Debt Diet, Part I

By Gerri Detweiler and Mary Reed Monday January 11, 2010


Gerri Detweiler and Mary Reed are co-authors of "Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights." They also answer debt questions at DebtCollectionAnswers.com.

Just as the same old diet advice (eat less! exercise more!) can make you want to scream, the standard advice about ditching debt (spend less! double your payments!) can be infuriating, especially if you’re up against a mountain of debt with interest rates that match the calories in a bowl of Ben & Jerry's.

If you want to dig out, but penny pinching isn't enough, you may require an extreme debt diet. Here, the first of three debt diet articles to weigh, if you're deep in the hole. Parts II and III coming soon.

Credit Counseling. This is the packaged meal plan version of a debt diet. (Think Jenny Craig for your budget.) You seek help from a credit counseling agency (resources below), cut up your cards and make one monthly payment to the agency, which in turn pays creditors. Most creditors will reduce your interest rates, which means you pay less in the end.

The big advantage? Zero temptation. With no open accounts, you won’t be able to use a card “just this once.” That's also the challenge. If credit cards have been your back-up plan, you have to survive without your plastic safety net. If you take the credit counseling route, you need to overhaul your spending habits, revise lifestyle expectations and live on what you actually earn. No Visa supplements!

More good news: Most people with overwhelming debt have crummy credit already. Your credit rating will take an additional hit when your accounts close—but not because you're in counseling. Once you are making regular payments, on time, watch it bounce back.

• To find a credit counselor: www.nfcc.org and to www.aiccca.org
• Advice for those in a debt management plan on FTV.gov
• Fourteen questions to ask a credit counselor

Got a question or want to share? Leave a comment below.