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Help! I’m drowning in debt!

TODAY readers battling airlines, student loans, credit card debt and more get smart advice from financial expert Jean Chatzky.
/ Source: TODAY contributor

Q. We owe around $18,000 in credit card debt, and the minimum payments are now up to $750 a month, and the interest rates are climbing. We are drowning in these minimum payments and are now struggling to pay the rest of our bills. We are trying to figure out the best way of getting out of debt without filing for bankruptcy. We found a site called, and I wanted to know how you felt about them. - Debbie, Willard, Mo.

A: Debbie — I hear the desperation in your letter and I want to tell you that you are not alone. So many people right now are suffering with debts that are much larger than they realized when they were spending the money. If the minimum payments are killing you, then you're right to try to take an in-between step before you consider bankruptcy. I'd advise you look at a credit counseling service. is not that. They are a Texas-based debt settlement company, which means that they charge a fee — in this case, 15% of the debt you owe, or $2700 — for negotiating with your creditors so that you can pay a lesser amount. This will show up as a negative on your credit report. If this sounds like an appealing notion, then I'd suggest going to and reading the company file on them before you proceed.

My preference, though, is for credit counseling rather that debt settlement. In general, here is how you want to check out a credit counselor before you do business with them.

* Check for license, accreditation. Many states require that a credit counseling organization register or obtain a license before offering credit counseling, debt management plans and similar services. Do not hire an organization that has not fulfilled the requirements for your state. Also, ask if the firm is a member of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies and double-check that information at the respective Web site.

* Consider the qualifications of the counselors. Ask if the counselors are certified and by whom. Try to select an agency whose counselors are certified by an outside organization. You will also want to ask how the agency's employees are paid. Steer clear of organizations that pay employees a commission; that might well influence the number or nature of services they decide you need.

* Get it in writing. Only do business with agencies that offer formal written agreements or contracts. Carefully read through the terms of the agreement or contract. It should describe in straightforward fashion the services to be performed; the payment terms for these services, including total cost; how long it will take to achieve results; any guarantees offered; and the counselor's name, business name, address and contact information.

* Know what you'll pay. Get a clear presentation of the fees you will be charged. If there are fees (setup fee, monthly service charges), the agency should explain what they are based upon. In general, you should not expect to pay more than $75 in setup fees or to make a monthly payment that exceeds $40. This monthly payment fee is subject to state law, and the agency representative should be able to tell you the specific regulations for your state of residence. The agency should also be willing to advise you how your funds will be protected. Finally, consider the total of the various fees; when added to your monthly debt, will the cost defeat your efforts to pay down your debt? If you are financially destitute, ask if the organization waives or reduces fees for people in your circumstance. If not, look elsewhere.

Finally, watch out for any demands for account numbers or financial details before they tell you how much they charge; watch out for promises that your monthly payment will be lowered by an absurd amount — like 30 to 50 percent — and watch out for any advertisements that you'll get out of debt “easily.” Getting into debt is easy. Getting out of debt is not.

Q. For many years, when being given a choice of preferred airlines, I repeatedly requested to be flown on United. I accrued well over 35,000 points, used a few and held onto the rest for a long-awaited trip to Europe. I checked in to be sure that these miles would be held securely for me. I was reassured they would be there indefinitely. When I called in to claim the points, I was told they had vanished, due to “inactivity.” I feel cheated. Can you help? — Melissa, Dobbs Ferry, N.Y.

A: Melissa — First of all, I am so sorry for your loss. Second, let me just say that United, I know, has been very up-front in notifying customers about its mileage policies, particularly inactivity, which is what it's called when you don't cash in miles or earn more by flying. I suspect that because of your personal situation you just didn't notice That said, I wondered if there was anything that we could do, so I called United Airlines myself and found — the loophole!

United Airlines has more than 300 partners in its mileage program. They include hotels, rental car agencies, other airlines, etc. Turns out, if you've done business with those partners, then you haven't been inactive.

And the airline has the ability to go back and figure out if that has been the case. In Melissa's case, it doesn't look as if she did business with those partners. However, United stepped up and reinstituted 25,000 of her miles because they'd like to retain her as a customer in the future. That's not enough for a trip to Europe, but it is enough to take her somewhere in the United States, and we hope she enjoys that trip.

Q. I have two daughters. One is a freshman in high school. We do not have any money saved for college, so we will be relying on financial aid and student loans for her college education. We have two mortgages on our home. By the time our daughter goes to college, we will only have six to seven years left to pay off our home. Should we be trying to extend our mortgage term to 15 years now so by the time she applies to college we owe more years on our home, so we can get more money toward financial aid? - Ann North Attleboro, Mass.

A: Ann — When it comes to Federal Student Aid, your home doesn't factor into the needs analysis. The mortgage itself doesn't matter, and neither does the net equity — the amount of value you actually own — in your home. When it comes to aid from the particular schools, however (this is sometimes called “institution aid”), that's another matter.

About 300 colleges do consider net home equity on the family's principle place of residence, and cap it at anywhere from 2 - 3 times their income. So the question is, how does their net home equity compare with that $70,000 in income? Based on this formula, you can probably have between $140,000 and $210,000 of net equity in your home without your expected contribution going up.

Keep in mind that this is only for a principle place of residence; a vacation home does count on both federal and institutional forms. So, as far as your question specifically, extending the mortgage wouldn't affect financial aid. So if you can afford your payments, there's no reason to extend. You'll pay less interest over the long run and that should put you in better financial shape for retirement as well as college. The only reason someone might want to increase the term is if they're having cash-flow difficulties and want to reduce the size of monthly payments on the mortgage to have more money to spend on college bills.

Q. I am a recent graduate from college. Luckily my parents are still paying the majority of my loans. I have about $15,000 in credit card debt and $80,000 in student loans. I'm to date on all my payments. I have two jobs. Should I be paying off as much debt as possible, or should I save some money in my 4% interest savings account? -Sara, Cincinnati, Ohio

A: Sara — Despite the fact that they didn't teach this in college, you are one smart cookie. And you are very fortunate to have parents who are able to help you repay those loans. I'd approach your problem in this order.

Step one: Emergency cushion. You need three months of living expenses set aside so that if you lose that job you don't need to move back in with your folks.

Step two: Credit card debt. It's great that the interest rate has been lowered to 4.9%, but there's no guarantee that rate will stick. Vanquish the credit card debt while you can.

Step three: Retirement savings. I didn't see mention of a 401(k) plan or IRA in your picture. If you are eligible for a 401(k) with matching dollars, that's what you should do. If not, open a Roth IRA and make a monthly contribution to get as close as possible to the $5,000 you're eligible to contribute for 2008.

Step four: Save for the house. If there's money left after that, put it into a money market account toward a down payment.

Step five: Consolidate your student loans. If you haven't consolidated those student loans, check out the newspapers around the first of June to see which direction the rate is going. My guess is that it'll be headed down, in which case you'll want to consolidate after July 1.

Q. My husband and I definitely live beyond our means. We live paycheck to paycheck and when I try to put money away it only lasts a few days. He will ask to do or buy something and I feel bad saying no. We have two beautiful girls, 9 and 6, and I am actually teaching them to save. I am 35 years old and things are starting to worry me. I want to save and want to make everyone happy. Can I do both? -Amy, Bel Air, Md.

A: Amy — I want you to listen to me because this is really important.

Saving money is the very best thing that you can do for your husband and your family. It buys you crucial things: Not just college for the girls and eventual retirement for you and your husband, it also buys you the ability to make choices in medical care if you have a health emergency, get a replacement car to get your husband back and forth to work if yours dies. Without savings you have no options.

Your husband needs to understand that as much as you do. Right now, your relationship with him is on shaky ground because you are parenting him financially as much as you are parenting your kids. He wants something. You have to be the police.

No more. Here's what I want you to do: Set up three bank accounts.

One for the house. One for you. One for him. His paycheck goes into the house account and on the very same day it goes in, I want you to transfer money into a savings account. Start small — with $100 or whatever you think you can manage. And if that feels easy, increase it the next month. Tell yourself those savings are hands-off. Also transfer a small sum into an account to be used at your discretion and another to be used at his. If he wants to buy something, he can use his money rather than asking you. As for the girls, this is what allowances are for: They can save for the things they want and you can put an end to the whining.

Finally, I don't like the idea that you have no retirement account of your own. If there's nothing else you want to spend your money on, put your discretionary funds into a Spousal IRA.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .