by Philip Moeller

Consumers forced to cut their spending are most likely to succeed when they build a financial plan, create a budget, and have the discipline to stick with that budget. U.S. News interviewed four credit counselors who work for ClearPoint Credit Counseling Solutions, a national nonprofit that receives financial support from credit card companies and other sources and charges consumers no more than $35 for its services: Ashley Adami (in Seattle), Michael Carter (St. Louis), Karen Metoyer (Sacramento, Calif.), and Tina Webb-Bouttry (Charlotte, N.C.).

Many forces spur consumers to seek credit counseling.

Carter commonly sees consumers who have been overextended for years, then hammered by problems in the housing market. "They know if they lose their jobs, they will lose everything," he says.

When consumers finally visit a counselor, they have often exhausted common-sense spending cuts.

They have supplemented their income by overextending their credit and are being besieged by debt collectors. One of the first things a counselor can do is provide reassurance that help is on the way.

"Just getting a second set of eyes" on their problems can help, Adami says. Forcing consumers to tote up their debts is a painful but helpful exercise. Many consumers living under crushing debt simply avoid their problems, Metoyer says. Mail piles up unopened because they don't want to see another late notice. Cellphones are programmed to block debtor calls. "The first thing we suggest is that they have to open up all that mail and sort it out," she says.

Metoyer helps consumers categorize their spending.

First are fixed expenses: the mortgage or rent, utility bills, and the like.

Next are inescapable periodic expenses, such as car registration and taxes.

Last are variable expenses, and here is where counselors work hard to cut spending.

"I've noticed with a lot of the couples, that there's not a lot of communication," Webb-Bouttry says. "They're bumping heads because they don't communicate. And most of them have never really thought about their expenses." The goal is to develop a new break-even point for consumers where income and expenses match. Agonizing decisions ensue, such as downsizing to a cheaper home or cutting extracurricular activities. No cable. No cellphones. No restaurants.

Debt-management programs require a complete review and accounting of consumer debts and, usually, a detailed budget.

Counselors have experience and relationships with credit card companies and can often bargain down both the interest rate on outstanding debts and the amount of those debts. Regular follow-up sessions are held to make sure budgets are being followed. Consumers are urged to buy everything with cash and leave their credit cards at home. Unapproved use of credit cards can void debt-management agreements and end the counselor's relationship with a consumer.

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Careful Planning and Discipline Can Pull Consumers Out of Debt | Philip Moeller