Consumer Alert: Getting out of debt with professional help
SEATTLE (KOMO) - If your credit card debt is out of control, steer clear of people who want you to pay hundreds of dollars upfront to lower your payments. The Federal Trade Commission says that's not only illegal, it's the first sign of a debt-relief scam.
If you need help getting out of debt, make sure you deal with a nonprofit debt management team that will work in your best interest. Two women who got out of debt the right way want to share their stories in hopes of motivating you to take the first step to becoming debt-free. They dug themselves out of mountains of debt for a fee of less than $25 a month.
Lenora Edwards is a sought after business consultant, and newlywed Jade Aramaki is a talented designer for an architecture company. You'd never guess that not long ago, they were both drowning in debt.
"Definitely drowning," said Aramaki.
She had huge student loan bills and an unexpected medical bill that insurance didn't cover. The financial demands left her relying on credit cards for living expenses.
"I was at around $15,000 in debt," said Aramaki.
Edwards' debt was nearly 10 times higher.
"I was just behind the eight ball," said Edwards, who realized that, despite her excellent income, she, like millions of consumers, was spending more money than she was making.
"[In] 2014, I was $126,000 in debt in credit cards and lines of credit," Edwards said. "I even said it out loud: 'I'm too smart for this!'"
Both women acknowledge being embarrassed by their situations, but they were also determined to do something about it and ask for help. After being confronted by predatory companies that wanted huge fees and seemed "creepy," as Edwards put it, both women found a company they knew they could trust.
Their credit card companies lowered their interest rates and lowered their monthly payments, which helped them pay off all their debt in about four years, and they did it without having to pay huge, upfront fees because they used a nonprofit debt management program. Each of them only paid $15 a month for their debt management plan.
If reducing your debt on your own isn't working, remember these four letters: NFCC, the National Foundation for Credit Counseling. It's a nationwide network of nonprofit agencies that will help you set up a payment plan for a nominal fee you can afford.
NFCC's vice president of communications, Bruce McClary, says each of the agencies in the NFCC network is accredited and held to strict standards.
"A counselor will sit down and give you a realistic assessment of your financial situation, of your budget. And they'll put together a plan that is sustainable," said McClary.
The NFCC member agency that Edwards and Aramaki contacted is American Financial Solutions.
"You really have to make the decision -- that this is what I want to do. I want to get out of this debt, and you also have to make the decision that I'm not going to incur more debt," explained AFS Education and Communications Director Becky House.
"The first year is the hardest because it's where you're really learning to manage your finances without this kind of safety net of credit cards," House said.
When you're on a debt management plan, or DMP, it means no more credit cards. You make one monthly payment to the credit counseling agency. The agency pays your creditors. You get monthly statements and you get one-on-one support with debt management education and resources to help you stay on track. In many cases, you can work with counselors over the phone.
Debt management experts say being in a DMP does go on your credit record, but it also indicates to creditors that you're working to pay off all the debt that you owe.
"You feel like someone is alongside you," said Edwards. "It's like a weight off my shoulders. I slept better after that."
With mountains of debt now behind them, both women offer words of encouragement if your debt dilemma feels hopeless.
"You grow confidence in yourself as you're doing it. You start understanding you can manage it," said Edwards.
Aramaki agrees. The women say don't be ashamed or embarrassed about needing help. Just make sure you work with a nonprofit debt manager who will help you dig out of the hole the right way.
"It's really good to accomplish something that you didn't think you'd be able to accomplish," Aramaki said. "Yeah, it's really awesome. I'm really excited!"