Help! You Need Somebody
When the debt burden gets too heavy, who ya gonna call?
By Jean Chatzky

(MONEY Magazine) – When Hollywood, Fla. couple Ted and Kristie Long married four years ago, they merged not only their lives but also their debts. "We each had a couple of credit cards with big balances and lots with little ones," Ted explains. They were taking home $52,000 but couldn't seem to get ahead of their $11,000 in credit-card debt, which carried interest rates of 18% to 20%.

"When we sat down each month to pay our bills, we'd write 10 to 12 checks, which took forever," Ted recalls. "And whenever we'd get close to paying off the little cards, the big ones would be maxed out, so if we needed something, we'd use the little ones. It was never ending."

Clearly, the Longs needed help. They couldn't consolidate with a home-equity loan because they didn't own their home. They weren't earning enough to qualify for an unsecured personal loan. Finally, some friends suggested a credit counselor.

According to Catherine Williams, vice president of financial literacy for Money Management International, a Houston-based counseling agency, it makes sense to seek credit counseling if you're using one card to pay off another, as the Longs were; if you're taking routine cash advances; or if you've been denied an increase in your credit line.

The Longs selected Consolidated Credit Counseling Services, a Fort Lauderdale-based not-for-profit. As with most agencies of its type, counselors sit down with consumers who can't pay their bills, ask an hour's worth of budgeting questions and enroll those for whom it's appropriate in a debt-management program, or DMP. About a third of potential clients can manage on their own without a DMP, and another third are in such dire straits that bankruptcy is the only answer, Williams says.

In a DMP, the credit counselor arranges for you to pay off your debts at lower interest rates. Old late fees and penalties are also waived. In exchange, you agree to stop using your cards and not apply for more credit. Each month, you make one payment to the counseling firm, which disburses your payments to your creditors. (The creditors, in turn, rebate a portion of the money to the counseling firm.)

While the Longs have been pleased with their credit counseling, DMPs aren't the answer to every debtor's prayers. For starters, they're not free: You'll pay both an up-front activation charge and a monthly fee. Worse, the Federal Trade Commission has charged some agencies with not fully disclosing their fees, others with not disbursing money to creditors in a timely manner, and still others with enriching their boards.

So if you're in the market for credit counseling, you need to be careful. Look for a not-for-profit firm that:

• Belongs to the National Foundation of Credit Counselors (NFCC) or Independent Association of Credit Counselors; both require that counselors be certified. • Will assign a counselor to spend at least 45 minutes to an hour evaluating your financial situation. • Can handle all your debts. • Charges no more than $75 up front and $35 a month.

Once you find a counselor, stick with the program, as Ted and Kristie Long have. Every month for three years they've paid $350 toward their debts, plus $34 to their counselor.

With only eight months left to go, they're feeling good. In fact, they just took a trip using absolutely no plastic. "We paid for it three to six months in advance," Ted says. Their counselor must be proud.