Debt management programs get consumers out from under bills

By Eileen Alt Powell AP Business Writer - 11/19/2007

NEW YORK — Consumers struggling to keep up with higher gas prices and other rising household expenses have been pulling out their credit cards more often — sometimes too often.

Credit counselors report a sharp rise in the number of families seeking help, many of whom end up on belt-tightening budgets and debt management programs to pay down their balances.

‘‘People are using their credit cards because they don’t have enough money to make it day-to-day,’’ said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Service in Fort Lauderdale, Fla. ‘‘It’s driving the American consumer deeper and deeper into debt.’’

What happens, he says, is that ‘‘eventually they hit a wall — and then they call me.’’

And they’re calling in increasing numbers.

Susan C. Keating, president and chief executive of the National Foundation for Credit Counseling, said the nonprofit counseling agencies in her organization dealt with a million consumers in 2005, 2.2 million in 2006 and are on their way toward seeing a record 2.8 million this year.

Mortgage foreclosure problems as well as pre-bankruptcy counseling have swelled their ranks, Keating said. But credit card debt also continues to trip up consumers.

The Federal Reserve reported Wednesday that outstanding credit card debt grew at an annual rate of 4.4 percent to $920.1 billion in September from $917 billion the month before.

Frank Ciampi, a musician and stagehand who lives in Chicago, said he sought help from Consolidated Credit after credit card companies began imposing penalties on his accounts.

Ciampi, who is 38 and single, said he had had a disagreement with an auto mechanic over what he believed was unauthorized work. The card company initially removed the disputed charge, but later added it back — pushing Ciampi’s balance over the limit.

‘‘If you’re 10 cents over the limit, they start adding penalties,’’ he complained. ‘‘There’s big business in those penalties, and it got me fed up.’’

So a couple of months ago, Ciampi cut up his credit cards, except for one he uses in emergencies, and agreed to a debt management program, or DMP.

Through a DMP, a counseling agency often can get card companies to forgo or reduce penalty fees and cut interest rates. At the same time, the consumer agrees to monthly payments that the counseling agency collects and passes on to creditors. The fees for these programs average about $30 a month.

Ciampi said he’s happy to be on a ‘‘cash only’’ budget and to be paying a single bill to eliminate his debt.

David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, said the nonprofit counseling agencies in his group have seen a rise in the number of people seeking help, including the elderly.

‘‘We have retirees coming in with no income other than Social Security and $50,000 to $60,000 of unsecured debt that they can’t handle,’’ Jones said.

Some consumers need just a bit of help creating a spending plan, and then can get a handle on their debts themselves, he said. Others may be able to borrow against their homes and reduce their card debt that way. Still others may need to speak to attorneys about filing for bankruptcy.

Those who qualify for DMPs have a steady source of income — and are willing to cut up their cards and work over the next three to five years to become debt free.

‘‘It’s not just credit card debt,’’ he added. ‘‘Often people have debts to doctors, lawyers, dentists hospitals that need to be paid off, too.’’

Gail Cunningham, a spokeswoman for the NFCC, said some consumers weren’t sure when to seek counseling. Her suggestion is, the earlier the better.

‘‘If you’re afraid to answer the phone because it might be a bill collector, afraid to open the mail, getting into arguments over money at home, hiding your purchases ... not sleeping well, you may need help,’’ she said. ‘‘It won’t hurt to see a credit counselor and get an independent, third-party take on where you are.’’

Cunningham estimated that about a third of the consumers that credit counselors see can, after a bit of counseling about budgeting and spending, better manage their credit cards. Another third, say people with a gambling problem or an abusive relationship, may be referred to another agency for help. The remaining third go into a debt management program.

‘‘The most important thing is a willingness to change, to stop charging and make a fresh start,’’ she said.

On the Net: www.consolidatedcredit.org www.nfcc.org www.aiccca.org