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Coming to terms with overwhelming debt, one step at a time

Frances Rahaim owns and manages Power Down Debt in Montague.

Frances Rahaim owns and manages Power Down Debt in Montague. Purchase photo reprints »

One step and then another.

Getting out of debt, local experts say, requires setting a plan and sticking to it.

If people are lucky, it also means avoiding traps, such as high-interest payday loans, that can lead to more trouble.

There are many options available to people who want to manage their debt – both from nonprofit and for-profit businesses.

Which are safe and sensible?

Helen Blatz, director of the Consumer Credit Counseling Services office in Amherst, says debt reduction and management services were originally created by credit card companies when they came into existence over 50 years ago. Her program is one of 700 community-based nonprofits overseen by the National Foundation for Credit Counseling.

“There are steps to improve your credit, and that’s my job,” said Blatz.

One of the first is to make good choices about the kind of help you seek.

People looking to manage debt will come across businesses offering settlements, consolidation loans and lots of promises to make your debt go away fast.

But in terms of settlements, Blatz suggests caution. “Why would a creditor take 50 cents on the dollar?” she asks —and warns that “if it sounds too good to be true …” it likely is.

The Massachusetts Consumer Affairs Department offers debt-reduction tips on its website to help consumers make good choices when they decide to tackle their debt problems.

Basic tips include being clear about “how the credit counselor claims to save you money, and how much the credit counselor charges for those services.”

Most credit counselors will offer to reduce your interest rates to low to zero interest. The state’s consumer affairs department urges consumers to “get details in writing concerning any promises of changes in terms the credit counselor says can be achieved for you.”

The office also counsels consumers to consider the impact of fees charged for debt management, calculate the total fees charged and realize that reducing your debt will take significant work on your part.

There is no magic bullet — but there is legitimate help.

Here in the Valley, both the Amherst office of Consumer Credit Counseling Services and the privately owned Power Down Debt in Montague offer free consultations. If you are feeling uncomfortable starting the process, Power Down Debt’s website allows consumers to do an initial assessment online.

“We’re not debt settlement, not consolidation, and we’re not bankruptcy, and we’re not a hard sell,” said Frances Rahaim, owner of Power Down debt.

Rahaim’s business offers lifetime financial coaching for one fee, which is based on a sliding scale and can be rolled into a monthly payment until paid off.

“We often get compared to Weight Watchers,” said Rahaim. “Most often, people who come to see me feel responsible for their debt. They often feel ashamed, embarrassed, and prideful.”

Rahaim’s business offers to help with interest reduction and negotiations with creditors for other reductions, such as late fees. But her business strategy focuses more on creating a customized debt plan the consumer can live with that can be adjusted if life’s circumstances change. The company also offers automatic bill paying through a company she contracts with. “This is all about you feeling good about your relationship with money,” she said.

Like Blatz, Rahaim stresses that debt reduction and management takes time and that promises some companies make “are like trying to cram a size 12 foot into a size 9 shoe.”

Rahaim, who worked before as an investment advisor, said she created her debt management system out of a mathematical formula inspired by her desire to manage her personal debt.

“If you just take five years to manage your debt, you’ll also likely be able to retire more easily,” she said.

In addition to individuals, Rahaim works with small business owners. She eschews the hard sell. “We’ve never made a single out-bound sales call and we never will. People who are in debt are in pain, but you don’t have to be desperate to come here,” she said.

The workout

Blatz, of the Amherst Consumer Credit Counseling Services office, said she helps people create what is known as a financial “workout.”

A workout is based on a customized personal budget in conjunction with negotiating lower interest rates and possibly stopping late fees and over-limit fees.

“Banks and credit companies are often willing to negotiate because if I’m doing my job right they may have a future customer,’ said Blatz.

She noted that there is an important difference between “debt settlement” and “debt management.”

“This is something that has become a misunderstanding with the birth of the Internet,” she said.

Blatz said that while creditors may negotiate to some degree, ultimately they want to get all of their money back, so they often are unwilling to make a settlement.

Blatz said she can often negotiate interest rates from the range of 25 percent down to 8 to 10 percent.

However, she notes that individuals can also try to work out settlement agreements on their own. “You don’t have to pay anyone a dime to do it for you.”

CCCS charges between $24 and $40 a month to assist consumers with debt. Breaking down the fee, it charges $8 per creditor with a minimum of three creditors and a maximum of five.

Blatz said that she does a comprehensive intake with consumers, which includes a copy of their credit reports. “We do a cash flow analysis to see what money you have left over to pay debt,” she said. “It all gets back to education.”

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