Counselors can aid budget discipline

By KARA McGUIRE, Star Tribune

Last update: July 26, 2008 - 4:45 PM

Not everyone can figure out a road map for debt payoff and stick with it. Some need a hand to hold, and that's where credit counselors come in.

Amy Knutson knew her $19,000 credit-card debt was out of hand. There were months when she turned to credit cards to buy groceries and gasoline. In 2000, she learned about the Consumer Credit Counseling Service of San Francisco -- which offers phone and Web counseling -- through her credit union and created a debt management plan.

With a debt management plan, you make a single payment to all of your creditors through the credit counseling service. The credit counselor negotiates with creditors to lower payments or reduce interest and fees. Knutson said some creditors dropped interest rates on her debt to zero.

Credit counselors also can help budget a way out of credit-card debt without using a debt management plan.

When choosing a credit counselor, look for a recommendation from a trusted partner or friend. And make sure the counselor has your best interests at heart. Some awful credit-counseling outfits have used "nonprofit" as a selling point, so don't take that as the gold standard.

Also, stay away from organizations that charge high fees, won't answer all of your questions about the organization in detail, or force all clients into debt management programs.

Go to the Federal Trade Commission website, www.ftc.gov, and search for "credit counselor" for a handy how-to. Check with the attorney general's office (www.ag.state.mn.us) and the Better Business Bureau (www.thefirstbbb.org) to see if an organization you're considering has complaints on its record.

It was a tough six years, but Knutson completed her debt management plan in 2006 and has managed to use credit wisely since then. What keeps the 41-year-old from Burnsville from getting in deep again? For one, using cash all of the years during her debt payoff program taught her to "really think through choices."

She also found a motivating phrase: "Joy is not in things; it is in us." When she feels tempted to charge something, all she has to do is remember the depression and worry that came with credit-card debt.

"Knowing that I don't owe anybody makes me feel 100 times better."

KARA MCGUIRE

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