Group seeks affordable debt plans

The nation's biggest credit-counseling association, seeking to avert a rash of personal bankruptcy filings, has asked credit-card issuers to make deeper debt concessions to financially distressed consumers.

Susan Keating, president of the National Foundation for Credit Counseling, said many of the 2.8 million consumers who sought credit counseling from its 108 members in 2008 wanted to enroll in a debt-management plan.

A debt-management plan, available through credit-counseling agencies, helps cash-strapped consumers pay off their unsecured debtors.

The debtors, mostly credit-card issuers, agree to make concessions such as lower monthly payments and interest rates. Consumers make one monthly payment to the agency, which disburses that money to creditors.

But at least a third of the people who wanted to join a debt-management plan last year were ineligible because the concessions from credit-card issuers were not deep enough.

Keating has appealed to card issuers to improve concessions. "Consumer debt is high," she said. "Savings are down. Unemployment is rising; and economic growth is slowing. . . . More consumers find themselves overextended."

Foundation spokeswoman Gail Cunningham said that many consumers are willing to repay their debt if the repayment terms were more affordable.

Scott Talbott, spokesman for The Financial Services Roundtable, indicated that the group's members who are credit-card issuers might be receptive to making deeper concessions.

Bruce McClary, spokesman for ClearPoint Financial Solutions, a national credit-counseling agency based in Henrico County, said changes taking place in today's economy call for everyone to find ways to help cash-strapped consumers sooner rather than later.

Following are some key provisions of the National Foundation for Credit Counseling's proposed universal debt-management plan:

Consumers would be enrolled in one of two versions of the plan.

One is a basic plan in which a person's monthly payment would be fixed at 2 percent of the total balance owed to their unsecured creditors, said Sally Parker, senior vice president of strategic planning at the foundation.

The other is a hardship plan for persons who can't afford to pay 2 percent. Their monthly payment would be lower, 1.75 percent of the balance.

The annual percentage rate that creditors charge wouldn't exceed 7.7 percent. The APR could be anything up to that percentage so long as persons are able to liquidate their debt in 60 months as federal regulations require, Parker said.

Only people who truly can't pay will be eligible for the debt- management plan. Creditors are being asked to make deeper, costlier concessions. The foundation is assuring them that only consumers who, after a thorough review of their budget, really can't meet their contractual payments would be accepted into the plan.

Consumers will be required to start and maintain a $25-a month emergency cash fund. The idea is to help promote long-term financial health, enable them to handle emergencies with cash, not credit, and to stop living from paycheck to paycheck.