Debt consolidation sometimes an avenue for addressing money woes

Oct 21, 2009 (The Brownsville Herald - McClatchy-Tribune Information Services via COMTEX) -- CSCRA | Quote | Chart | News | PowerRating -- If you actually have the money to manage your debts, consider yourself lucky.

Janie Alegria, Rio Grande Valley services coordinator with the nonprofit Consumer Credit Counseling Service of South Texas, says most of the people who come to her for help don't have the means to satisfy all their creditors even if they wanted. That's when it's time to start writing letters to those creditors and ask for mutually acceptable payment arrangements. Bankruptcy is the last step if nothing else works.

In a less extreme case, a person is simply grappling with interest rates so high that paying down the balance becomes nearly impossible. It's easy to charge a little here and little there on one or more credit cards, only to wake up one day in the shadow of an enormous, angry debt cloud. And woe to those who miss a payment: Credit card companies are notorious for jacking up interest rates if you're even a day late making a payment. It's all in the fine print.

The resulting high finance charges make for a monthly minimum payment -- which is all some folks can swing -- that barely touches the principal and makes paying off debt a difficult and lengthy process. At the same time, credit card companies get to make more money off you for a longer period of time.

Is there a solution? Debt consolidation is an option for about 20 percent of the clients who come to Alegria with financial woes. She's seeing a lot more people in desperate financial straits since the recession began affecting the income of family breadwinners -- often forcing them to use credit cards to cover basic necessities, sending debt higher and putting families in even more of a bind. Consolidation, in this case, means turning multiple debts into one, with a manageable interest rate and monthly payment.

"That's why we call it a debt-management program," Alegria says. "It's just managing that debt."

A counselor sits down with the client, analyzes his or financial situation, debt-to-income ratio and other factors. The client gets copies of his or her credit reports. A debt-management plan emerges. Every person's situation is different, thus no two plans will look alike, Alegria says.

The CCCSST, through its affiliation with the National Foundation for Credit Counseling, has agreements with major credit card companies and other lenders that allow it to negotiate on behalf of clients for concessions -- usually in the form of lower interest rates. Creditors cooperate because they know counselors have done their homework and won't ask for concessions for clients who can't follow through, Alegria says.

Clients who opt to take part in a debt-management program, which charges $20 a month for the service, make lump monthly payments directly to CCCSST. The client receives statements from each creditor detailing payments along with any concessions in the agreements. The client also receives a statement from CCCSST, and can keep tabs of transactions and balances online -- something Alegria says is important to do.

"We urge people to pay attention to those things, because we cannot keep track of every single thing that happens with every single client," she says. "When we see statements that don't correspond they need to call us right now. If we told them 6 percent (interest) and it's still 20 percent, that's something we need to know."

Besides checking their statements and making their monthly payments on time, of course, clients are advised to completely pay off outstanding debts anytime they're in a financial position to do so, rather than drawing them out unnecessarily. Balances with the highest interest rates ideally would be the first to go.

Type "debt consolidation" into an Internet search engine and you'll get hundreds of hits offering one type of service or another. Television ads compound the confusion. Some of the offers are legitimate and some aren't, Alegria says. She says it's best to go with a nonprofit, since they tend to charge less, and not to sign on with an out-of-state entity.

"The state of Texas has very specific laws for consumers and lenders," Alegria notes. "We have laws that protect consumers."

In general, she adds, everyone needs to be smarter about money decisions. And when debt is shoving you into a corner, shove back.

"The thing about debt is you have to go to war with the enemy," Alegria says. "That's your enemy. The first step is to stop charging -- hello! The second step is to pay off what you've already charged. The third one is, when you've finished paying back, pat yourself on the back."

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