Answer: Remember the good old days - you know, two years ago? As we recall, painters weren’t reluctant to push their bids up then, when demand for their services was strong. That behavior wasn’t unethical, and neither is it unethical for you to take advantage of the fact that today business is slow. Indeed, the effect that supply and demand have on prices is at the core of a market economy. You’ll be paying a price the painters agreed to, and you can rest assured they want the work.

Is it possible to overstep? Yes. Squeezing the desperate isn’t right. So if your husband has extracted a price from these painters that’s genuinely exploitative - for example, if you know the business owner needs the cash to save his house but will have to do the work for five bucks an hour - then you should revisit this bid and agree on a more equitable price.

By Jeanne Fleming, Ph.D. and Leonard Schwarz

Nearly every spouse occasionally fudges numbers. My wife once brought home a fancy flat-faced kitten that cost way more than she admitted at the time. We ended up chuckling about it - and my vacation fund too, after we raided it to make ends meet one month long ago.

But like most couples, we sometimes experience more serious tension when allocating our resources. Marriage counselors say that half of all couples fight about spending and that money issues are a driving force behind most divorces. Learning to peacefully resolve such disputes may be the key to a lasting relationship.

Certainly we boomers, who are splitting up at a record clip, could use the help. Among couples who married for the first time in the 1980s - yes, that’s our generation, folks - just 60% were together 15 years later. That’s down dramatically from the roughly 80% of first marriages in the 1950s that lasted at least 15 years. We confront money stresses that our parents never experienced, and while these aren’t the sole cause of quicker breakups, they compound tensions that may already be there.

Let’s tackle these boomer marital challenges one at a time.

Boomers are the first generation to have its female members enter the work force en masse, and the benefits are obvious - greater empowerment for women and more financial security for the family.

But the accompanying shifts in the balance of power between spouses can exacerbate clashes over spending, saving and goals. If he says, “You spent how much on what?” she’s now more likely to feel mad, not guilty: “Hey, I work, it’s my money too, and you can’t tell me what to do with it!”

With two earners under one roof, it’s also a lot easier - financially speaking - to break up. “When you both make money,” says Gemma Allen, a family attorney at Ladden & Allen in Chicago, “you’re both more able to pack up and leave, and the temptation to do that at times is strong.”

Before you think about heading for the exit, try giving yourself what’s probably a long-overdue attitude adjustment. Guys, take heed: The financial rules of marriage have changed, and it’s time you started acting like it. Stop behaving like Lord of the Money, with the titular right to decide how much your household should spend, where to invest and what your financial priorities should be. In the post-Ozzie and Harriet era, managing the family’s money is a team sport.

And ladies, remember: While it may be easier now to pull the marital rip cord, divorce is still a financial disaster for most couples - and the wife’s standard of living takes the bigger hit.

When you do discuss money issues, frame the conversation in a way that defuses emotional land mines, Allen says. Start on neutral ground, talking over coffee or lunch, perhaps; getting out of the house sets a more businesslike tone and helps both of you stay on your best behavior.

And focus on the goal, not your judgment of your partner’s behavior. How you can pay off a particular credit card given your income and expenses is a fruitful topic. Debating who charged more frivolously to run up the balance in the first place is not.

Sure, couples have always argued about how to spend money. But they have never had quite so much to argue about. We are a prosperous generation, inundated with opportunities to buy things and only too willing to believe a media blitz that declares we deserve it all.

“We are in an era of unparalleled consumption aspirations,” says Pamela Smock, a researcher at the University of Michigan’s Institute for Social Research. “We want the life we see all over the Internet and TV.”

End the sparring over who’s entitled to get more of what they want by setting a simple house rule: You are each able to spend up to, say, $250 with no questions asked. But above that limit you will consult each other. If your spouse nixes a bigger-ticket item that you want, try explaining why it’s so important to you and find out why he is so resistant (you can always stomp off in a huff later).

If your husband knew you were eager to send your kids to sleepaway camp because you never got to go and feel you missed out on a great experience, he might be more open to the idea. And if you understood just how worried he was about big bills putting the family in debt, maybe you’d find a cheaper program.

Our parents have lived longer than anyone expected, and they’re reaching their feeble years at the worst moment - as our kids are off to college. There’s a reason boomers are called the Sandwich Generation, and the financial stress of being the meat in the middle takes a toll on couples.

Part of the problem is that the expenses involved are so big they may threaten other important goals. If one spouse wants to take a leave from work to care for an ailing parent, the other may fear the move will undermine his or her own retirement prospects.

Divisions can also arise over how much support to give. Take college. Odds are, if you paid your way through college with loans, you think that’s okay for your kids; if your parents paid, you want to pay. And it doesn’t end: About half of kids who leave the nest move back home for a while.

You and your spouse need to find a level of help you can agree on- probably less than one of you wants and more than the other thinks you can afford. Resist the urge to make emotional entreaties and focus on finding practical solutions. Maybe you can shift to a part-time schedule instead of taking a leave. Have your kids take out loans to defray college costs, but promise to help with the payments.

Such compromises may do more than save your marriage. They can teach your kids the value of a dollar - and possibly a thing or two about how to work things out.

You need not fear these ten financial frights - or many others that can set your teeth chattering - when you put in place a comprehensive financial plan that fits your life.

Do it with a financial planner (which is the best method of navigating life’s financial roads) or not; but be sure to give some serious thought to how you live your own life, and how it affects those around you who you love and care for.

Miriam Caldwell

1) The most common luxury that people seem unable to part with is cable or satellite TV. This really is not a necessity. There are other forms of entertainment that are available for much less money. If this seems too extreme, you can start by cutting back your package. You will be surprised at how much money you can each month by doing this.

2) Another luxury is a cell phone. This can vary according to circumstances. Some professions may require a cell phone. If you feel that you need a cell phone for safety reasons you can purchase a pay as you go phone for significantly less money a year, and still have the protection that a cell phone provides.

3) Eating out and convenience foods are another luxury that many people cannot imagine doing without. You will be surprised how much money you can save by simply switching to making food from scratch at home. If you eat out quite a bit, trying cutting back. You may want to limit eating out to once a week or once a month. You can also save money.by choosing less expensive restaurants to eat at.

4) A new car is another luxury that many people believe is a necessity. You can save thousands of dollars by buying a used car. You may also want all the upgrades on your car, but these are not necessary either.

5) Many people believe that you need a new wardrobe every year or every season. This is not a necessity but a luxury. You can save money by simply limiting yourself to one or two new pieces or outfits a season or a year.

Buying brand new cars, trucks, SUVs, etc. can be a real money-eater. They all depreciate in value, some much faster than others, of course. Most vehicles depreciate the most in their first year or two of life, so the person buying a vehicle when it is new will have to absorb the bulk of its depreciation costs. With the price of new vehicles as they are today, that amount can be quite excessive. On top of that, many people have the financially disastrous habit of trading them in about every two to three years for another new one. That habit will result in the piling on of depreciation and debt.

Instead of buying new, I suggest buying a low-mileage vehicle that’s about one to two years old. There are services available now like CarFax which allow you to trace a vehicle’s history. If you look around, you can find previously-owned, former-rental, or former-lease vehicles of every type, make, and model which are in like-new shape and have less than 20,000 miles on them. You can even find them on Ebay now! Once you have found one, I suggest keeping it for least three years after paying off the loan. Ideally, I would suggest paying cash for it to avoid those used car interest rates and then keeping it for at least seven years, but I know paying cash is not an option for most people.

If you absolutely feel the need to give yourself or a family member the gift of a new car some day, I wouldn’t fault you for that. However, I suggest planning this out over several years, similar to how one would save for a college education for a child. Estimate the amount that you are saving by buying used cars instead of new ones and pay yourself that money by putting it in the bank on a regular basis. Over time that money will add up. Once you have saved enough, wait until a dealer that sells the kind of vehicle you want offers one of those deals in which you can get zero percent interest or a rebate. Pay cash for the vehicle and take the rebate. That way, you get the zero percent interest and the rebate!

Credit card interest is another item that will erode a person’s or family’s financial assets very quickly. The interest rates you pay are about 534,457,469 percent! Just kidding, but it does seem that way sometimes. Seriously though, they often run as high as 18 to 21 percent. A $20 meal will end up costing $36 when paid for over a five year period at an 18 percent interest rate! Paying only the minimum payment can result in an endless cycle of debt that will eventually be practically impossible to escape, outside of bankruptcy.

If you find yourself already in this situation, I suggest you see a professional credit counselor as soon as possible. If you are already paying more than the minimum payment, try to gradually increase this payment and suspend all new credit card charges, if possible, until you’ve paid off the balance. Obviously, the only sensible way to handle a credit card is to pay off all charges each month as they are accrued and not maintain a balance, thus avoiding all interest. A credit card is a nice convenience tool. However, if you don’t have one and you feel that you could not pay off the charges each month, then you are far better off not having one. If have one or more cards and have run up balances that you have had to struggle to pay off, you would be better off getting rid of it/them.

Short-term loans are also debts to be avoided like the plague. These include those “quick refunds” offered by many tax preparers, those “pay day” loans offered by predatory lenders popping up like cancers on seemingly every street corner, and many kinds of unsecured loans. The worst thing about short-term loans is their deceptiveness. Most people don’t realize what kind of wild interest rates they are paying. For example, $10 in interest paid to keep $200 for one week results in an annualized interest rate of 260 percent! Allowing a tax preparer to deduct $100 from your $1500 refund so you can get it instantly instead of waiting six weeks for the I.R.S. to send it to you will result in an annualized interest rate of 58 percent! I bet someone advertising those kinds of interest rates would have difficulty finding any takers, yet people take on these kinds of loans all the time as long as the interest rates are disguised.

People who are wise financially avoid most, if not all, of these biggest wastes of money. Most people who are financially independent right now got that way in whole or in part by avoiding wasteful spending.

Terry L. Mitchell

Personal finance can be confusing, and most people make their fair share of mistakes along the way. But Stephanie AuWerter, Editor of SmartMoney.com, has some tips for avoiding the most common hang-ups.

While a credit card is a great idea for occasional splurges or in case of emergency, it’s a bad idea to carry a lot of debt. Having too much debt can wreak havoc on your credit score. Thirty percent of your credit score is the amounts owed on yoru cards, and part of that is the portion of your total credit line that is used. From a credit perspective, it’s better to have $2,000 in debt on a card with a $4,000 limit than to have the same $2,000 in debt on a card with a $2,500 limit. It’s best to keep your balances below the 50% mark.

Another financial mistake that many people make is hanging onto losing investments. If you’ve got some duds in your portfolio, you might be reluctant to sell. “Your natural inclination is to want to make that money back,” says AuWerter. You may be waiting for the stock or mutual fund to recover, but that’s often a big mistake. Selling at a loss is a powerful tax strategy and it will give you the opportunity to move on to a better investment. Consider this: If you were buying today, would you buy that same investment again? If the answer is no, it’s time to move on.

No one likes facing their mortgage payment every month, so when an offer comes up to help pay it off quicker, some people jump at the chance. Some companies send offers in the mail saying that, for a fee, you can split your monthly payment in half by paying every two weeks. By doing so, you’ll make 26 payments a year - the equivalent of 13 monthly payments. “What you’re really doing here is prepaying your mortgage,” says AuWerter. In turn, you pay down the principal faster and save on interest. But here’s the catch - you shouldn’t have to pay that fee. “You can almost always do this on your own,” says AuWerter. With most mortgages, you can pre-pay whenever you want at no charge. So, don’t pay an outside company for something you can do on your own for free.

Many parents want to do everything they can for their kids, including paying for their college education. However, doing so often means that other financial goals - like saving for retirement - are put on hold. That’s a big mistake. After all, there are loans for college costs, but there are no loans for retirement. “What you want to do is max out your retirement savings first and then move on to college,” says AuWerter.

Life insurance can also be a little confusing. There are two types, term and whole life. For most people, term life is the way to go. This type of insurance is usually cheaper and AuWerter suggests putting that extra money to good use. There are exceptions, but term life insurance is easier to understand and frees up money that you can then invest elsewhere.

A: Pay off the credit card, but don’t pay off the cars and campers. I firmly believe that in 2009 everyone needs to make it a priority to get out of credit card debt. Credit card companies are raising rates, slashing credit lines, and even canceling cards; the best way to insulate yourself from penalties is to have no balance. But you also need to keep enough money in your savings account to cover the mortgage payments if you cannot quickly find another job. If you deplete your savings to pay off the cars and campers, how will you be able to make the house payments if you are laid off?

That said, what you really need to consider is selling one or more of the cars if you can pocket enough to cover the loan balances on the vehicles. And those campers fall far short of being a necessity, so you might think about selling them, too. I know that getting rid of certain possessions is hard to contemplate, but hard times require sacrifices.

Suze Orman

A: As daunting as an $8,000 debt looks, I’m relieved the figure isn’t higher, given your mother’s generous nature. A cash advance on a credit card is one of the worst types of borrowing because the interest rate is typically 21 percent or more. It’s fruitless to try to talk your way out of this; the card issuer has every right to expect repayment.

I want your mom to keep paying at least the minimum due (about $240) on the monthly credit card bill. On-time installments are vital for protecting her FICO credit rating. That’s important because if her score is at least 700, she has a good chance of being able to transfer the entire balance to a new card with a lower interest rate. Many card issuers offer zero percent interest for the first year when you move your balance to their card. At CardTrak.com, click on Search Cards, then choose the Balance Transfer Cards link to find issuers offering the best deals. But only sign up for one card—multiple applications made at the same time can actually hurt her credit score.

Next, it’s time for the kids to take care of Mom for a change. If every sibling can pony up $50 a month, that will add $300 to the $200 or so she can contribute. If you stay committed to pooling that $500 every month, your mother’s debt will be gone in less than two years.

I know you’ve tried to enlist your brothers and sisters before without much luck. Try once more. As I explain in Family Matters, you should convene a meeting of your relatives. Bring a written proposal of what everyone needs to do to help your mother eliminate her debt. Mom has to be at this meeting too. The siblings who have found it easy to say no to your entreaties may find it harder to confirm their selfishness in her presence.

You’re not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn’t have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. Debt negotiation is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Self-Help

Developing a Budget: The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Contacting Your Creditors: Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

Managing Your Auto and Home Loans: Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.

Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.

If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you

Credit Counseling and Debt Management Plans

Credit Counseling: If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make “voluntary” contributions that can cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Debt Management Plans: If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you’re participating in the plan.

Protect Yourself

Be wary of credit counseling organizations that:

• charge high up-front or monthly fees for enrolling in credit counseling or a DMP.
• pressure you to make “voluntary contributions,” another name for fees.
• won’t send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances.
• try to enroll you in a DMP without spending time reviewing your financial situation.
• offer to enroll you in a DMP without teaching you budgeting and money management skills.
• demand that you make payments into a DMP before your creditors have accepted you into the program.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.

What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.

Bankruptcy

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts.

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Attorney fees are additional and can vary.

Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait 8 years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.
Another major change to the bankruptcy laws involves certain hurdles that a consumer must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Simplifyee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program at www.usdoj.gov/ust.

Debt Negotiation Programs

Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.

The Claims

Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.
The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf.

The Truth

Just because a debt negotiation company describes itself as a “nonprofit” organization, there’s no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Damage Control

Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. But before you do business with any company, check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Some businesses that offer to help you with your debt problems may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or mention that you’re signing over your home as collateral. Businesses advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you everything that’s involved, or help you through what can be a long and complex process.

In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be illegal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.

You should be cautious of claims from so-called credit repair clinics. Many companies appeal to consumers with poor credit histories, promising to clean up credit reports for a fee. But you already have the right to have any inaccurate information in your file corrected. And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises. You also should know that federal and some state laws prohibit these companies from charging you for their services until the services are fully performed. Only time and a conscientious effort to repay your debts will improve your credit report.

If you’re thinking about getting help to stabilize your financial situation, do some homework first. Find out what services a business provides and what it costs, and don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.

from FTC