Finance: Do-It-Yourself Credit Counseling
By Linda Stern
WASHINGTON (Reuters) - It's sad but true that some predatory businesses make money by going after people who have troubles. Credit counseling, born as a good, nonprofit service, has morphed into an industry that all too often takes money from the debt-burdened without giving anything back.
Abuses in the credit counseling industry have made headlines in recent years, and now the U.S. Senate and the Internal Revenue Service are looking at these companies. "Clearly, something is wrong," said Sen. Norm Coleman, a Minnesota Republican.
Some new entrants are the worst culprits. While billing themselves as nonprofits, some of them charge high fees, skim money for their own managers and fail to follow through with worthwhile credit payment plans.
But there are reputable credit counselors around. If your debt problems are too big for you to solve yourself, look in your local phone book for the nearest Consumer Credit Counseling Service affiliate. Or go to the national association, the National Foundation for Credit Counseling (www.debtadvice.org), for a list of online credit counselors.
There are other good-guy counseling companies, too, but they don't come cheap. So before you turn that mountain of bills over to someone else, take a stab at being your own credit counselor. If you have cash-flow problems and owe more than you can reasonably pay, but you think you can eventually dig yourself out, here are some actions you can take:
-- Get the book "Money Troubles: Legal Strategies to Cope With Your Debts" by Robin Leonard, $30 from Nolo Press (www.nolo.com.) It may seem funny to advise spending more money as the first step in solving your financial problems, but this book will walk you through negotiations with creditors, prioritizing your debts and more. You probably can find it at the library, too.
--Prioritize your bills. You should pay everybody who you owe, but some creditors can hurt you worse than others. Nolo Press, which also publishes several legal-self help books, suggests on its Web site that you put all your available cash toward your mortgage, utility bills, child support payments and the like. If you can't do all that and make your car payments, sell your car and use the proceeds to pay off the loan. You can put off your doctor, dentist and mom until times get a bit better.
-- Be strategic about your credit cards. Credit-card debt is unsecured, so you aren't going to lose your house or your car if you fail to make a payment, but your credit score will suffer and you will lose the ability to borrow money easily in the future. So if your credit rating is still good enough to qualify you for a low-interest card, move your balance there and make at least minimum payments every month until you can afford to pay more. If it's too late for that, pay minimums on all of your cards and put any extra money in the one with the highest rate. You can find a good calculator that will walk you through all this at Minneapolis-based KJE Computer Solutions LLC's Web site (www.dinkytown.net). Click on "Rolldown your credit card debt."
-- Raise money any way you can to chip away at your debts. That may include selling things you own, taking a second job, or more. Think of it as a temporary fix. Even a few months of moonlighting can help erase some bills.
-- Contact your creditors, including the IRS, if you owe back taxes. The IRS does stretch out payments for taxpayers who can't afford to settle their whole tax bill at once. Not all creditors will negotiate an easier repayment plan, but some will. They'll be most likely to stretch out payments. That can cost you more in interest in the long term, but keep your payments lower in the short term.
-- Learn more about credit. The best counseling agencies don't just act as intermediaries with your creditors; they also help you establish budgets and financial habits that will keep you out of trouble for the long haul. Sadly, you have to pay for most of the good information that credit counseling companies offer on the Internet. But most states offer very good family budget education programs through their agricultural extension services. One standout is the Family Financial Counseling Clinic at Iowa State University.
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