Escape stories from debt hell

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Few statistics exist to tell how many debt survivors have paid down big balances and changed their habits, let alone how they did it. There are only reports describing the nation's mounting load of personal debt. The average card holder had $4,800 in credit card debt in 2007, according to the Census Bureau, a number that's expected to reach $5,500 in 2008.

A report from the Center for American Progress says:

• The number of American families carrying card balances is growing.

• Credit card debt is growing fastest among middle- and low-income families.

• Low-income families have the greatest debts, proportionate to their incomes.

• Families with higher credit card debt -- not overall debt -- are more likely to become delinquent on card bills.

Howell Edwards of the nonprofit InCharge Debt Solutions (formerly Profina Debt Solutions) says that about 40% of the roughly 30,000 people who enroll in the company's debt management program annually complete the program. Of the rest, some file for bankruptcy, others use home equity to shift their debt and a substantial number feel they are able to manage their debt on their own, says Edwards.

5 traits of the debt-free

It is credit cards, with their easily triggered fees, escalating interest rates and hidden costs, that seem to push debt out of control.

Despite the odds, committed debtors manage to cut up cards, pay down balances and foreswear old habits. The system they use, whether a credit counselor or the 12-step self-help group Debtors Anonymous, appears to matter less than their determination to claw their way out. Some ex-debtors say they can't touch another credit card as long as they live. Others do just fine with credit. Regardless, they all:

• Decide to leave their dream world, add up the damage and assign a cold, hard number to their total debt.

• Stop using unsecured debt -- at least until they've reached a zero balance, and maybe forever.

• Focus intently -- and stay focused -- on their system, whatever it is.

• Plan and track where every dime of their money goes.

• Don't quit until they're done.

Motivation: Fear

Shivers has advice for people in debt trouble: Get educated. Her trouble began when she left her $89,000-a-year pharmacist career to start a home-based business. Her passion was marketing, so she pulled $30,000 out of her $65,000 savings and launched a direct-mail business.

Although she poured herself into the company, she had no business background, no marketing experience and no education in managing money. Her knowledge was from popular culture. "You read about all these people who started businesses with their credit cards," she says. After burning through her starting capital, she ran up nine credit cards. "It would be, like, a $5,000 chunk here for a new computer system, $2,000 there for a new printer," she says. She was shocked to find that she needed $2,000 worth of paper.

She returned to pharmacy work part-time, taking every available shift to support her business. She felt sick with fear over her inability to manage. "I didn't have a social life at this point. Everybody at my job knew that I was paying off a big debt." That's when her colleague stepped in, pointing her to a local affiliate of the National Foundation for Credit Counseling, a national network of nonprofit agencies.

For a $10 monthly fee, the counselor took over, negotiating lower interest rates with most of the card companies. They lowered the 25% interest rate to 15% on her card with a $30,000 balance. They collected $879 a month from her and paid off her bills. She relinquished all the cards but one and took classes on money management and business. She never considered bankruptcy, she says, because, with her lucrative profession, she could pay the debt fairly quickly and maintain her credit rating.

How to spot trouble

Jerrold Mundis, author of "How to Get Out of Debt, Stay Out of Debt, and Live Prosperously," says it's easy to know if you're in trouble: "Ask yourself, are you debts causing you any level of discomfort at all? If they are, it is almost certain that you are having a problem with debt."

Here are the three suggestions from Mundis, a self-confessed ex-debtor, and others who have successfully paid off catastrophic balances:

• Avoid telemarketing "debt counselors" and for-profit organizations. Find a counselor certified by the National Foundation for Credit Counseling. (Recently the Internal Revenue Service found that 41 of 63 credit-counseling companies it examined were preying on debtors.) Read "The consumer's guide to credit counseling" to learn more.

• Debt collectors buy uncollected debt from creditors for literally pennies on the dollar. This means there's room to negotiate with creditors. Watch out: If you get a really big reduction, you may need to file an IRS form 1099 and adjust your taxes. (Read "Make a deal with debt collectors.")

• Target bills and zap them one by one (while staying current on the others). Choose the smallest bill, post it on the refrigerator and mark the reduced balance with each payment. Celebrate each time you knock off a bill.

Once you get free, debt veterans say, the temptation to slide back into debt can be huge. It was a way of life, after all. As one former debtor says, "Be prepared for emotional ups and downs tied up in money. There is an enormous emotional content to money stuff for a great many people."

Would you like to share your own story about escape from debt hell or your tips for managing personal debt? Join the conversation "Escape from Debt Hell" on MSN's Your Money message board.

Updated Dec. 21, 2007

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