually up to twice the person's monthly salary) and not to honor checks or debits beyond the agreed framework without special permission from senior bank officials. According to a spokesperson from Bank Leumi, the new regulation has had little effect on the number of Leumi customers in overdraft, but it has reduced the number of people exceeding their agreed limit. The new reality created by the regulations encouraged banks to offer their customers help with basic household budgeting and accounting. Bank Hapoalim spokesperson Ofra Preuss said that hundreds of people attended a series of money management seminars the bank has offered over the past year. She also encouraged Bank Hapoalim customers to pick up copies of the bank's booklet for staying out of overdraft, available at most bank branches. Preuss also said that despite the high interest rates the bank collects on overdraft accounts, the bank prefers that customers live above the red line. "We take a long-term view of people's financial situations," she says. "In the long run, what's good for the customer is good for the bank. When their financial situation is better, they are more likely to be more involved in other bank activities, such as investments." People who earn enough to cover their debts but lack the motivation or discipline to do so may find their spending ability hampered by their poor habits. But when low wage earners - the working poor - fall into debt, the consequences can be far more serious. The working poor are people whose earnings are at or below the poverty line, defined by the National Insurance Institute as NIS 4,933 a month for a family of four. Some 42% of Israel's poor are working poor, and a large percentage live in Jerusalem, Israel's most impoverished city with a poverty rate of 40%. According to Eliezer Jaffe, founder of the Israel Free Loan Association (IFLA), the working poor maintain a fragile financial equilibrium where any unexpected expense such as a broken refrigerator or a medical procedure is liable to throw them into a downward cycle of poverty. Jaffe said the IFLA helps keep vulnerable populations afloat by providing small interest-free loans to cover unforeseen expenses. "We make up the difference in what's missing," he explains. "It prevents people from going into debt to banks or going to the loan sharks in the black market, who are really vicious. [The] interest sometimes gets up to 25-30%." The IFLA gives out an average of 350 interest-free loans each month to the working poor, immigrants, needy families with four or more children, single-parent families, and families with children with disabilities. The average loan, according to Jaffe, is about NIS 13,000 and repayment takes an average of 1-2 years. To qualify for a loan, a person needs to have an income of NIS 2,500 per month and not more than NIS 13,000. They also need two cosigners who are earning a steady paycheck. Jaffe says about 20% of the loans go Jerusalem residents. About 30% of the loans, he adds, go to recent olim from Russia and France. The IFLA also offers small-business loans as high as $15,000 to help people start a business without incurring backbreaking interest payments right from the start. "The highest level of charity is helping people get on their own feet," he says. At the same time, Jaffe said the organization is careful to ensure that borrowers use their loans wisely. "If we encounter people in deep debt and another loan will only get them into deeper trouble, we won't work with them. We have to help people, not deepen their problems." Jaffe feels the reason so many people fall into debt is lack of education on money management. "Debt is a phantom threat and no one is protected. "Credit card companies encourage spending; banks do as well. There is no self-defense training regarding finances. Then people wake up with great debt." "We need preventative measures against fiscal irresponsibility," he continues. "Budgeting should be taught in the school system. It needs to be institutionalized in Israeli society. It is not for grown-ups only and not for businesses only. People want the things associated with a Western society and there is little thought about how to pay for it." For the past five years, Jody Blum has been filling the education void in Jerusalem, helping people take control of their debt, first through an enlightened seminar called Overcoming Overdraft and now through a year-long program of one-on-one financial coaching. Blum said her approach consists of helping people explore their core beliefs about money, identify financial goals, create a system for tracking their spending and develop a workable budget. Her fundamental message, she says, is that budgeting and accounting are essential, but it won't lead to change unless people explore their relationship to money. "It's all about behavioral change. It isn't only about money. It's about making choices. Sometimes people need to make sacrifices; sometimes we look for ways to increase their earnings." Blum says most of her clients are middle-class to upper-middle-class couples looking to pay off their overdrafts. In the first session, she encourages them to speak openly about money and to write out financial goals, both individually and together. "All sorts of things start to come up," she says. "Sometimes the woman discovers that, really, she thinks the man should be responsible for earning money because that's what her father did. Or, some people act a certain way because they believe they will get an inheritance." After people begin to recognize their core financial beliefs and how they shaped their financial decisions, Blum makes a financial analysis of their income and expenses. She instructs the couple to keep detailed records of all their spending for a period of six months. "At that point, the clients know what is happening financially. They are already empowered. They feel a sense of control of their money," she relates. "Now I teach them about creating a budget. No more tashlumim [payment plans], running bills at the market or post-dated checks. None of that is allowed." According to Blum, creating a budget begins with setting aside enough money to cover five essentials: Clothing, shelter (rent or mortgage), food, utilities and travel (transportation). "They also have to account for unexpected expenses - 10% off the top, plus paying their loans." For some people, the biggest obstacle to financial independence is an emotional one. "There are people who have a mentality that 'Daddy will fix it,'" she says, a condition that prevents them from taking full responsibility for their finances. But, as someone who began teaching people how to manage their money after overcoming her own overdraft, Blum notes that a short period of effort pays off for years in the future. "In the short run, it's about sacrifices, but in the long term it's all about security. That's really the ultimate goal." The Israel Free Loan Association can be reached at at www.freeloan.org.il. Baruch Labinsky can be reached at Labinsky@isranet.com. Jody Blum is available at Jody@minusPlus.org. Debtors Anonymous can be reached at 500-0848.