Budget Basics
Deal with growing debt; credit adviser shows
By Teresa McUsic
Special to the Star-Telegram, Fort Worth TX
Mon, Jun. 27, 2005
Consumer debt in this country is approaching $2 trillion.
To put that figure on a more personal level, about 43 percent of us spend more than
we take home each month, according to the Federal Reserve. Half of us make only
the minimum payments on debt we owe. If this sounds like you, a new book written
by a veteran credit counselor provides a blueprint on how to get out of debt.
It's called Credit Hell, (Wiley & Sons, $19.95) by credit financial
adviser Howard Dvorkin. (A used version is sold on Amazon for $11.58 plus shipping.)
Dvorkin is founder of Consolidated Credit Counseling Services, one of the leading
nonprofit debt-counseling providers in the nation, based in Fort Lauderdale, Fla.
With 15 years in the debt-counseling business, Dvorkin has seen it all and pulls
no punches about the difficult task his readers face.
"There is a way out," he writes. "But it will take hard work, self-discipline and
some sacrifice. ... It's naive to think there are any quick fixes."
Dvorkin outlines a step-by-step approach similar to what a debtor would go through
in a credit-counseling session: assessing your financial state, establishing a budget,
determining which of your debts are secured and which are unsecured.
He gets past the common advice of giving up lattes and manicures and digs down to
the bone of our spending habits: Don't own a cell phone and a land line, don't pay
for premium cable or satellite channels, don't support a pack-a-day cigarette habit,
which costs nearly $2,000 a year.
He also gives practical advice for saving on monthly costs: Get a roommate to reduce
housing costs, find a high-deductible health insurance plan to reduce premiums.
If your house or your car is too expensive to keep, sell them and find less costly
replacements.
Dvorkin also recommends getting the entire family involved with the process.
"Make budget cutting a family affair," he writes. "Ask everyone for suggestions
on how to reduce the family's spending and then each month review with them the
progress the family has made reducing its spending."
The book then discusses which debts need to be paid and which can wait. Mortgages,
car loans, home equity loans, utilities and phone service, and groceries are things
you cannot do without. Other priorities are federal and property taxes, child support,
prescription drugs and student loans.
Lower priorities include credit card debt, retail store and gasoline charge cards,
and bills for doctors, attorneys and other professionals.
From here, you begin to negotiate with creditors, who may temporarily agree to more
favorable terms.
It's important at this stage to have a plan mapped out on paper that includes your
debts and budget to share with your creditors, Dvorkin writes.
"Let whomever you speak with know what you have done to improve your financial situation
-- you are living on a budget, you've stopped using credit, you've sold your second
car, you have gotten a second job," he writes. "Let the creditor know exactly how
much you can afford to pay."
If negotiation isn't your forte, Dvorkin suggests going shopping for a credit counselor.
But be careful.
"Beware of agencies that immediately advise you to enroll in a debt management plan
without taking time to analyze your income and expenses," he writes. "Also be wary
of agencies that require you to pay a large up-front fee, and be sure to read an
agency's contract and get all of your questions answered before you sign it."
A bad credit counseling agency may not pay your creditors or may keep a large percentage
of the money you give it each month to pay your debts, Dvorkin warns. He provides
a whole section on what to ask a credit counselor and which types of agency to avoid.
Another chapter tells you in sobering words what happens if you continue not to
pay on secured debts or taxes with terms like foreclosure, repossession and garnished
wages. In particular, Dvorkin advises not to avoid debts to the Internal Revenue
Service.
The book concludes with chapters on the rights of debtors under the Fair Debt Collection
Practices Act regarding debt collectors. It also provides worksheets to help prepare
your budget.
