Follow Us On...

Gain Control of Your Credit

Visit The Arizona Republic to view live article: Gain Control of Your Credit

Kenneth Lewis was deeply in debt last year but hadn't yet reached the point of no return.

He owed $43,000 on seven credit cards and was shifting balances among cards, taking out cash advances and engaging in other red-flag behavior.

"I was carrying around a lot of silent pressure," he said. "I needed a plan so I could stop feeling stressed out."

Fortunately, Lewis has made a financial comeback. He no longer uses credit cards and has cut his combined credit-card balances by $11,000. He expects to be free of his card debt in about three years.

"I look forward to getting my statements now because I like to see how much the balances have come down," the 45-year-old resident of Anthem said.

What saved Lewis was his willingness to seek help while he still had options. Unfortunately, many cash-strapped Americans aren't following the same strategy.

"It's becoming increasingly difficult to help people because many are waiting longer to seek help," said Michael Sullivan, director of education at Take Charge America, a Phoenix debt-counseling firm that is working with Lewis. "There's a lot of denial out there."

At a time of mounting foreclosures, repossessions and bankruptcies, many lenders are willing to grant concessions. But they, too, have limits, making it smart for debtors to act as quickly as possible if they hope to work a deal.

James Chessen, chief economist for the American Bankers Association in Washington, D.C., predicted that delinquencies will remain elevated for a while as consumers grapple with job losses, rising fuel and energy prices and the loss of wealth from falling home values. He emphasized the need to respond quickly if you fall a month behind.

"Any borrowers on the verge of financial stress should seek out their lenders immediately, as more options are likely to be available when problems are addressed early," Chessen said. "Ignoring the problem always makes it harder to resolve."

Sullivan considers the 90-day past-due mark especially critical because that's when lenders may be legally required to charge off a debt as uncollectible.

Here are some of the early-warning signs that could indicate your debts are nearing the point of no return:

• Late payments - If you find yourself unable to pay bills on time, that's a sign. This problem can snowball because late payments trigger penalties and blemishes to your credit report. When one creditor learns you have fallen behind on payments to another, it may respond by jacking up your interest rate.
• Behavioral changes - These can take several forms, such as tapping more cash advances, transferring balances among credit accounts, living from one paycheck to the next and charging more expenses that you used to pay with cash.
• Extra stress - If you're having trouble sleeping because of money worries, that's a signal. So, too, if you frequently check bank-account balances to find out if various checks have cleared.
• Marital problems - "This is when divorces start," Sullivan said. "When couples face financial stress, they often start fighting."

In Lewis' case, his mounting debts largely reflected pricey tuition that he sought for help in passing the State Bar exam. A longtime paralegal, Lewis has completed law school but hasn't yet passed the Bar. He works as a seventh-grade teacher while pursuing his goal of becoming an attorney.

When Lewis sought help a year ago, Take Charge America put him on a debt-repayment plan, provided financial guidance and negotiated with credit-card companies to ease his burden. Lewis said he now pays interest rates on his credit cards in the range of 8 to 10 percent, down from 18 to 22 percent previously. "Now, I'm paying more than the minimums due," he said. "It has given me peace of mind."