Tips to Get Out of Debt from Bills.com

Before blowing the budget on holiday spending, consumers should seek help from reliable partners

SAN MATEO, Calif., Nov. 28, 2007 - This year, the National Retail Federation anticipates holiday shoppers around the country will spend $474.5 billion. If your credit card statements look like you singlehandledly financed the nation's shopping spree, Andrew Housser, co-founder and co-CEO of free online consumer portal Bills.com (www.bills.com), offers tips on how to determine if you need help with debt -- and how to find a reliable company to help you get out. "Chances are, you already know if your debt is too much. If you have trouble paying the bills, are receiving calls from collectors, are struggling to pay off medical bills, or get that sinking feeling when the bills come in each month, odds are you should pay off instead of spending more," Housser said. Most people can pay off their debt with a household budget and dedication, Housser noted. His steps:

  1. Cut out all unnecessary expenses, and instead apply those funds to paying off bills.
  2. Pay secured debts (mortgage, car) first. Your mortgage payment should take absolute priority.
  3. Then make more than the minimum payment on the highest-interest-rate debt, while making minimum payments on other bills.
  4. When that bill is paid, add the payment to the debt with the next-highest rate until it is paid off.

Understanding options

But if your bills are so out of hand that you are missing payments or have to choose among them rather than paying them all, Housser said, it might be time to seek help. Various companies assist with debt repayment, including debt-resolution firms, debt-consolidation companies and credit-counseling services.

  • Debt resolution firms negotiate on the consumer’s behalf with creditors. They settle on a lower amount that can reduce total payments by 40 percent to 60 percent with a repayment term of two or three years. The credit score and credit score likely will be negatively impacted, but responsible credit use after completing a debt resolution program can rebuild it relatively quickly.
  • Debt consolidation rolls multiple debts into one loan or into a mortgage. It may or may not bring lower payments. Borrowers using a mortgage to consolidate put their homes at risk and might run up just as much credit card debt within a few years.
  • Credit counseling provides lower interest rates, with a repayment term of five to 10 years. Total debt principal is not negotiated down. Negative impact to credit profiles can make it more difficult to access new credit while in a credit counseling program.

Choose a partner that will help, not harm

When consumers are looking for a trustworthy organization to help win the battle against debt, Housser suggested seven questions to ask that will help identify a reputable firm.

  1. Compensation: Does the company get any form of consideration or compensation from the creditors themselves? Some firms receive funding in the form of what are called "fair share" payments from creditors. The payments are incentives to get consumers into debt management plans (DMPs), and could lead to a conflict of interest between creditors’ and consumers’ interests.
  2. BBB: Is the company a member of the Better Business Bureau? A "yes" answer means the company is willing to have its practices scrutinized and to respond to consumer complaints.
  3. Individualization: Does the company provide actual consultations and provide advice/education to consumers free of charge? Or is the company simply directing all consumers into debt management plans?
  4. Free education: Does the company provide educational material, including budgeting and financial advice, free of charge? Many firms consider educational material an additional fee source, not a benefit to clients.
  5. Background: What is the background of the company’s management team? Look for good, relevant education and experience -- not a team that jumps from opportunity to opportunity to make its fortunes.
  6. History: How long has the company been in business?
  7. Success: What are the company’s dropout and success rates? Request these statistics. Leading credit card companies report that many credit-counseling firms have dropout rates as high as 90 percent.

"Above all, trust your instincts," Housser emphasized. "If your 'gut feeling' tells you something is not right with a company, move on. Numerous organizations can help you resolve financial issues - with integrity and skill." Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. The company blogs about consumer finance issues at http://www.bills.com/. Since 2002, Bills.com has served more than 30,000 customers nationwide while managing more than $500 million in consumer debt. Bills.com is a division of Freedom Financial Network, LLC, whose co-founders and CEOs, Andrew Housser and Brad Stroh, have been named Northern California finalists in Ernst and Young's Entrepreneur of the Year Awards.