- The Washington Times - Monday, June 22, 2009

NEW YORK | Rolando Vela was in deep.

He owed almost $55,000 on a dozen credit cards, more than his annual salary as a local government worker. The Sebastian, Texas, resident used cash advances from some cards to pay the tab on others. The interest rates were “outrageous.” He was dodging collections calls.

“I kept digging myself into a deeper hole,” he recalled. “I felt like I was drowning in debt and there was no end in sight.”

For millions of Americans, that’s a familiar feeling.

Mr. Vela convinced himself that if he asked for help, he would be admitting failure. But some friends talked him into consulting a credit counselor.

It took 5½ years, but this spring, he became debt free. And during that time, he did more than just pay bills. Through his program at the Consumer Credit Counseling Service of South Texas, Mr. Vela learned financial discipline, found out how to clean up errors on his credit report and came to understand how he got himself into such a mess.

Those are lessons that many could benefit from learning. But like Mr. Vela, people often hesitate to seek help, even when they are having trouble keeping up.

Embarrassment is the biggest barrier, said Bruce McClary, a financial educator with Clearpoint Credit Counseling Solutions. Asking for help can be especially hard for people who seem to have stable financial lives, “but underneath the surface, all the ingredients are there for a financial catastrophe,” he said.

And while talking about personal finances has become more common since the economic downturn began, there is still taboo involved.

“We are sensitive to the fact that it’s difficult to walk through that door and bare your financial dirty laundry to a total stranger,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

The recession has made it more common to search for assistance. The number of people seeking help from National Foundation for Credit Counseling agencies doubled in the past two years, to 3.2 million in 2008. The average client had six credit cards. And unsecured debt such as credit cards added up to 62 percent of their total household income.

As U.S. consumers learn more about credit amid the weak economy, it might be assumed that more people are trying to pay down their credit cards. Yet the data isn’t so clear. The average debt consumers carry on credit cards rose nearly 5 percent in the first three months of 2009, to $6,226, up from $5,938 in the 2008 first quarter, according to credit reporting agency TransUnion.

Economists say some of the increase reflects a heightened reliance on credit cards to fund living expenses in hard times. But for many, rising balances may be one sign that debt is becoming a problem.

Other indicators that should raise concern are:

• “Maxing out” credit cards by using all the available credit.

• Taking cash advances or using credit to cover everyday expenses like groceries and gas.

• Skipping payments or making only minimum payments.

• Charging more each month than you are paying off.

• Avoiding opening bills or getting calls from collections agents.

Mr. Vela admits he ran up his cards by not paying attention to his spending, but that’s not the only way to get in over your head.

When entrepreneurs start their businesses, it’s common to use credit cards to finance living expenses, business costs or both. That’s what Megan Reay did when she opened her coffee shop three years ago.

“I really was not in a position to open my own business, but the opportunity was there, and I wanted to take it,” Miss Reay said. “When you start a business, you don’t see any money coming back to you. It’s a never-ending hole that you get into for the first couple of years.”

That hole amounted to about $15,000 on 15 cards. “My interest rates were high because I had so many credit cards maxed out, plus I was missing payments,” she said.

With her Portland, Ore., shop beginning to support itself, Miss Reay decided it was time to get help. “Since I opened the business, I’ve lived in kind of a permanent state of stress,” she said. So three months ago, she called Clearpoint Credit Counseling Solutions. Clearpoint consolidated her debt and set up a payment schedule that should see her cards paid off in four years.

The recommended payment schedules are not easy. Debbie Gormley, a nurse who lives in Philadelphia, recently signed up for help. The four-year schedule she and her fiance, Robert Fatanoff, have been given to pay down their $75,000 in debt leaves them just $200 extra each month.

Miss Gormley said she will try to go through the program, but she’s worried about what will happen if there’s an emergency. She and Mr. Fatanoff have five children between them.

“There’s always something that comes up,” she said, noting that taking part in the program means agreeing not to use credit cards at all, even for an emergency car repair or other crisis. “You don’t want to use a credit card, but what other option do you have?”

Miss Gormley considered bankruptcy, but was afraid that would ruin her credit rating and make it harder to reach goals like moving and buying a new car. “We’re trying to do the right thing, so that we can do these things in the future,” she said.

Wayne Greenwald, a New York bankruptcy attorney, said by the time most people reach his office, they have few other choices left beyond bankruptcy, even though most have never sought counseling. Ironically, the 2005 changes to bankruptcy laws require everyone go to a credit counselor for a review of their situation and debt education before filing.

Low-cost counseling is available almost anywhere in the country through the National Foundation for Credit Counseling, at www.nfcc.org. or the Association of Independent Consumer Credit Counseling Agencies, www.aiccca.org.

Both refer people to certified nonprofit organizations that help consumers assess their debt situation and find the best way to deal with it. Most offer a range of options for dealing with the issue, from face-to-face counseling, online help, to classes, many of which also are available to people who are not signed up for repayment programs.

“Those organizations are there to ensure that you are protected,” Mr. McClary said, “because the agencies that participate are held to certain standards.”

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