Credit Counseling Can Help Consumers Bail Out of Debt
The Wall Street Journal Sunday
January 2, 2000
By Cassell Bryan-Low

If you woke up this morning feeling you may have spent too much over the holidays, you're not alone.

"It's holiday hangover month," says Steve Rhode, president of Debt Counselors of America, a Rockville, Md., nonprofit organization that helps people with credit problems. "People (will be) getting their bills and realizing they spent more than they planned to."

Even if the problem is just a bigger-than-expected credit-card bill, getting your finances back on track is easier than you think-and you don't have to pay a financial adviser hundreds of dollars to do it.

Instead, you can get help from one of several nonprofit organizations around the country that answer questions about credit and debt problems and give budgeting advice, usually at no cost. And in more sever cases, they'll renegotiate payments with creditors on your behalf for a minimal fee.

Not to be confused with for-profit "credit-repair" services that can cost much more than they are worth, these nonprofit groups get most of their funding from credit-card companies and other businesses with an interest in seeing debts repaid. But they aren't tied to a particular creditor-and their help is confidential.

No problem is too big, or too small, ether. "A good indicator is, if you're worried about your bills, it's time to get help," says Mr. Rhode.

You can get free consultations from these groups over the telephone or in person by walking into a local office. (Most of the organizations listed nearby will help you find one in your area.) By taking a look at your income and expenses, they can help you with specific queries about re-establishing credit or buying a house if you're in debt, or just drawing up a budget.

"The real help is to put it into perspective and identify what the options are," says Tiff Worley, founder of Metropolitan Financial Management, a nonprofit counseling service based in Roseville, Minn., with branches in several other states, including California and Colorado.

Nearly two million people sought help last year from the National Foundation for Consumer Credit, an umbrella group for 1,450 local nonprofit credit-counseling organizations. That's a threefold increase from 1990. Many of these local affiliates, which provide credit education, budget and debt counseling and debt-repayment programs, operate under the name Consumer Credit Counseling Service. (Be sure to avoid other, similar-sounding firms that aren't nonprofit and charge steep fees for debt counseling.)

Experts say your debt payments (not including your mortgage) should not exceed 10% of your take-home pay. "If it's 15% to 20% of your net income, then you're getting into a trouble range," says Thomas Collens, vice president of Consumer Credit Counseling Service of greater New Orleans.

Although financial troubles can be triggered by life crises such as extended illness, job loss or divorce, says Mr. Rhode of Debt Counselors of America, "often these things accrue over a long period of time." Many people don't admit they need help until things have spiraled out of control. Mr. Rhode says his clients have an average of $18,500 in debt and about six credit obligations-including such things as furniture loans, medical expenses and credit cards.

Those with serious credit problems can enroll in a debt-repayment plan, which typically carries a $10 to $20 monthly fee to cover administrative costs. In return, a counselor deals with creditors on your behalf and can often negotiate lower interest rates and get fees waived.

One drawback is that your participation in a debt-repayment plan may appear on your credit report, which can affect your chances of obtaining credit down the road. But that should be weighed against the risk of falling further behind on monthly payments and potentially facing bankruptcy proceedings-which many experts say should be a last resort.