Late in 1998, 27-year-old Thomas King examined his credit card statements and came to an unsettling realization: He was still carrying debts he ran up during his college years. The San Antonio, Texas, customer-service rep was $6,000 in hock — thanks to three credit cards, a bank line of credit, a huge cellular phone bill and a Radio Shack card he'd maxed out to buy a computer. "I went a little too nuts on credit," King admits. "And making minimum payments wasn't moving the bill at all."

At least King's new computer came in handy. He surfed the Internet and found Metropolitan Financial Management, a Roseville, Minn.-based nonprofit that helps debt-ridden consumers reorganize their finances and start paying down their loans. King filled out the company's online application, which asked for information on his debt. He paid a $25 registration fee. (After that, Metropolitan charges up to $35 as a monthly maintenance fee, depending on the debtor's financial circumstances.) Metropolitan then began negotiating with his creditors, eliminating late fees, trimming as much as 12% off his credit-card interest rates and, in one case, eliminating the interest entirely.

King's new payment plan, developed by Metropolitan, allows him to send in one monthly check for $195, which Metropolitan disburses to his creditors. A year later, he has paid off his three largest debts and figures he'll be debt-free sometime in 2000.

King is hardly alone — in fact, he's in better shape than many. The National Foundation for Consumer Credit (NFCC) last year counseled 1.6 million American households through its 190 member organizations. A third of those decided to participate in a debt-repayment plan. Mike Kidwell, vice president of Debt Counselors of America, says his organization's average client holds six credit cards and is $18,000 in debt. While many, like King, got into debt when they were students, naive about credit-card interest rates and late fees, Kidwell says he's seen lawyers and judges — even financial planners and CPAs — seek help in eliminating personal debt. Often they've run into trouble because of a life-changing event like a job loss, death, illness or divorce.

Most Americans can't just flip open a checkbook and wipe out $18,000 worth of unpaid bills. But plenty of reputable organizations are out there willing to help you negotiate a manageable schedule to repay your debts and to see where you've been overspending. Unfortunately, there are some not-so-honorable companies as well — ones hoping to profit from your desperation and employing high-pressure sales tactics to get you to sign with them. Many offer little more than a quick road to bankruptcy court, which should always be a last resort.

Before you pay an outside counselor for help, however, you should be sure that you've tried all the easy solutions first. For instance, have you considered a loan from a family member? You should also consider a loan from your 401(k). Limits are as high as $50,000.

And have you considered consolidating your debt on a low-interest rate credit card or tax-deductible home equity loan?

Finally, we have to ask you the obvious. Have you tried to cut your expenses? Why not track your spending for a few months, then see what you can eliminate. This is probably the quickest avenue to debt reduction.

Choosing a Debt Counselor
Finding a good credit-counseling program can be a bit tricky. After all, it's not something you'd want to bring up with colleagues around the company water cooler. That means you'll have to do the legwork on your own. But there are a few things to keep in mind to make the task easier and less fraught with disappointment.

First, look for a nonprofit firm. You've spent too much already, why pay more now? Nonprofits get most of their funding from creditors, not you. Privacy isn't usually an issue, but it's wise to check what the agency's policy is. Make sure they don't sell your information. Many ask for only a nominal fee to enroll. Debt Counselors of America, for instance, has a suggested donation of $60. And the nonprofits' relationship with the debt community has an added benefit. They can often negotiate better rates with those same creditors on your behalf.

Second, find out upfront exactly what services you'll receive, such as counseling, a debt-repayment plan and budgeting advice. The more services, the better. You might want to have them put it all in writing and send you the information before you proceed.

And ask if the organization belongs to any professional groups, such as the NFCC or the Better Business Bureau. Have them explain how they're audited and if your funds are protected. After all, you're sending them your money. Debt Counselors of America posts a list of credit and debt-counseling scams to watch out for on its Web site, as well as questions to ask organizations offering to help you out of debt.

One-Pay Plans
Once you've found a service you trust, pull all your bills together before talking to a credit counselor. She will figure out what you owe and work with you to determine how much you can pay each month. Then, instead of writing checks to each creditor, you'll write one to the service, which will then distribute the money. The goal is to develop a plan that allows you to afford the necessities of life (even if that includes an occasional movie), and at the same time to whittle away at the balances you owe. According to Kidwell, most of his agency's customers are able to pay off their debt within four to six years.

Once you're in a program, the much-dreaded phone calls from creditors should stop. "Creditors have a right to call you and talk to you about your debt," says Catherine Williams, president of the Consumer Credit Counseling Service of Greater Chicago. "But if you arrange acceptable payment programs, they're not going to waste their time." (If you find yourself being harassed unreasonably by creditors, check with the Consumer Aid Education Center for guidelines on how to handle such calls.)

Negotiators at Your Service
Once you've set up a payment schedule, the counselor will talk to creditors and try to get them to reduce your interest rates and waive late fees to shorten your time in debt. The counselor may also coax creditors to "re-age" your account — that is, report past due amounts as current.

How come credit counselors have so much clout? Most creditors are glad to see you enrolling in a repayment program, agreeing to pay a little at a time, rather than heading for bankruptcy court. If those same creditors were to enlist the services of a collection agency, the agency would take perhaps half of whatever it recovered. So, it's a better deal for your creditors if you voluntarily repay, even if it takes several years.

What's more, because such repayment organizations have existing relationships with creditors, they know what that creditor has arranged for other clients. If you tried to negotiate on your own, chances are you wouldn't be as successful. "[The consumer] doesn't know the best terms available," says Debt Counselors of America's Kidwell. "A lot of people set themselves up for failure. They'll say what they think the creditor wants to hear, or they feel bullied."

If a one-pay plan is not enough to solve your problem, you might need to consider a debt-consolidation loan. "It can be beneficial if the rates are low," Kidwell says. An interest rate of 8% or 9% beats the 16% you might be paying on a credit card.

Budgeting 101
Once you're on your way to paying off your old debt, you'll need to set up a budget. Credit counselors can help with that as well. Most people don't know how much they spend each day. They may know about the big-ticket items, the rent and mortgage payments and the utility bills. But they lose track of how much they spend on extras like restaurants, dry cleaners and video rentals. "If you take a piece of paper and write down everything you spend, not including the change, you'll be shocked at how much money you go through that you don't realize," says Jim Rhodes, director of education at Metropolitan Financial.

Williams thinks the American "market of convenience," in which plastic pays for everything, has obscured how much things really cost. "Ten years ago, it used to be, 'Got to wait until Saturday to call Grandma,' or, 'Got to keep that thermostat down,'" Williams says. "But some people have just gotten away from budgeting and money management."

Counselors can help you track your spending. They teach you to record what you pay right down to the newspaper, bagel and mocha latte you grab on your way to work. Counselors on Williams' staff are trained to walk debtors through every category and come up with an acceptable budget. The counselors check in with clients for several months to see how well they're sticking to their spending plan.

Many of these services can show you how your spending habits stack up to those of a "typical" American with your income. For instance, Kidwell says the average person spends $150 per month on food — not including restaurant meals. (This varies by location, of course.) So, if you're spending more, it's time to reconsider.

A Word of Warning...
If you've somehow managed to keep your credit report clean as your debts have spiraled, you need to know there can be a downside to contacting a credit counselor. Not every creditor looks upon your involvement with one as a good thing. While many creditors think it's great because it increases their chances of getting paid, others might issue an alert on your credit report. That could affect your chances of getting credit down the road.