Lighten the Load
Star Tribune
By Graydon Royce

For a long time, Debbie tried to ignore it. The bills would come each month and she'd do her to pay what needed to be paid. When an application came along that promised a lower interest rate, she'd transfer some of the old balance over to the new card. Then she wouldn't have to make a payment for a while and she could breathe easier. But like the many-headed hydra, the bills multiplied, and soon she was facing a moment of truth.

"All of a sudden one day I just thought, 'I have to sit down and take a look at where I'm at,'" Debbie said. "I just really tried to ignore it, and I guess I was starting to lose some sleep and finally sat down and went through it. And I said, 'How am I going to do this math?'"

She resolved to take action and get her financial life in order. She went to a debt counselor and said, "I've got a problem."

It's a choice thousands of Americans are making in an era of relatively easy credit. While the number of people who file for personal bankruptcy is still three times the number who seek debt counseling, the latter is in ascendancy as an option. In Debbie's case, for example, she thought about bankruptcy, but decided she "wasn't that desperate."

Dick, who has also gotten into a debt counseling program, said he believes that many people don't understand and appreciate the alternative to bankruptcy. Dick felt apprehensive when he first considered seeking help, but today says that "I wished I would have done it a year before. If you wait too long, you can mess up your credit."

Like anything that requires a sobering look into the mirror, making the decision to see a debt counselor requires courage and resolve. It's difficult to admit. "Everyone with an excessive amount of debt has a problem with denial," said Tiff Worley, head of Metropolitan Financial Management Corp., based in Roseville. "When they call us, they understand they are in trouble."

Worley sits across a conference table from a reporter sent to find out what it's like to get into a counseling program. The conversation meanders through numbers, to credit cards, medical bills, to what motivates his clients. Finally, he's asked, how does the process work? Worley pops into counselor mode, grabs a pencil and a small index card. He motions for his visitor to play along.

Budget counseling helps people caught in the easy-credit trap

"Now how much do you make?" he asks in a solicitous voice.

(Hey, this is getting personal.)

He writes down the figure.

"And what's your mortgage?"

(Now the heart starts to race. I'm not in trouble, I'm sure of it.)

Utilities? Phone? Cable TV...

(Cable TV? Man, he wants everything.)

Private school tuition?

(Oh geez, that's the big one. Hey, wait a minute, I'm just here to write a story, I can't be in trouble, can I?)

Car payments? Second mortgage? Home equity loans?

(Yes, yes, yes! The dry mouth makes it hard to swallow, but Worley is as clinical as a dentist, trying to be friendly as he drills that root canal.)

How much do you need each week for groceries? Clothing?

(C'mon, this isn't fun anymore.)

And how about credit cards?

(Well, $1,400 on a Star Tribune credit card, and $600 pm a Household Bank card. Please, please, please. Tell me I'm OK.)



Finally the fever spikes as Worley spins off from reality. "OK, $6,000 to HSBC."

(No! No! I said $600.)

He smiles. "Let's make it $6,000, because otherwise you're not in trouble."

The shoulders slump and the heart calms. High-fives all around. No trouble at all. Worley walks through the rest of the process and comes up with a plan, based on what are now make believe numbers. This is easy, this is pretend. Gone is the panic of realizing something you don't want to realize. But for many folks, this is not make-believe.

"When I went in there, I was really scared," said Debbie of her experience at Metropolitan Financial. Confronting hard realities can do that to a person. "But once I knew that I was going to have a focus and a goal, and I really faced the situation, I felt better- even though I knew the reality of how far in debt we actually were."

That relief primarily stems from the sense of control that people gain when they understand their finances. As Worley says, "Most people coming to us are living their lives with finances dictating the way they must live. We want to get them to the point where their finances support the way they want to live." Dick said that he didn't find the process terribly worrisome. "no, the alternative was what is frightening."

The process

Typically, a debt counselor goes through the same process described above, trying to determine the exact income and expenses of the client, short of the offending debt. Debt repayment services are regulated by the state Department of Commerce, so the process is similar at all offices that offer such services.

Suzy Wheeler, education coordinator for Consumer Credit Counseling Service, which has 21 offices in Minnesota, says that in her firm's program, clients go through a 90-minute financial counseling session. Occasionally, clients will be asked to track expenses to determine just where their money is going. And in some cases, the counselor may encourage help with a significant problem, such as gambling.

Jody Anderson, a manager with Consumer Credit, says that clients with urgent needs - a summons from a creditor or a foreclosure notice - are connected with a counselor for an immediate appointment.

"We're a financial counseling service," said Anderson. "We don't set up a debt repayment plan on the phone. You shouldn't do this to get a lower interest rate. We try to get them to handle their debts themselves - hoping to help them not get into this situation again. Seventy-five percent of the people we see don't use the service." That may mean the client can deal with the problem through better financial management, or that the individual simply doesn't choose to be a part of the program.

But for those who do, Wheeler says, a debt-payoff plan is devised that works for both the creditor and the consumer.

For example, after reviewing a budget, a counselor might find that a client has about $300 available a month after expenses. Then the counselor can work out a plan with the credit-card companies within those parameters. The card companies, which provide the bulk of revenues for debt-counseling services, provide for a reduced interest rate and modified terms to make the plans work. It's in their interest to retain the customer. The debt is then amortized, usually over about 41/2 years - although man clients get motivated and finish early.

Because creditors provide most revenue for the debt-counseling services, the process is not expensive for consumers. Consultations are free and monthly fees are nominal. Oftentimes the counselor will discuss behavior with the client that may have contributed to the problem. For example, Worley says that during the term of any program he works out, the client can't charge anything on credit cards. "Something in the budget has to give," he says. That avoids the circle that Debbie and others have gotten into - borrowing to pay off existing debts without addressing the behavior that brought on the problem in the first place.

"I'm not a frivolous person," said Debbie. "But a lot of it was taking out cash advances to pay bills and when you do it once a month, I guess I didn't realize how much that accumulates. I try to balance my money better than I did before because I realize I don't have any credit card to go back on. This is it; this is the money."