Dear Gail:

I am in a lot of credit card debt. I need help. Someone suggested a company on the Internet that claims to help people who want to avoid bankrupcy. But how can I check them out?

They want $2,900.00 up front to contact my creditors and handle all my finances — Should I trust them?

Please help me, I don't know where to turn.



Dear Nancy —

First of all, take a deeeep breath. Panic won't help your situation.

Understand that you are not alone. Our national urge to "shop til we drop," coupled with the slowing economy, has sent more Americans more into debt than ever before. By the end of May, we consumers owed a total of $700 billion dollars on our credit cards alone. In other words, this amount does not include what we also owe on our mortgages or auto loans.

This is a national epidemic and here are some of the symptoms: The number of people are taking out loans on their 401(k) accounts has been increasing. Personal bankrupcy filings are soaring. The ratio of debt payments to disposable income — a measure of how much of your take-home pay is earmarked to pay off debts — is also up. There's been an increase in the number of people paying their mortgage late.

Most folks don't plan to get into debt over their heads and when asked how it happened, they will often get a puzzled look on their face and tell you they don't know. It just crept up on them. A few extra charges here. A smaller payment there. Others get into financial problems because of an unexpected financial setback such as the loss of a job or a costly home repair.

The good news is that for people like you, Nancy, who want to avoid the extreme of filing for bankrupcy, there are legitimate services that can help you dig out from under your debt. The bad news is that there are also creeps who are more than happy to cash in on your vulnerability by claiming they can help you, while their main goal is to take even more of your money. You're right to be skeptical of any organization that wants you to hand over any money up front. I would be, too.

One organization I can vouch for is the National Foundation for Credit Counseling, the largest non-profit organization dedicated to budget and credit couseling. It's been around since the 1950s and has nearly 1500 chapters around the country. Your local office might go by the name of "Consumer Credit Counseling Service" or something similar.

Every agency must meet stringent qualifications to become accredited with this group and all counselors have to undergo broad training. Your initial consultation is free. You can locate an affiliated office in your area by calling their toll-free number: 800-682-9832 or by logging onto their website: www.nfcc.org.

Only about a third of the one and a half million families who came to them for help last year actually needed their debt intervention program. But if your situation is as dire as it sounds, you probably qualify. If you agree to their "Debt Management Plan," they will contact your creditors for you and negotiate a solution that both sides can live with. Note that they are not going to get your debts wiped out. But they might be able to get you a lower interest rate or smaller monthly payments.

A spokesperson for NFCC says the average fee is $10/month and even that can be waived if you simply cannot afford it. Most of the funding for the National Foundation for Credit Counseling comes from creditors: banks, credit card companies, credit unions, department stores and finance companies who realize that getting their money back a bit more slowly is better than having the individual who owes it file for bankruptcy and pay them none at all.

Incidentally, this past spring Congress passed legislation making it a whole lot tougher to wipe out your debts by filing for Chapter 7. Even under the old rules, bankrupcy would not let you squirm out from under back child support, alimony, income taxes and fines assessed for drunk driving convictions, among other things.

Moreover, the bankrupcy court judge has a lot of leeway in deciding which debts can and cannot be forgiven. I've never met anyone who went through bankrupcy and found it to be a pleasant experience. It haunts your financial record for a decade, making it impossible to get credit or resulting in much higher interest rates on loans you do get.

You're right, Nancy, in wanting to avoid this if at all possible.

The National Foundation for Credit Counseling has put together a list of questions you should ask any organization before you bare your financial soul in an effort to resolve your debt problems. Here are a few of them, their website has more:

-How are you funded? Are you not-for-profit?

-Are you accredited? What does this process entail?

-How are funds dispersed to creditors?

-What fees will I be charged?

-Will you work with all my creditors, regardless of whether they financially support your organization?

Take care. Please let me know how things work out!


If you have a question for Gail Buckner and the Your $ Matters column, send them to moneymatters@foxnews.com along with your name and phone number.

The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.