Credit Advisers In Hot Demand

PLASTIC PERILS

By , Staff writer of The Christian Science Monitor

When a divorce ended his 20-year marriage, Dewey Paris agreed to take on the family's $20,000 credit-card debt plus child support for his six offspring. Trying to pay off the loans and maintain two households, however, resulted in "some significant financial distress," says Mr. Paris, a computer technician in Pasadena, Texas.

That distress drove Paris to a Houston branch of the Consumer Credit Counseling Service (CCCS), which began negotiating with the card companies so Paris could reduce the debt load.

Paris is not alone. Debt advisers are in hot demand. The National Foundation for Consumer Credit in Silver Spring, Md., reports its 1,200 members are experiencing about 20 percent more business this year than last year. In some regions, business is even stronger.

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"We're up about 70 percent," says Boston-based Mel Stiller, executive director of the Massachusetts branch of CCCS.

At the same time as their offices are filling up, however, counselors are finding many of those coming in are already financially over the brink. "Traffic is up, but more people are too far gone to help," says Michael Staten, director of the Credit Research Center at Purdue University in Lafayette, Ind.

One sign of this financial squeeze is in the bankruptcy statistics. According to the Administrative Office of the US Courts, a record 1 million Americans filed for bankruptcy in the 12 months ending June 30. For this calendar year, predicts credit-card giant Visa USA Inc., about 1.2 million Americans will file for bankruptcy.

Causes of debt trouble

Surveys point to several reasons for the financial troubles. In a study by the Bankcard Holders of America (BHA) in Washington, 53 percent of respondents blamed "uncontrolled spending" for their high debt levels.

Other reasons for financial problems, Mr. Stiller says, are corporate downsizing, medical problems, divorces, and lost overtime. "Often it's a combination of things," he says.

Debt counselors encourage consumers not to wait too long before seeking advice. Early warning signs include falling behind on mortgage and utility bills or using a line of credit to pay another credit line, Stiller says.

Visa, based in San Francisco, is now programming its computers to try to anticipate when an individual is beginning to use a card in a pattern that might lead to bankruptcy. The computer will look for atypical behavior, such as heavy cash advances and the purchase of luxury goods. "We want to give the issuer an alert so they can investigate as soon as possible," says Kenneth Crone, a Visa vice president.

What happens next concerns some consumer advocates. "What credit-card issuers have chosen to do is to penalize people for bigger balances than last year, for paying late, or charging over their credit limit," says Ruth Susswein, executive director of nonprofit BHA. "They will only get so much out of someone before the credit goes bad."

She suggests the bank-card company "contact the consumer to say, 'We think you are having a problem,' and then possibly freeze that person's credit line."

Card companies say they would rather talk than fight it out in bankruptcy court. Visa is now testing radio and television spots that advise consumers that there are alternatives to bankruptcy, such as counseling. In cities where the radio spots have run, there has been an increase of 26 to 41 percent in credit-counseling appointments. "Every consumer diverted from bankruptcy is one less charge-off," says Mr. Crone.

Credit counselors prefer that consumers arrive with all their financial information - from rent to food expenses. "Then the counselor tries to get a sense of what the problem is - whether it's too much spending, too much debt, or not enough income, that sort of thing," says Beverly Tuttle, a counselor at CCCS in Hartford, Conn.

If the debt load appears too burdensome, the adviser will negotiate with the card companies. "We'll probably get some cooperation to reduce those payments, then they might be able to pay off all the debt by just extending the life of the debt, so it fits into your budget more handily," says Ms. Tuttle.

Paris's progress

In Paris's case, this meant negotiating with six or seven card issuers. The companies agreed to accept less than the minimum payment and agreed to reduce their interest rates. One company even eliminated the interest charge. In return, Paris agreed to make a single monthly payment to CCCS, which distributes the money to the card companies in the ratios the money is owed. Even as his debt has come down, Paris has maintained the same payment, which accelerates the debt reduction. Counseling fees are generally low - about $50. CCCS members make their money when the credit-card companies give them 12 to 15 percent of the debt paid.

Paris's desire to pay off his debts is important if he wants to get new credit in the future. If he had declared bankruptcy, for example, he would be viewed quite differently. At Chase Manhattan Bank, an individual must satisfy the bankruptcy plan plus maintain a clean record for two to three years with credit counseling. Without credit counseling, the bank might wait as long as five years before considering credit.

"Banks are more flexible with people with serious problems that are explainable versus someone who is a habitually late payer," says Carol Parry, managing director of Chase's Community Development Group.

She says the bank would prefer it if most first-time homebuyers went through credit-counseling sessions before taking the loan.

If a borrower does have a history of late payments but wants to improve in the future, advisers recommend "credit repair" efforts. This may entail writing a letter of explanation to credit-reporting agencies, such as TRW. This statement stays in the consumer's credit file. It's then up to the consumer to show that he or she can steadily pay off the debt.

Once he gets his debt eliminated, Paris expects to reapply for credit cards. He says, "I am trying to have a gentle and friendly divorce from the credit-card companies. I just won't be carrying a balance any more."

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