In Too Deep

Americans have nearly $800 billion in credit card debt. Is debt consolidation the answer to your financial woes?

colleges, she was targeted with credit card offers she gladly accepted.

“In my middle-class family, growing up in Columbia, South Carolina, we didn’t discuss things like the importance of paying bills on time, the dangers of credit card debt, and making sure I didn’t get too many student loans. We didn’t discuss going to public schools as opposed to expensive private schools,” says Arvelo. “I’ve made some really bad choices, and I’m trying to revamp my life. I think debt consolidation will allow me to focus on stability and financial freedom.”

After she gets her doctorate, Arvelo will consolidate all of her student loans and then work to pay down her credit card debt. Debt consolidation is attractive to consumers like Arvelo and Williams, because it offers longer payout terms, lower interest rates, and, at times, a partial reduction of the debt principal or a tax write-off. Before you make a decision about the best way to get out of debt, let’s review the options.

LEARNING THE DIFFERENT STROKES
Credit counseling agencies offer solutions and obtain reductions in interest rates. Williams reached out to CCCS of Greater Atlanta (www.cccsatl.org). “I pay CCCS a $50 fee per month. When I look at what I save, it is well worth it,” says Williams, who had been paying $1,000 more per month in finance charges, late payment charges, over-the-limit charges, and automatic default charges.

In arrears for the last seven years, Williams began a debt consolidation program in April 2005 and will complete it in five years. In exchange for destroying all of his credit cards and committing to a payment plan, Williams negotiated a plan with CCCS to erase late fees, over-the-limit fees, and no-payment fees, and substantially reduced all of his interest rates. They also worked aggressively to make the phone calls from creditors cease. Although he won’t disclose exactly how much he pays monthly in addition to the $50 fee, Williams has paid off approximately 10% to 15% of his total balance.

“CCCS provides free credit, budget, and housing counseling. After looking at income, expenses, and debts and helping the client formulate a monthly budget, a counselor may recommend a debt management plan,” says Sue Hunt, certified counselor and counseling manager of CCCS of Atlanta. “This gives the client some breathing room to work to pay off the debt, usually in three to five years.”

However, many credit counseling organizations are paid by creditors to collect from you. In an industry that has very little regulation, there’s room for unscrupulous companies to prey upon your vulnerability. This has been so pervasive that the U.S. Senate Permanent Subcommittee on Investigations released a report April 13, 2005, that examined the credit counseling industry and exposed abusive practices committed by certain credit counseling agencies. Likewise, on Oct. 14, 2003, the Internal Revenue Service, Federal Trade Commission, and state regulators issued a consumer alert for those seeking assistance from tax-exempt credit counseling agencies. To alleviate any difficulty, try going with larger, more reputable companies such as Consolidated Credit Counseling Services

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