How Can I tell if I'm too much In Debt?


If you are facing a stack of bills you can't handle, take heart, even in spite of the bad marks, the credit counseling industry has been receiving lately, plenty of nonprofit organizations still remain true to their founding principle: helping folks get out of debt.

Every year, the National Foundation for Credit Counseling (NFCC) counsels close to two million American households through its 115 member agencies in nearly 1,000 offices nationwide. Whether they simply seek financial advice or choose to enroll in a debt-repayment plan, many of those families or individuals carry thousands of dollars in debt, often more than their annual income. Much too often, they have run into trouble because of a life-changing event like a job loss, death, illness or divorce.

Credit counseling is also now a required step in bankruptcy filing. It is projected that 600,000 Americans will file for bankruptcy in 2006, according to the NFCC.

Before you pay an outside counselor for help, however, you should be sure that you've tried all the easy solutions first. For instance, have you considered a loan from a family member? You should also consider a loan from your 401(k). Limits are as high as $50,000.

And have you considered consolidating your debt on a low-interest rate credit card or tax-deductible home equity loan? To find out whether that strategy makes sense for you, try our consolidation calculator. Of course, it's not easy to compare credit card offers these days; low introductory rates, subsequent rates and annual fees make it difficult. So, use our credit card comparison worksheet. It will tell you which is the best deal. And don't miss our online buying guides for mortgages and credit cards.

Finally, we have to ask you the obvious. Have you tried to cut your expenses? Why not track your spending for a few months, then see what you can eliminate. This is probably the quickest avenue to debt reduction.

Choosing a Debt Counselor

Finding a good credit-counseling program can be a bit tricky. After all, it's not something you'd want to bring up with colleagues around the company water cooler. That means you'll have to do the legwork on your own. But there are a few things to keep in mind to make the task easier and less fraught with disappointment.

First, look for a nonprofit firm. You've spent too much already, why pay more now? Nonprofits get most of their funding from creditors, not you. Privacy isn't usually an issue, but it's wise to check what the agency's policy is. Make sure they don't sell your information. Also, check the enrollment and monthly fees. According to the Association of Independent Consumer Credit Counseling Agencies (AICCA), many ask for only a nominal fee to enroll, capped at $75, and a monthly fee as high as $50, while few have been known to charge the full amount of your monthly debt payment, plus an additional 10% each month. Neither the AICCA nor NFCC groups charge the latter. Not surprisingly, the IRS has been investigating the non-profit status of these companies.

Second, find out upfront exactly what services you'll receive, such as counseling, a debt-repayment plan and budgeting advice. The more services, the better. You might want to have them put it all in writing and send you the information before you proceed.

And ask if the organization belongs to any professional groups, such as the NFCC or the Better Business Bureau. Have them explain how they're audited and if your funds are protected. After all, you're sending them your money

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