by Cara Gardner

So you've got debt. And it's growing. You're only paying the minimums. You're living paycheck to paycheck, with no money left over. And creditors are calling you. If any one of these things is happening, the experts say you need a little help -- or a lot, depending on just how bad it's gotten.

"When an individual finds [him/herself] in financial trouble, the best thing they can do is contact their lenders," says Gene Fitzpatrick, vice president of lending with Spokane's Numerica Credit Union. Fitzpatrick has about seven people on staff just to talk to people about their financial situations. He's in the business of getting loaned money returned, so he knows all the short cuts people try that don't work -- and the ones that do. Of all the things a consumer can do wrong, like miss a payment, rack up more debt, go through predatory lenders, Fitzpatrick says by far the worst mistake is to avoid your creditors with the hope that it will all go away.

"If you make the first step in talking to your creditor, you've bought yourself a lot of good will. Call them up, say, 'This is where I'm at, here's my position,' offer them something. Talk about realistic time frames." Fitzpatrick says by approaching it from an amicable position, creditors will be much easier to deal with.

"You have to remember, if the creditor has called you, you're probably more than 15 days down and all lenders send you notices. If the individual has not called and explained, they've already started to dig themselves a hole."

Creditors are most likely to be successful with collections in the first 30-45 days of delinquency, and they know this, so each of them will be working hard during that time to work with you on a plan. That's the quick fix -- the band-aid that helps out in an emergency situation. But most people with high credit card balances, whether due to improper budgeting and spending sprees, unemployment or medical emergencies, need long term solutions. That's when they're faced with the ever-expanding pool of debt-management agencies -- a pool where they'll be swimming with sharks.

There are about 3 million active debt management plans nationwide. Each year, thousands of debt-laden people get their finances under control with the help of these agencies, but many also find themselves taken advantage of and left with fees for the services on top of what they already owed. Fitzpatrick says people should look carefully into several agencies in their area before choosing one to help them manage their debt. There are some red flags to watch for:

4 How much an agency advertises: "If they are constantly advertising and they say it's 'free' for you, who's paying for their advertising?"

4 The agency promises one low, monthly payment: "That's only possible if you own real estate. But [if you have] a $2,000 balance at 18 percent interest, it's not a good deal to have them extend you on a plan for 15 years."

4 Fees: "Look at what fee they'll charge. If they're not charging a fee, ask them how they're getting paid." Often, legitimate credit counseling services are paid "fair shares," or commissions from the credit card companies for helping consumers repay their debt.

All debt-management agencies work a little differently. Some will charge you fees up front, while others will hold your first monthly payments for themselves. It's best to have several debt-management plans to choose from, and if you have a bank account, to speak with a representative from your bank about what may work best for you.

Publication date: 09/16/04

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