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15 secrets debt counselors wish you knew

When it comes to money management mistakes, debt counselors have seen it all. And if you knew what they already know, you could save a lot of money and more than a little grief.

Unfortunately, by the time consumers sign on for credit counseling, they already have an average of $30,000 in bills and seven or eight credit cards, says Susan Keating, president and CEO of the National Foundation for Credit Counseling.

So here's what counselors think you should know:
1. Freebies are lethal.
2. If you co-sign, that debt is yours.
3. Bouncing a couple of checks can cost you your bank account.
4. You need a plan.
5. Auto leases can be hazardous to your financial health.
6. Your old emergency fund might not cut it.
7. Don't always reach for that debit card.
8. If your name is on the bill, it doesn't matter what the divorce decree says.
9. Balance transfers aren't a panacea for credit problems.
10. If you're late on one card, another could raise your rates.
11. Challenge your credit card bill.
12. Take your time if you're using auto dealer financing.
13. Pay the rent or mortgage first.
14. Don't dig the hole deeper.
15. If you're struggling, steer clear of second mortgages or home equity offers.

1. Freebies are lethal.
Those low introductory offers sound great, but they are designed to get you hooked on the service. The ploy works way too often, says Elaine Rutter, a certified consumer credit counselor with the Consumer Credit Counseling Services of Central Pennsylvania.

"I see people with cable, Internet and cell phones paying several hundred dollars a month," she says. The consumers tried the service at the initial low price and kept it on even after the bill went back up to the normal rate.

Be sure you can afford the extra bill with your current income and budget.

2. If you co-sign, that debt is yours.
If your son or daughter wants you to co-sign for a car, apartment or loan, just say no, says Trent Graham, manager at GreenPath Debt Solutions. Debt counselors see this one a lot. Often, the other person defaults, leaving the co-signer to pick up the payments. Having to suddenly shell out an extra $350 per month can really squeeze a family budget.

3. Bouncing a couple of checks can cost you your bank account.
Not only can your own bank kick you to the curb, but it can put you in a financial database that acts as a kind of black list, says Rutter. Result: For up to five years, other banks could be leery of giving you an account.

A host of technological advances have exacerbated the problem. Among them: widespread use of debit cards, which don't necessarily stop working when the account is empty and new financial regulations and processing methods that have cut the "float time" (the period it takes to process a check) that many people build into their bill-paying schedule.

Use online banking or toll-free numbers to keep tabs on your accounts, especially if you're a debit card addict.

4. You need a plan. If you just spend money until it's gone, you never get ahead.
Look at what you make, what you need to spend, what you want to save. Keep track of your spending for a month or two to see where the money is going. One area to watch: entertainment. "You'd be surprised what you spend," says Rutter. Designate a monthly amount for shows, dinners, etc., and put the money in an envelope or your wallet. When it's gone, you stay home.

5. Auto leases can be hazardous to your financial health.
Leasing (and some zero-down payment deals) can put you at risk financially because you may be driving a car that's actually worth less than you owe, says Rutter. In an accident, your insurance will only cover the car's worth. The remainder, which can run into four or five digits, is suddenly added to your debt load.

6. Your old emergency fund might not cut it.
The old rule was to sock away three to six months' salary. But that's just not enough anymore, says Keating. "I don't think it's necessarily true that people get re-employed within three to six months. Instead, aim for having a year's wages in the bank.

7. Don't always reach for that debit card.
Some gas stations and restaurants will put a hold on your card for more than you actually spend, says Rutter. And it can be several days before you get it back. Result: You think you have a healthy bank balance, but you're bouncing checks.

Gas stations and restaurants are dicey places to use debit cards anyway, because they're popular venues for identity thieves. Instead, use your credit card or cash and save the debit card for your bank's ATM.

 
 
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