Too much debt? How you can get help

Many Arizonans still struggle to make ends meet and dig out from under mountains of debt even as jobs are plentiful and unemployment in metro Phoenix has eased to 2.7%.

Those struggles could get worse if the economy gradually slows, as expected.

But help is available, including through a free debt-counseling program that received state funding under former Gov. Doug Ducey.

Money Management International received $500,000 last year that allowed the nonprofit financial-counseling agency to hire extra staff. The funds offset the costs MMI incurs in providing financial counseling services to Arizonans at no cost.

“Since being awarded the grant, we’ve helped over 1,500 Arizonans regain control of their finances and we have capacity to help 1,000 more by summer,” said Thomas Nitzsche, a spokesman for the group, which is at www.moneymanagement.org.

Money Management International’s grant was part of an allotment of nearly $3.58 million from the state’s Crisis Contingency and Safety Net Fund. Most of the other money went to assist small businesses in various ways.

Other debt- and credit-counseling groups include Phoenix-based Take Charge America and Achieve, formerly Freedom Financial, which has a large operation in Tempe. Many groups are fielding more inquiries from consumers at a time when higher inflation and interest rates are taking a toll.

“What we are seeing now is an increase in consumers who have credit card debt, likely because of interest-rate increases, as well as the pressure inflation has put on household budgets,” said Nitzsche. The organization expects another surge after student-loan payments, which were paused, go back into repayment mode starting around the second half of this year.

Small-business owner and single mother Annette Spychalla sought debtmanagement help from MMI several years ago when she found herself grappling with credit-card debt and a car loan.

“Many of these expenses where racked up when I went through a difficult divorce and had to move my family across the country and basically start over,” she said. Spychalla also faced attorney fees and ongoing living expenses for herself and her two children.

“I was looking at all the bills at the kitchen table at the end of school in 2018 and was trying to figure out how I could ever afford a family vacation,” said the

Peoria resident and life/success coach.

“I was completely overwhelmed and frustrated,” Spychalla said in an email. “The stress from this financial situation threatened my emotional well being and was truly giving the wrong money-role modeling to my kids.”

Potential to cut card interest rates

The organization’s counselors work one-on-one with debtors to review their situations, determine options and find solutions.

One possibility is to consolidate credit card bills and lower interest rates into a single, manageable payment. MMI claims debtors often are able to lower their interest rates to around 7%. It can especially help debtors who can’t qualify for a balance transfer or consolidation loan, Nitzsche said.

Nitzsche said there are no income limits or other requirements to receive free counseling, though MMI’s services are designed for people facing challenges such as housing instability or high unsecured debt.

During counseling, MMI collects information on borrowers including their income, assets, monthly expenses and the names of creditors with whom they are dealing.

Some people request fairly minimal help, such as advice on how to deal with creditors, tips on improving their credit score or help balancing a budget. However, those who go on a debt-management plan to pay off debts at reduced interest rates take about 52 months on average to complete the program.

That’s the path Shychalla took. She said her counselor talked directly with creditors to see how they could arrange to close some accounts and apply payments mainly to principal balances, rather principal and interest both, she said.

Most creditors were willing to work with them, she added.

After four years, Shychalla said she paid off nearly $20,000 in credit-card balances and around $15,000 on her auto loan.

Start the process early

Debt management plans, like the one Shychalla used, are most effective if they happen prior to accounts getting charged off to a third-party collection agency. There are several reasons for this.

One is that significant credit damage occurs when an account is charged-off. Also, any interest-rate reductions are honored only if the account is still held by the original creditor, Nitzsche said.

In addition, when accounts are transferred to a collection agency, it puts the consumer at risk of being sued.

Some people request fairly minimal help, such as one-time advice on how to deal with creditors, tips on improving credit scores or help balancing a budget. However, those who go on a debt-management plan for help paying off balances at reduced interest rates take about 52 months to complete the program.

For people who find themselves grappling with debt, Shychalla feels it’s important to reflect honestly about the problems and spending behaviors that led to it, then seek assistance.

“Ask yourself the tough questions about your own relationship to money and how you can heal it,” she suggested. “Being honest with yourself and dumping the shame and guilt will help you make that call.”