Debt: Assess the problem

Debt: Assess the problem
The Chatzky Program, Step 1: First you have to know what you owe.
August 5, 2004: 5:41 PM EDT By Jean Chatzky, MONEY Magazine
NEW YORK (MONEY Magazine) - Until very recently, Tina and Brian Sturlaugson, who live with their three kids in Everett, Wash., knew that they were in debt (the bills each month were overwhelming) and they knew why they were in debt (Brian, 44, lost his job as a help-desk analyst last June, which cut their income in half).
What they didn't know was how bad the problem was. "If I say I didn't want to know, does that make sense?" 32-year-old Tina, a Web site developer, asked me. "I'm scared to figure out where we are. Not knowing somehow makes you feel better."
Unfortunately, not knowing how much you owe, to whom and at what interest rates, also allows you to spend as if your debt doesn't exist, as the Sturlaugsons did during the holidays.
Many, many people are in the same situation.
According to research by RoperASW, although 69 percent of Americans can make their rent or mortgage payments, and 85 percent can buy what they need, only 38 percent can pay off their credit cards each month, and only 28 percent say they have enough saved to weather a financial hardship.
But getting out of debt is doable, and over the next several months, we'll tell you how to do it. Let's begin.
Step 1: Understand why you're in debt
It's basic psychology: If you don't fix the underlying problem, conquering the symptoms will do you no good in the long run. You'll repeat the same behavior and end up in the same debt hole again.
Maybe, like Brian, you're one of the 2.4 million Americans who've lost a job since 2001. Maybe you didn't get the raises you were counting on. Maybe you bought or rented more house than you could afford, or got divorced and tried to maintain your standard of living, or had a health scare.
Maybe it's a combination of these factors -- or something else entirely. The key is to know where you0r financial weakness is coming from.
Step 2: Recognize how serious the problem is
With my prodding, Tina spent a weekend figuring out how much was coming in each month, how much was going out, and where it was going. "It took hours," she recalls. "I cried."
She calculated their net monthly income at $4,634 and their average spending (including the mortgage, a consolidation loan, a home-equity line of credit and minimum payments on five credit cards) at about $5,800. "It's even worse than I thought it was," says Tina.
But going through the numbers also showed her the possibilities.
Her credit cards are at fairly high interest rates, so she'll try to reduce those. She can spend less on auto and homeowners insurance and long-distance service, and swap from premium cable to basic. And she'll ask her son's preschool for financial aid.
The family's goal for the next few months is to trim their expenses to equal their income.
Brian will graduate from a training program for medical transcriptionists in June and -- they hope -- will soon be back in the work force.
By paring their spending now, they'll be able to make rapid progress on their debt then. And that prospect feels good. Says Tina: "I should have done this years ago."



Find this article at: http://money.cnn.com/2004/05/21/magazines/moneymag/chatzky_program_0404/index.htm

You Have a Good Income but You're Still in Debt

You Have a Good Income but You're Still in Debt
Elizabeth Warren
Harvard Law School
Amelia Warren Tyagi
The Business Talent Group ou might expect that the two-income families of today would have a higher standard of living and greater financial security than the single-earner households of past generations. The fact is, most families are buried in debt. In 1981, the average family owed just 4% of personal income in credit card and other unsecured debt. Today, that figure has tripled to 12%.
The standard advice for getting out of debt and living within a budget often fails to yield results because it's based on an outdated 1950s model -- one wage earner per household and limited sources of credit.
If you have a good income and you're still struggling with debt, try these new strategies...
smarter spending
Old Advice: Cut back on small luxuries... brown-bag your lunch... clip coupons.
New Advice: Focus on big, recurring expenses. Most middle-class Americans today are sensible people who aren't blowing their paychecks on frills. The real issues are their exorbitant fixed costs -- mortgage payments, premiums for health and other insurance, college tuition and car payments. Reassess those big expenses -- checks you write month after month without thinking about them -- to determine whether you are getting the most for your dollar.
Examples: Payments for a second car you might be able to do without... private college tuition when a less expensive public university might be fine... high-cost health insurance instead of a lower-cost HMO.
Monthly services
Old Advice: Negotiate the best deal you can for services you pay for each month, even if it means taking out a long-term contract.
New Advice: Avoid long-term contracts whenever possible. What you need in the event of a financial crisis is flexibility. In the long run, multiyear contracts for such things as satellite television service, cell-phone plans and gym memberships may cost you more in termination fees and regrets than higher-priced, short-term contracts.
mortgage payments
Old Advice: Buy as much house as you can afford by borrowing the maximum amount of money your lender will allow.
New Advice: Don't trust your mortgage lender or bank to tell you how much you can afford. Forty years ago, home buyers couldn't get interest-only loans or loans with "no money down." Lending standards have since been relaxed as competition has increased. Result? Many people are house-poor because banks have awarded them mortgages that are beyond their means.
If the only way you can meet the payments for your home is to commit to a risky mortgage that totals more than 28% of your combined incomes, don't do it. Find a house you can afford -- or consider renting a house or an apartment until you can truly afford to buy.
Debt control
Old Advice: Pay off your highest-interest debt first. Then move on to the next highest, etc.
New Advice: Pay off debts that bother you the most first. Being in debt is not only about dollars and cents. It's about peace of mind, too.
Is there a bill that makes your blood boil every time it appears in the mail or frequently sparks a quarrel with your spouse? Paying these bills first may not technically be the most efficient way to use your money, but it can have a significant and immediate impact on your sense of well-being.
Better budgeting
Old Advice: Agree that only one spouse will handle the finances, so that the other spouse is free of the responsibility.
New Advice: Each spouse should accept 100% of the responsibility for the finances. Both spouses need to create ground rules for spending and paying debts, even if only one spouse actually handles the paperwork. Otherwise, the more financially responsible spouse winds up nagging, thereby increasing the conflict and tension in the marriage.
The money and bills legally belong to both of you, even if you find it more convenient to manage them from separate checking accounts.
Make it easy for your partner to be truthful. Spouses may tell white lies about money because they don't want to justify their purchases. Promise your partner that you'll never question his/her spending as long as he stays within the household's budget for discretionary or "fun" money

Credit Fixes That Can Fix You

Credit Fixes That Can Fix You
Friday , September 02, 2005
posted on FoxNews.com from Smart Money

Time — and only time — heals all the wounds inflicted on a consumer's credit report by unpaid debt. And we're not talking a short time. Credit bureaus can list negative information for seven years. Bankruptcy information shows up for as long as 10 years.
Unfortunately, there is an abundance of enterprising scam artists eager to prey on desperate consumers by convincing them otherwise; that — for a fee, of course — promise they can wipe your slate clean faster than you can say, "Charge it."
Over the past three years, the number of personal bankruptcies has fallen slightly, with 1.57 million people declaring bankruptcy in 2004, according to the American Bankruptcy Institute. But consumer debt is higher than ever before, and with more credit-card companies uping the APRs of debtors who have a poor credit rating, it's easy to see why many might be tempted by promises to make their credit well again. Especially if they're facing embarrassing calls from creditors or in dire need of a mortgage loan or money for some important purpose, like medical care.
But don't be fooled. Catherine Williams, president of the Consumer Credit Counseling Service of Greater Chicago, likens bad credit to wrinkles, and credit-repair organizations to those wrinkle removers you see advertised in slick magazines. "It can't make the wrinkles go away," she says. "These are bad, bad people," she says of agencies that promise to erase the damage. "The only way to heal your credit is with new, regular, ontime payments — and by paying off the old debt," she says.
In 1997, Congress passed the Credit Repair Organizations (CRO) Act to limit the claims such organizations can make. The Federal Trade Commission and the Department of Justice make periodic sweeps to crack down on fraudulent practices. But, these days, credit-repair schemes are proliferating on the Internet and attracting customers through email marketing. Some businesses do operate within the guidelines of the CRO Act. But for $100 to $1,000, these flimflam artists only do what you could with a letter and a 37-cent stamp.
File Segregation — the Latest ScamPerhaps the most egregious scam is a relatively new one: file segregation. Unfortunately, consumers who fall for this might wind up with more than continuing bad credit. They could win a criminal record as well.
Here's how it works: The credit-repair agency tells you how to get an employee-identification number (the nine-digit substitute for a Social Security number sometimes assigned to household help, like live-in nannies) from the IRS. The debtor then uses this number to apply for new credit, substituting a different address and phone number — one of a friend, perhaps. This makes it difficult for creditors to link your latest identity to your previous credit history. Then, consumers are told to build up good credit by getting a new bank or retail credit card and paying it off quickly.
These services advertise their methods as "completely legal" — which should set off alarm bells right there. "In essence, you're creating a false identity," says Brenda Mack, an FTC spokeswoman. "Not only are they scamming you, they're telling you to do something that's criminal." It's a felony to establish a new identity for such a purpose, she says.
Dr. Solomon Bradford, a blind minister in Columbia, S.C., and his wife were two of those snared. The couple had been having trouble getting a new mortgage because they had a history of late payments. A woman who worked with Mrs. Bradford convinced them to try creating a new credit identity.
The Bradfords found out there was a problem with this after a bank employee noticed they had two different identification numbers on their account. Fortunately, the couple was not prosecuted. The FTC was more interested in tracking down the credit repair agency they had worked with. But you might not be so lucky.
First, Correct ErrorsHow can you legitimately repair your credit report? First, correct any errors. The Fair Credit Reporting Act entitles consumers to dispute information on their credit report when they think it's wrong. If you've recently been denied credit, the creditor that turned you down must give you the name, address and phone number of the credit bureaus it used. You then have a right to a free copy of that report. Thanks to the FACT Act of 2004, consumers can also receive one free credit report a year from each of the three major credit-reporting bureaus, Equifax, Experian and Trans Union, based on where they live. Eligibility rolls out gradually thoughout 2005, with all states becoming eligible by September 1, 2005. (For more on this, go to the program's official Web site, AnnualCreditReport.com. You can also order a copy of your credit report directly from the credit bureaus at any time for about $10.
Trans Union spokeswoman Christine Hill says that when consumers receive their credit report, they also get an toll-free number to call if they would like to dispute any of the information. They can tell the bureau's operator which items they question and Trans Union will investigate. While that investigation is underway, consumers can add a statement to the report giving their side of the story. If the investigation is not complete within 30 days, Trans Union will remove the disputed item until it is finished. If Trans Union's research indeed finds an error, it will send a copy of the corrected credit report to anyone who requested one in the previous six months.
Paying for What You Can Do for FreeIf, however, the negative information is accurate, there's nothing a consumer — or credit-repair company — can do to change it. That's when people get into trouble — by heeding agencies' claims that they have the power to remove negative information.
Legitimate credit-repair organizations simply charge you money to review your report and help you get any errors corrected. "We know how to format a dispute and go through a report quickly. Basically, a consumer can't even read a credit report, so we send them an evaluation," says Melony Lawrence, president of Credit Clean, which charges between $200 and $1,000 for its services.
Consumers come to Credit Clean, Lawrence asserts, for the same reason taxpayers go to H&R Block — convenience, not false promises about making everything good again. "I'm not a magician," she says.
Credit monitoring is another service marketed to help those concerned about bad credit. Identity Guard, for example, will monitor your credit report quarterly for $141.86 a year and alert you of problems.
While a monitoring service might help you find out more quickly if you've become a victim of identity theft (when people use your credit history to get their own credit), $140 is a steep price to pay. Especially when $30 can buy a credit report from each of the three major services.
So before you shell out money you really don't have, try to clean up your report on your own. "There's nothing that a credit-repair company can do for you — for a fee — that you cannot do for yourself for little or no cost," says the FTC in its Credit and Consumer Rights statement.
If you do decide to sign on with a service, be sure you know your rights under the CRO Act, which is summarized on the FTC Web site. It states that you do not have to pay until the promised services have been performed.
Finally, remember that the surest way to fixing your credit is by paying off your bills on time. If you need help, there are nonprofit agencies that can assist you in negotiating with creditors and creating a budget that works for you. To find out how to get it touch with them, see our article, "Help! I'm Drowning in Debt."

Getting out of debt

Regain Your Financial Health-
Education Center, Yahoo.com

Can't pay your bills? You're not alone. Today, millions of Americans are having difficulty paying their debts. Most of those in financial distress are middle income families with jobs who want to pay off what they owe. But it is important for you to act. Doing nothing can lead to much larger problems in the future-even bigger debts, the loss of assets such as your house, and a bad credit record.
The good news is that there are solutions. The remedies provided in this brochure can help improve your relationships with creditors, reduce your debts, and help you manage your money. In brief, these solutions can help give you a new, fresh start.
Are you in financial trouble?
If bill collectors are calling you, you know you're in financial trouble. But what if you're just having difficulty stretching your paycheck to pay monthly bills? If you answer yes to any one of the following questions, you should act.
Do you routinely spend more than you earn? Are you forced to make day-to-day purchases on credit? Are you able to make only the minimum payments on monthly credit card debts? If you lost your job, would you have difficulty paying next month's bills?
"With budgeting guidance, we now have peace of mind. We have learned a most valuable lesson about money management. Our future looks brighter."-Linda R.
What you can do for yourself
Review your specific obligations that creditors claim you owe to make certain you really owe them. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or state Attorney General.
Contact your creditors to let them know you're having difficulty making your payments. Tell them why you're having trouble- perhaps it's because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.
The Fair Debt Collection Practices Law prohibits a debt collector from showing what you owe to anyone but your attorney, harassing or threatening you, using false statements, giving false information about you to anyone, and misrepresenting the legal status of your debts. Remember that under other federal laws to collect debts, creditors cannot seize most government assistance and can only garnish a portion of wages to collect debts.
Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
Try to reduce your expenses. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation rather than owning a car. Clip coupons, purchase generic products at the supermarket, and avoid impulse purchases. Above all, stop incurring new debt. Consider substituting a debit card for your credit cards.
Use your savings and other assets to pay down debts. Withdrawing savings from low-interest accounts to settle high-rate loans usually makes sense. Selling off a second car not only provides cash but also reduces insurance and other maintenance expenses.
Look for additional resources from governmental and private sources for which you may be eligible. Government assistance includes unemployment compensation. Aid to Families with Dependent Children (AFDC), food stamps, low-income energy assistance, Medicaid, and Social Security including disability. Other resources may be available from churches and community groups. Often these sources are listed in the Yellow Pages of your phone book.
"Looking closely at our options helped us realize that we still needed to try self-budgeting before taking more extreme measures. We think that perhaps we were giving up too soon."- Alicia A.
What others can do for you
Credit counseling. If you are unable to make satisfactory arrangements with your creditors, there are organizations that can help. An organization that you can call is a Consumer Credit Counseling Service (CCCS) agency. These local, non-profit organizations affiliated with the National Foundation for Consumer Credit (NFCC) provide education and counseling to families and individuals.
For consumers who want individual help, CCCS counselors with professional backgrounds in money management and counseling can provide support. To promote high standards, the NFCC has developed a certification program for these counselors. A counselor will work with you to develop a budget to maintain your basic living expenses and outline options for addressing your total financial situation. If creditors are pressing you, a CCCS counselor can also negotiate with these creditors to repay your debts through a financial management plan. Under this plan, creditors often agree to reduce payments, lower or drop interest and finance charges, and waive late fees and over-the-limit fees. After starting the plan, you will deposit money with CCCS each month to cover these new negotiated payment amounts. Then CCCS will distribute this money to your creditors to repay your debts. With more than 1,100 locations nationwide, CCCS agencies are available to nearly all consumers. Supported mainly by contributions from community organizations, financial institutions, and merchants, CCCS provides services free or at a low cost to individuals seeking help. To contact a CCCS office for confidential help, look in your telephone directory white pages, or call 1 (800) 388-2227, 24 hours a day, for an office near you.
"I cannot tell you how happy I am to finally to able to control my finances now that I have followed a budget. So far, so good. I actually have a balance in my savings account!"- Rodney O.
Personal bankruptcy. Bankruptcy is a legal procedure which can give people who cannot pay their bills a fresh start. A decision to file for bankruptcy is a serious step. You should make it only if it is the best way to deal with financial problems.
There are two types of bankruptcy available to most individuals. Chapter 13 or "reorganization" allows debtors to keep property which they might otherwise lose, such as a mortgaged house or car. Reorganizations may allow debtors to pay off or cure a default over a period of three to five years, rather than surrender property.
Chapter 7 or "straight bankruptcy" involves liquidation of all assets that are not exempt in your state. The exempt property may include items such as work-related tools and basic household furnishings, among others. Some of your property may be sold by a court-appointed official or turned over to your creditors. You can file for Chapter 7 only once every six years.
Both types of bankruptcy may get rid of unsecured debts (those where creditors have no rights to specific property), and stop foreclosures, repossessions, garnishments, utility shutoffs, and debt collection activities. Both types also provide exemptions that permit most individual debtors to keep most of their assets, though these "exemption" amounts vary greatly from state to state.
Bankruptcy cannot clean up a bad credit record and will be part of this record for up to ten years. It can, for example, make it more difficult to get a mortgage to buy a house. It usually does not wipe out child support, alimony, fines, taxes, and some student loan obligations. Also, unless under Chapter 13 you have an acceptable plan to catch up on your debt, bankruptcy usually does not permit you to keep property when the creditor has an unpaid mortgage or lien on it.
Bankruptcy cases must be filed in federal court. The filing fee is $160, which sometimes may be paid in installments. This fee does not include the fees of your bankruptcy lawyer.
Choosing a bankruptcy lawyer may be difficult. Some of the least reputable lawyers make easy money by handling hundreds of bankruptcy cases without adequately considering individual needs. Recommendations from those you know and trust, and from employee assistance programs, are most useful.
Some public-funded legal services programs handle bankruptcy cases without charging attorney fees. Or these programs may provide referrals to private bankruptcy lawyers. Keep in mind that the fees of these attorneys may vary widely.
"Our bills have been a source of worry to us. After bringing our problem to credit counselors, we have begun to feel there is a way to cope with it. We are feeling more confident now."- Nelson M.
Possible pitfalls
Credit counselors who aren't helpful. Often for-profit or non- credentialed counseling organizations make promises that they cannot or do not keep. Be especially careful when asked for a large sum of money in advance. To check the organization's reputation, contact your state Attorney General, consumer protection agency, or Better Business Bureau.
"Credit repair" clinics and "credit doctors" have been frequently criticized for promising that they can remove negative information from your credit report. But accurate information cannot be changed. If information is old or inaccurate, you can contact a credit bureau yourself and ask that it be removed.
Risky refinancing options. When already in financial trouble, second mortgages greatly increase the risk that you may lose your home. Be wary of any loan consolidations or other refinancing that actually increase interest owed or require payments of points or large fees.
A Final Word: Don't lose hope, even if you despair of ever recovering financially. You can regain financial health if you act. Pursuing the options presented in this pamphlet can put you on the road to financial recovery.
"It feels great to be getting my life (and credit) in order!"- Robyn H.

The Basics
The consumers' guide to credit counseling
Credit counselors are falling all over themselves to help you out of debt, but some do more harm than good. Here’s what you need to know, including whether you need it and the red flags for ripoffs.
By Liz Pulliam Weston
Randy is deeply in debt and desperate. He’s seen all the television ads from credit counseling services that promise to help him, and he’s also been approached by a company that assures him it can painlessly make his debts go away. Is this, he asked me in an e-mail, too good to be true? Often, the answer is yes.Randy’s thinking of entering a world that’s fraught with fraud, misrepresentation and controversy. Debt counseling has become a $7 billion industry, but not all the players are legitimate.The best credit counseling can help people who are behind on their debts get back on their feet. Fly-by-night outfits can disappear with your money, and what remains of your credit rating. In between the two are a whole fleet of operators who may or may not leave you better off than you are now.The morphing world of credit counselingA decade ago the industry was dominated by the National Foundation for Credit Counseling, whose nonprofit affiliates -- usually known as Consumer Credit Counseling Services -- negotiated lower interest rates and payment plans for people who had fallen behind. Today you can find the Consumer Credit Counseling Service in just about any city.But the services now have plenty of competition. A rise in consumer debt in the 1990s helped spawn hundreds of rivals, many with million-dollar advertising budgets, slick Internet come-ons and sound-alike names. Some do a good job of negotiating repayment plans. Others charge fat upfront fees, pay their executives even fatter salaries and pocket much of the money that could be going to pay off creditors. An increasing number target people who aren’t even late on their payments, but who are simply disgruntled about their interest rates.The worst aren’t credit counselors at all. Usually billing themselves as specialists in “debt settlement,” they promise to help you get rid of your debts for pennies on the dollar -- after you pay an upfront fee that can be $3,000 or more. Typically, by the time I hear about these companies, they’ve already absconded with people’s cash, disconnected their phones and set up shop somewhere new with a different name. Who needs credit counseling?Obviously, all these outfits are finding plenty of eager customers. Americans’ debt loads have been running at record levels, and bankruptcies are high.It’s hard to get an accurate bead on how many people signed up for debt repayment plans through credit-counseling services. Of those in debt repayment plans, said Lydia Sermons-Ward, spokeswoman for the National Foundation for Credit Counseling, about half were expected to successfully complete their plans. The other half were expected to drop out, with some of those filing for bankruptcy.Typically, counseling services negotiate lower payments with credit-card companies and other lenders, then make the payments using a check or electronic funds transfer sent to them by the consumer each month.Most of the counseling services’ fees are paid by the lenders themselves, which send back to the services a portion of the payments received. This has led some critics to charge that credit counseling is just a tool of the lending industry.The payment system, known as “fair share,” has certainly encouraged the growth of credit counseling services. And some agencies, driven by competition, are now openly courting consumers who haven’t fallen behind on their debts by promising lower interest rates. This development has angered credit-card companies and often hurts consumers, who may find out too late that such plans can hurt their credit ratings and are often unnecessary.Are you in danger?So let’s make this clear: If you’re able to pay your bills and are current on all your accounts, you almost certainly don’t need credit counseling. If your interest rates are too high, you usually can negotiate a lower rate with your credit-card companies just by asking -- or threatening to move your account elsewhere.Here’s when you might think about full-scale credit counseling:
You can’t pay the minimums on your credit cards.
You’re consistently late paying one or more of your regular bills.
You’re being hounded by creditors and collection agencies.
Your efforts to work out reasonable repayment plans with your creditors have failed.Be warned: If you’re too far in debt, credit counseling may not be able to help. There are limits to how little your creditors will accept, and a credit counseling service may not be able to cut your payments enough to either give you breathing room or get you out of debt. If that’s true, bankruptcy may be the best of bad options. Your payments also shouldn't stretch on for years. The typical plan takes two to four years to complete. Responsible credit counselors say bankruptcy is usually the better option if the repayment would take more than five years.What to watch out forOnce you’ve decided you want credit counseling, you should investigate the company or service carefully before signing up. Red flags to avoid include:
Big upfront fees. Consumer Credit Counseling Services typically charge a $10 set-up fee. If you’re paying a lot more, you may be the one who’s getting set up, unless you’re getting extensive and personal money coaching that could justify the fee.
No accreditation. Legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.
Delayed or missing payments. Some companies pocket your first months’ payments as a fee, rather than passing the money on to your creditors. Missing payments can hurt your credit rating. Find out how much of each monthly payment is going to your creditors, and when it will be sent to them.
Unrealistic promises. Some companies falsely promise that you can settle your debts for little or no money, without hurting your credit rating. Legitimate credit counseling services help you pay back what you owe, albeit at lower interest rates, and acknowledge there may be some affect on your credit rating and ability to obtain new credit.What counseling can do to your creditHere’s another controversial topic. You may have heard that credit counseling will trash your credit report or even that it’s “worse than bankruptcy.” Neither is really true. Credit counseling may have some effect on your credit, or it may have none at all. Some lenders may not want to do business with you after you've completed your plan, but others will.Contrast that with a bankruptcy, which is viewed by almost all mainstream lenders as a huge negative on your credit report. These lenders, who prefer to deal with consumers with good credit, typically won’t do business with you for the 10 years the bankruptcy remains on your file.What happens to your credit during counseling largely depends on how your lenders report your account to the credit bureaus.First USA, the credit-card giant, reports its customers as delinquent on their bills until they make three consecutive payments of the new minimums negotiated by their credit services, said spokesman David Webster. Citibank, by contrast, simply adds a note to the credit bureaus’ files that the customer is enrolled in credit counseling.Being reported as late or delinquent can certainly hurt your credit score, the three-digit number widely used by lenders to determine creditworthiness. A simple notation about credit counseling probably won’t. The credit score formula used by most lenders, known as FICO, now ignores any reference to credit counseling that may be in your file, said Craig Watts, spokesman for FICO creator Fair Isaac & Co.Even some lenders that were traditionally suspicious of credit counseling have loosened their stance. More mortgage lenders are willing to lend to people who have successfully completed repayment plans, said mortgage broker Allen Bond, president of the California Association of Mortgage Brokers’ Southern California chapter. Some lenders say they even view credit counseling as an encouraging sign that a customer is getting his or her debts under control. Citibank, the largest issuer of credit cards, says people who have fallen behind on their payments often improve their status in the company’s eyes by enrolling in -- and sticking with -- a debt repayment plan.“We always viewed that as a positive,” said Citibank spokeswoman Maria Mendler. “We’ve seen that for people who enter these programs, there’s a significantly lower rate of default.”That said, there are still some lenders who refuse to deal with anyone who has enrolled in credit counseling. And if you fell behind on your payments before you entered credit counseling, you’ll find those late payments will still affect your credit score even after you’ve paid off your debts.As you can see, there are no easy answers for people who get in trouble with credit. Once you’re there, make sure to evaluate your options carefully, and don’t make a bad situation worse.Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

Maintaining a good credit score

Smartmoney.com
Keeping ScoreBy Stephanie AuWerter

BACK IN HIGH SCHOOL, I was a mediocre student, a kid whose report card often read "doesn't work up to her potential." But in college, something strange happened: I started to do remarkably well. As good marks replaced average ones, I became obsessed with grades, viewing anything less than an A as totally unacceptable.
In the real world, however, our actions — mercifully — are rarely graded. That is, with one very notable exception: the almighty credit score. If you aren't already familiar, the credit score is a single number used by credit-card companies, auto- and mortgage-lenders, and even many landlords, to assess a borrower's worthiness. I recently pulled mine, and once I got over the initial shock that I was — gasp! — in the middle of the class rather than the top, my old college competitiveness kicked in. Not since the first day of a new semester have I seen my goal so clearly defined.
Fact is, everyone should be zealous about establishing and maintaining a high credit score, since it can save thousands in interest payments. "Credit scores have become the No. 1 piece of data on which people are judged to determine whether or not they get approved for loans and how much they pay," says Chris Larsen, chief executive of E-loan1, an online lending company. Consider that someone with a top-notch credit score could pay 5.9% today for a 30-year fixed-rate mortgage, while someone with a poor score would pay 9.3%, according to Fair Isaac & Co., a California-based company that calculates the scores used by most banks and mortgage lenders. On a $200,000 30-year mortgage, that's a difference of nearly $167,879 in interest payments over the life of the loan, according to HSH Associates.
Given the importance of maintaining a good credit score, it's downright infuriating that so many credit reports (which is what your score is based on) contain errors. According to a 2004 study by the Public Interest Research Groups, or PIRG, as many as 79% of credit reports have errors — 25% of which are serious enough to potentially result in a credit denial. "If you have a very good credit score or a very bad credit score, you're probably being treated the way you deserve to be treated," says PIRG's Ed Mierzwinski, a consumer advocate. "But if you're in the middle, the odds are good that mistakes in your report will affect your score marginally enough to cause you to pay too much."
Financial planners suggest consumers check their credit report at least once a year. And if they're planning a major purchase, like a house, they should pull their report and score roughly six months ahead of time, so they can fix mistakes or take strategic steps to push their score higher, if needed. Since there are three credit bureaus — each with its own credit file — consumers should check all three reports before taking out a loan. Frustratingly, many mistakes will appear on just one of the reports. So just because one of the bureaus says a consumer is clean doesn't mean he or she is in the clear.
Here's what you need to know about credit scores, along with some point-boosting strategies.
Know the ScoreThe most widely used credit score by lenders is the FICO score, provided by Fair Isaac & Co., and available to consumers at Fair Isaac's consumer Web site, myFico,2 as well as Equifax3, one of the three credit bureaus. Similar scores can be obtained from the two other credit bureaus, TransUnion4 and Experian5, as well as some of the companies that compile the data of all three credit reports, like TrueLink, which operates the consumer-credit Web site TrueCredit6.
A FICO score can range from 300 to 850. The very best rates go to people with scores above 770, but a score of 700 is considered good (the average score is somewhere around 725), says Craig Watts, Fair Isaac's spokesperson. If your score is in the low 600s or below, it's time for concern. While lending rates won't vary all that dramatically for scores viewed as good vs. great, even a small difference in scores in the range of "poor" can have a punishing effect on your wallet. "As you start dipping below about 600, you see this dramatic increase [in lending rates]. So with every 20 points — going to 580, 560 — you're ramping up very aggressively," says E-loan's Larsen.
Obviously, the first step to increasing your score is to know where you currently stand. The good news is pulling your credit report and score is easy. TransUnion and Equifax charge $12.95, while Experian charges $14.95. Alternatively, you can pull all three reports at once using a service such as TrueCredit or ConsumerInfo.com7 (owned by Experian). Equifax also offers the service through a company called Intersections. While convenient, a 3-in-1 report is more expensive than a single report. You'll pay $29.95 or more.
If you've recently been denied credit, are unemployed and plan to apply for a job within 60 days, think you may be a victim of fraud or are on welfare, you're eligible for one free report per 12-month period from one of the credit bureaus. (Depending on where you order it from, it may not include a score.) Residents of Colorado, Massachusetts, Maryland, New Jersey and Vermont are also entitled to one free report per year. Lucky Georgia residents get two.
Adding PointsIt is indeed possible to increase your score by a significant amount — even over a period of four to six months, says Lydia Sermons-Ward, spokeswoman for the National Foundation for Credit Counseling8. She ought to know: In anticipation of purchasing a new home, she recently managed to increase her score by 50 points in half a year.
To see which factors affect FICO scores, look at the pie chart above. Unfortunately, there are no tricks or gimmicks that will give your score a quick lift: Mostly you just need to use common sense. Not surprisingly, the most important thing to do is simply pay your bills on time. Just one late payment could cause your score to drop by as much as 100 points, says Fair Isaac's Watts, although it will vary significantly based on an individual's credit history. The more recent the late payment, the more it will affect your score. Other tips:
Pay down your cards Shocker: Reaching the upper echelon of your card limit doesn't do you any good. Nor does having many accounts with balances, even if they're small. So pay down any balances you can. To see how long your repayment plan will take, click here9.
Talk to your lenderIt's usually impossible to remove accurate information from your credit report. But not always. Should you have a long and previously unblemished relationship with a lender, you might in fact be able to get an accurate item removed, says Gerri Detweiler, author of "The Ultimate Credit Handbook." So it could be worth a call or letter describing the circumstances around the late payment and asking that certain data be taken off the report. This certainly won't work, however, for repeat offenders, and consumers should never believe a credit-repair agency that promises to remove all accurate information.
Fix mistakes If you notify a credit bureau of a mistake on your report, it has 30 days to complete an investigation. This entails getting in touch with the lender to verify that the information is accurate. If the lender can't confirm (or doesn't respond), then the information is removed. If you have paperwork proving that information on your account is false (such as divorce papers proving you aren't responsible for new debts incurred by your ex-husband), send it to the credit bureaus. Just be sure to keep a copy of all correspondence.
Hang on to your old card Loyalty is rewarded, so you may want to hang on to old cards, even if you rarely use them. That's because 15% of your score is based on the length of your credit history, and that includes the age of your oldest account as well as the average age of your accounts. Translation? Lenders don't want a customer who's just going to move on once that nice introductory offer runs out.
Fortunately, a cottage industry in credit-score deciphering has popped up in recent years. At the myFICO Web site, for example, you can see which mortgage or home-equity-loan rate you should be eligible10 for based on your score, and how much you could save by increasing it. Purchasing a report from the site will also give you access to a score simulator, which offers guidance on how certain moves (such as paying down your debts) could increase your score. Also, most credit scores, regardless of where you pull them, now come with a personalized explanation of why your score is what it is, based on both your positive and negative factors.
You may have heard of other ways to boost your score — like spreading your debt onto more credit cards rather than keeping high balances on a few. But the truth is, that won't always work to your advantage. That's because your FICO score isn't the only score on which you're judged — it's simply the only one made available to you. There are many other scores out there, including behavioral scores, revenue scores and the highly controversial insurance scores11. Many lenders also have their own proprietary scores.
So you never know how trying to game the system may hurt you. Some industry experts think that in the future, more scores may become available to consumers. In the meantime, you're best off sticking to the basic credit-boosting tips outlines herein.
If It Sounds Too Good to Be True...No matter what, don't fall prey to a sleazy credit-repair scam. "It's tough to find a reputable company in the field," says Holly Cherico, spokeswoman for the Council of Better Business Bureaus. Many of these firms use illegal practices12, while others charge you exorbitant fees for things you can do on your own for free. And remember, you're providing a credit-repair agency with highly valuable information, such as your social-security number and account numbers. Poor judgment here could leave you significantly worse off than when you started.
Links in this article:1http://www.eloan.com2http://www.myfico.com3https://www.econsumer.equifax.com4
http://www.transunion.com5http://www.experian.com6http://www.truecredit.com7
http://www.consumerinfo.com8http://www.nfcc.org/9http://www.smartmoney.com/debt/advice/index.cfm?story=digoutofdebt10http://www.myfico.com/myfico/CreditCentral/LoanRates.asp11
http://www.smartmoney.com/consumer/index.cfm?story=2001082012http://www.smartmoney.com/debt/advice/index.cfm?story=creditfixes
URL for this article:http://www.smartmoney.com/nowwhat/index.cfm?story=20020826
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For People on Debt Management Plans: A Must-Do List

The FTC publishes a series of free publications on credit and financial issues, including Fiscal Fitness: Choosing a Credit Counselor and Knee Deep in Debt. They are available at ftc.gov/credit

Reputable credit counseling organizations employ counselors who are certified and trained in consumer credit, money and debt management, and budgeting. Those organizations that are nonprofit have a legal obligation to provide education and counseling. But not all credit counseling organizations provide these services. Some charge high fees, not all of which are disclosed, or urge you to make “voluntary” contributions that can cause you to fall deeper into debt. Many claim that a debt management plan is your only option before they spend time reviewing your financial situation, and offer little or no consumer education and counseling. Others misrepresent their nonprofit status or fraudulently obtained nonprofit status by misrepresenting their business practices to regulators. The Federal Trade Commission (FTC), the nation’s consumer protection agency, and some state Attorneys General have sued several companies that called themselves credit counseling organizations. The FTC and the states said these companies deceived consumers about the cost, nature, and benefits of the services they offered; some companies even lied about their nonprofit status. Several of these companies are now going out of business. Similar companies also may be shutting their doors, even though they haven’t been sued by the FTC or the states. That could be of special concern if you have a debt management plan with one of these companies.
Must-Dos for Anyone With A DMPOrganizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan (DMP). In a DMP, you deposit money each month with a credit counseling organization. The organization uses these deposits to pay your credit card bills, student loans, medical bills, or other unsecured debts according to a payment schedule they’ve worked out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees if you are repaying through a DMP. The FTC has found that some organizations that offer DMPs have deceived and defrauded consumers, and recommends that consumers check their bills to make sure that the organization fulfills its promises. If you are paying through a DMP, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your DMP. Once the creditors have accepted the DMP, it is important to:
make regular, timely payments.
always read your monthly statements promptly to make sure your creditors are getting paid according to your plan.
contact the organization responsible for your DMP if you will be unable to make a scheduled payment, or if you discover that creditors are not being paid.
You need to be aware that if payments to your DMP and creditors are not made on time, you could lose the progress you’ve made on paying down your debt, or the benefits of being in a DMP, including lower interest rates and fee waivers. Although creditors may have forgiven late payments that you made before you began the DMP, the creditors may be unwilling or unable to do so if payments are late after you have enrolled in a DMP. If you fall behind on your payments, you may not be able to have your accounts “re-aged” again (reported as current), even if you start a new DMP with a new counselor. That means your credit report will have “late” marks and you will rack up late fees, which, in turn, will lead to more debt that could take longer to pay off.
If Your Credit Counselor Has Gone Out of BusinessWhat happens to your DMP if the credit counseling company that managed your debts shuts down? A counseling agency that is going out of business may send you a notice telling you that your DMP is being transferred to another company. Or it may tell you that you need to take some action to keep your financial recovery on track. If a government agency has filed an action against your credit counseling company, you may get a notice from a third party. If you discover that the organization handling your DMP is going out of business you need to:
contact your bank to stop payment if you are making your DMP payments through automatic withdrawal.
start paying your bills directly to your creditors.
notify your creditors that the organization handling your DMP is going out of business. Consider working out a payment plan with your creditors yourself. Ask if they will give you a reduction on your interest rate without a DMP.
order a copy of your credit report. Check for late payments — or missed DMP payments — that may result from the company going out of business. If you see “late” notations you don’t expect, call the creditor immediately and ask that the notation be removed. Understand that they have no obligation to do it.
If payments are late because the organization handling your DMP has failed to make scheduled payments, the consequences can be just as devastating as if you failed to make payments to the DMP. If you do not act quickly to make arrangements with your creditors, you could incur late charges that increase your debt, lose the lower interest rates associated with the DMP, and have “late” marks on your credit report.
Important Questions to Ask When Choosing a Credit CounselorIf the organization you were working with shuts down, you may be able to work a payment plan on your own directly with your creditors. But if you decide that you need additional credit advice and assistance, or if you are considering working with a credit counselor for the first time, asking questions like these can help you find the best counselor for you.
What services do you offer?Look for an organization that offers a range of services, including budget counseling, savings and debt management classes, and counselors who are trained and certified in consumer credit, money and debt management, and budgeting. Counselors should discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems now and avoid others in the future. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation. DMPs are not for everyone. You should sign up for a DMP only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.
If you were on a DMP with an organization that closed down, ask any credit counselor that you are considering what they can do to help you retain the benefits of your DMP.
Are you licensed to offer your services in my state?Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not fulfilled the requirements for your state.
Do you offer free information? Avoid organizations that charge for information about the nature of their services.
Will I have a formal written agreement or contract with you? Don’t commit to participate in a DMP over the telephone. Get all verbal promises in writing. Read all documents carefully before you sign them. If you are told you need to act immediately, consider finding another organization.
What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, which one? If not, how are they trained?Try to use an organization whose counselors are trained by an outside organization that is not affiliated with creditors.
Have other consumers been satisfied with the service that they received?Once you’ve identified credit counseling organizations that suit your needs, check them out with your state Attorney General, local consumer protection agency, and Better Business Bureau. These organizations can tell you if consumers have filed complaints about them. The absence of complaints doesn’t guarantee legitimacy, but complaints from other consumers may alert you to problems.
What are your fees? Are there set-up and/or monthly fees?Get a detailed price quote in writing, and specifically ask whether all the fees are covered in the quote. If you’re concerned that you cannot afford to pay your fees, ask if the organization waives or reduces fees when providing counseling to consumers in your circumstances. If an organization won’t help you because you can’t afford to pay, look elsewhere for help.
How are your employees paid? Are the employees or the organization paid more if I sign up for certain services, pay a fee, or make a contribution to your organization?Employees who are counseling you to purchase certain services may receive a commission if you choose to sign up for those services. Many credit counseling organizations receive additional compensation from creditors if you enroll in a DMP. If the organization will not disclose what compensation it receives from creditors, or how employees are compensated, go elsewhere for help.
What do you do to keep personal information about your clients (for example, name, address, phone number, and financial information) confidential and secure?Credit counseling organizations handle your most sensitive financial information. The organization should have safeguards in place to protect the privacy of this information and prevent misuse.
For More InformationThe FTC publishes a series of free publications on credit and financial issues, including Fiscal Fitness: Choosing a Credit Counselor and Knee Deep in Debt. They are available at ftc.gov/credit, or by calling toll-free: 1-877-FTC-HELP.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
December 2005

Your 3 worst debt consolidation moves

By MP Dunleavey, MSN MoneyCentral

If you're up to your eyeballs, the fantasy of debt consolidation can suck you right in. Watch out for the slippery side of consolidation loans, balance transfers and other 'easy fixes.' The phrase "debt consolidation" has always had a magical ring to me.As if somehow, someone would have the power to mush my debt into one neat little package, which by some incredible financial alchemy would also then shrink the debt itself -- and I'd only owe a hundred bucks or so.I know I'm not the only idiot who's had this fantasy, because an entire industry has sprung up to support it: The Debt Consolidation Industry and Covert Sting Operation. Every day, I get at least one piece of regular mail offering me low-interest balance-transfer deals for credit-card debt, or arm-twisting e-mail from unknown credit organizations that scream things like:
"DEBT RELIEF IS JUST A CLICK AWAY!"
"CUT YOUR MINIMUM MONTHLY PAYMENTS BY 50% OR MORE!"
"SLASH YOUR INTEREST RATES DOWN TO ZERO!"These promises are incredibly alluring to anyone who is caught in the quicksand of having too much consumer debt, and who will believe anything, do anything -- click her ruby slippers (bought on sale for just $400!) three times -- to make it go away. But before you start skipping down some financial yellow brick road to see the Wizard of Debt Consolidation, remember this: Watch out for those flying monkeys.Three bad debt-consolidation moves:1) The Hard-Money Loan"The biggest myth about debt-consolidation loans is that they're easy to get," says Scott Kays, president of Kays Financial Advisory Corp. and author of "Achieving Your Financial Potential." If you really need a loan, it's probably because you've already missed a few payments and your credit history has more dings in it than a '74 Ford Pinto.And that's the problem. Kays says that if you are a credit risk, the consolidator may entice you with promises of an easy-does-it loan, and end up charging you higher interest rates than you're paying now -- as high as 21% or 22%. "Your monthly payment may be lower" with one of these loans, "but you'll end up paying more," says Kays.2) Debt Consolidators Who Promise to Take Care of EverythingThis is the fairy godmother fantasy. This Nice Big Debt Consolidation company comes along and swears they'll make your life soooo much easier. They'll negotiate lower interest rates, reduce your monthly payments -- and all you have to do is make "one EZ payment."In reality, many debt consolidators build in a fee as part of the monthly payment you make to them. It's usually about 10% of the payment (i.e. about $40 on a $400 monthly payment). They pass along your payments to the creditor -- some debit directly from your checking account -- and get back a 10% to 15% slice that the relieved creditor is only too happy to rebate to the consolidator.Is it worth paying someone else to do what you can do on your own, i.e. negotiate lower interest rates and stretch out your repayment schedule and pay off the highest-interest debts first?To desperate ears, this might sound like an ideal solution, especially when you talk to these people and they scare the bejeezus out of you. I interviewed two, Cambridge Credit and Counseling Services and Integrated Credit Solutions. Each offered similar services, and I don't recommend either of them. The senior credit counselor I spoke to at Integrated told me, in grave tones, that it would take me 379 months -- or 32 years -- to pay off my debt. With their services, however, they would "save me 27 years," and I could pay off my debt in just 53 months, or about 4 1/2 years.That’s funny, because when I plugged my debt into the MSN Money Debt Consolidator -- a less biased source, since they ain't getting no fee from me -- they said I could pay off my debt in 41 months, providing I make slightly higher minimum payments to each card: a total of just $60 extra per card.Here's another risk with consolidators you should know about: they have been known, in some cases, to make late payments or even miss payments, thus worsening your plight (and your credit record).After I got off the phone with Integrated, I had to ask myself: Is it worth paying someone else to do what you can do on your own? That is, negotiate lower interest rates and stretch out your repayment schedule and pay off the highest-interest debts first? I don't think so.3) The Balance Transfer TrapLow-interest balance-transfer cards are a dime a dozen these days, but remember that those rates only last a few months -- and then you have to switch cards again. The danger is that at some point all this activity begins to show up on your credit report, and you start to look like a bad risk. Then if you get turned down, "you could be left holding the high-interest card you were hoping to dump," says Kays.If you think you can swing from the balance-transfer vines for a few months, just make sure you formally close all your accounts yourself, and then notify the credit-card company to mark the account "closed at customer's request." "Otherwise, on your credit report, it will look like the creditor closed your account," says David Mooney, PR director of Equifax, one of the biggest credit reporting agencies. Thus making you look like an even worse risk, even when you're doing your best not to be.Your best debt-consolidation movesIf you own a home and have some equity in it, you have a couple of options that are relatively low in cost. These are pretty straightforward:Take out a home equity loan. A home equity loan has the advantage of carrying a fairly low interest rate, currently in the high single digits, and what interest you do pay is tax-deductible, Kays points out. Most fixed-rate loans carry a 15-year term and require that borrowers pay an origination fee of $75 to several hundred dollars, plus the cost of an appraisal and title insurance.Do a "cash-out" refinancing. Another option for those with home equity is refinancing your property for greater than the amount you owe and using the extra cash to pay off debt. You get very low interest rates this way, but you're stretching payments out over 15 or 30 years. The total interest cost over three decades can wind up being pretty huge, so think of this as a one-time-only (if ever) option.Refinance your car. "Most people don't think of it, but it is a secured loan and you can borrow against it," Kays says. The danger there is that you may run out of car before you run out of debt. It's tough to buy a new car when you owe more than it's worth.Get a personal loan. If you have reasonably undamaged credit, you may qualify for an unsecured loan. Credit unions (see link to the left) typically offer lower rates than banks, but even there you can expect a rate of 11% or more. Still, that may be a whole lot less than the 20%-plus you're now paying to the credit-card company.Negotiate better terms. You can do this for yourself easily. Just call your credit-card company and ask them to do it (many customer service people are authorized to reduce rates right there on the phone).Another alternative. Or you can get help from an organization like National Foundation for Credit Counseling (see link to left). NFCC has branches throughout the country; they are a non-profit, community organization that provides free and confidential debt management advice to anyone who needs it. You can even consult with them over the phone, like I did (see below).Like other debt consolidators, NFCC gets paid by creditors, so it's in their best interest to work out a repayment plan rather than advise you to declare bankruptcy. Not that you want to be advised to declare bankruptcy, but in certain cases it may be your best option.NFCC makes no outlandish promises beyond the prospect of a saner financial life, and the possibility of qualifying for their low-rate mortgage program. They also offer low-cost financial planning -- a resource I'm definitely going to look into for a future column. Once I have some finances again, I will need someone to tell me what to do with them!So whatever happened to …Since writing about my struggles with debt, I’ve become religious about paying as much money as I could every month. (Thing was: I still carried my credit cards in my wallet. So my new get-out-of-debt tip would be: Take the cards out of the wallet. Otherwise, you will use them.)Then those big payments started to have an impact. But I was on a mission. I wanted my debt gone. I turned to debt calculators, talked with friends, and ultimately came up with a two-pronged plan of merciless debt destruction. Operation Enduring Freedom from Debt. First, I took on some extra freelance work that, eventually, would pay me a little bit more than my debt in four big chunks. While I was waiting and working, I decided to consolidate my debt and turned to NFCC as my resource.Here's the best part of NFCC: 1) They give you a one-hour consultation, by phone or in person, to help you decide if you need a Debt Management Plan. 2) In order to do the consultation, they make you fill out a form that details all your expenses.
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Sign up to be notified whenever MP publishes a new article.Your e-mail address: Learn more about newsletters Writing down my daily expenses is Personal Finance 101, and I've always found it mildly useful. NFCC advisor Nina Reiss, on the other hand, walked me through an entire year of expenditures. Now THAT was eye-opening. She asked me what I paid per month for things I'd forgotten even were expenses: subscriptions, holiday gifts, underwear, new socks, groceries, birthday gifts, movies (even rentals), my yoga classes, banking fees -- you'd be amazed what you pay just to live a semi-civilized life.Ultimately, Reiss felt that I was living about $100 a month beyond my means, but that I was paying as much as I could toward the debt on my own. We did the numbers and figured that even with their interest-rate reductions, I could still pay off my debt without their help -- as long as I cut back my expenses so that I was living within my means. So in the end, dear reader, getting out debt boils down to one thing and one thing only (which you and I already knew): elbow grease, peanut butter lunches and living like a more reasonable human being.