David Bach The Automatic Millionaire

Last July, I wrote a column that introduced my DOLP method for paying down debt. (DOLP stands for Dead On Last Payment.)

I receive success stories on a regular basis from readers who have turned their lives around by using the DOLP method. The road to success isn't an easy one. It takes discipline and sacrifice, but with the right tools, coaching, mindset, and commitment to changing your behavior, it can be done.

Buried in Debt

But what if your mountain of debt is so high that it's literally unmanageable? Last week, the New York Times reported that with our slowing economy, a growing number of consumers are finding that they can't even pay the minimum on their credit card bills.

According to the article, the Federal Reserve reported that revolving debt -- an estimated 95 percent from credit cards -- reached a record high of almost $944 billion in December 2007. The amount of debt that's delinquent (where minimum payments are late but the accounts are still open) also appears to be on the rise.

The Federal Reserve also found that 4.34 percent of the credit card portfolios of the 100 largest banks that issue credit cards were delinquent in the third quarter of last year. Charge-offs (accounts closed for non-payment) also grew in that period, and banks expect charge-offs to keep rising in 2008.

Getting Professional Help

If you have massive amounts of debt, you may need professional help. Consider this: Serious debt problems that are out of control will cripple your spirit, break your courage, threaten your marriage, and even ruin your health. For those overwhelmed by credit card debt, there are credit counseling agencies you can turn to for help. Of course, there are scams out there, too, so "buyer beware" applies at all times.

Legitimate credit counseling agencies basically do two things. First, they help you sort out your current problems by negotiating with your creditors to get you lower interest rates and more bearable payment plans. Second, they try to prevent future problems by teaching you financial management skills.

Depending on your situation, a good credit counseling agency should be able to offer you everything from simple advice about handling your money to (worst-case scenario) helping you decide if it's in your best interest to talk to a bankruptcy lawyer. One service virtually all of them offer is something called a "debt management plan," or DMP.

How DMPs Work

DMPs can be lifesavers when your situation is dire -- for instance, if you're completely unable to make your minimum payments or are unable to renegotiate your interest rates. Under a DMP, the agency works out a payment plan with all creditors, often getting late fees waived and interest rates lowered in the process. Once the DMP has been set up, you make one consolidated monthly payment to the agency, which then parcels out the money to all your creditors.

DMPs can be great for the debt-strapped, but they must be used appropriately and run properly. Unfortunately, the new breed of rip-off artist that's infiltrated the credit counseling industry over the last decade rarely does either. To the scammers, DMPs are just another way to separate unwary consumers from their hard-earned money.

Legitimate credit counseling agencies cover their expenses by charging clients small fees to set up and administer DMPs. These fees shouldn't run much more than $50 up front and $25 a month thereafter. Agencies also receive what are called "fair share" payments from your creditors, who pay them a percentage of the money the agency collects from you and passes along to them -- the idea being that if the agency hadn't set up the DMP for you, your creditor might not be getting anything.

Vetting Credit Counseling Agencies

Unfortunately, because DMPs generate revenue, unscrupulous credit counseling agencies try to pressure everyone who comes through their doors into enrolling in one whether it makes sense or not. They also charge unconscionably high fees, pressure clients into making "voluntary" donations, and even deduct money from consumers' payments without letting them know.

Be suspicious of "experts" who claim they can solve all your credit problems with some magical quick fix. Your problems won't be solved overnight. In addition, the National Consumer Law Center and the Consumer Federation of America (CFA) suggest that you look for the following red flags when you're considering signing on with a credit counseling agency:

• High fees: If an agency charges more than $50 up front and $25 a month to set up and maintain a DMP, they're probably ripping you off. An equally bad sign is if they're vague or reluctant to talk about specific fees.

• The hard sell: A counselor who answers your phone call shouldn't be reading from a script. If he or she aggressively pushes the idea of debt "savings" or the possibility of a future consolidation loan, simply hang up.

• Commission-paid employees: The best credit counseling agencies are nonprofit organizations whose only motivation is what's best for you. Employees who earn commissions for signing up clients are likely to care more about their own paychecks than your debt problems.

• The 20-minute test: Whether you do it in person or over the phone, effective credit counseling generally takes a fair amount of time -- often as much as an hour and a half. An agency that offers you a DMP after a consultation of just 20 minutes or less can't possibly know enough about you and your situation to be making an informed recommendation.

• Aggressive ads: Don't be fooled by hard-sell pitches on TV or the Internet that promise to solve all your debt problems. Before signing up with a credit counseling agency, get referrals from friends or family. Also check with the Better Business Bureau to see if the agency has had any complaints lodged against it and, more important, how those complaints were handled.

Trustworthy Referrals

Consumers looking for a counselor to help them solve their debt problems face a real challenge. As the CFA points out, it's virtually impossible to tell the honest, caring agencies from the rip-off artists simply by looking at an ad or making a phone call. So how do you find a good one?

By far the best way is through a referral. As I noted above, if you have any friends or relatives who've used a credit counseling agency, ask them how they fared. Nothing beats personal experience and a recommendation from a satisfied client. In addition, the Federal Trade Commission web site features some great information, including specific questions to ask when choosing a credit counseling organization.

Probably the most highly regarded referral service in the country is Consumer Credit Counseling Services. The CCCS is an offshoot of the National Foundation for Credit Counseling (NFCC), the nation's oldest national nonprofit organization for consumer counseling and education on budgeting, credit, and debt resolution. The NFCC has 113 nonprofit, community-based member agencies and more than 900 local offices throughout the country.

According to Gail Cunningham, senior director of public relations for the NFCC, over 2.2 million consumers were helped last year by member agencies across the country. You can find an affiliate near you by calling (800) 388-2227 toll-free, or by visiting their web site.

Protect Yourself

Though the NFCC is extremely reliable, that doesn't mean you shouldn't do some research of your own. Ms. Cunningham emphasizes the importance of shopping around for the right credit counselor for you: "It's up to the consumers to do their due diligence when choosing whom to work with."

For a complete listing of questions you should ask prospective agencies, see the NFCC's credit counseling page.

Finally, if you've been victimized by a fraudulent or unethical credit counseling agency, file a complaint with the Federal Trade Commission by calling (877) 382-4357 toll-free, or by going to the FTC's web site. Then contact your local state Attorney General's office.