CONSUMERS : It’s Time to Treat the Post-Holiday Debt Hangover

Got a debt hangover from charging too many holiday presents on your credit cards? Follow the example of Edgar Pena, a Los Angeles garment worker: Get a budget worked out for payment of those bills before you get in credit trouble. Do it yourself or get some outside help--now.

Last week, Pena realized that he had charged a bundle for Christmas gifts on his credit cards and might not be able to make all the payments when his bills came due this month.

So he checked out the Yellow Pages under Credit and found the nonprofit Consumer Credit Counseling Service of Los Angeles, one of 450 nationwide, and made an appointment.

“I didn’t want to make late payments on my credit cards, and they showed me how to plan to pay my next month’s bills and how to budget so I can pay them properly each month,” Pena said after seeing a counselor. “Now if I just do what they told me, I’ll be OK.”

Like Pena, countless consumers will find themselves overextended from the holidays. But many will simply try to ignore their problems, experts say.

“Consumers are so vulnerable this time of year,” said Gerri Detweiler, of Bankcard Holders of America, a Herndon, Va.-based consumer education and advocacy group.

“Money problems cause stress, and psychological, emotional and family problems, not to mention what happens to their credit rating. If they’re finding they can’t pay the bills, it’s very important they get help immediately.”

Celine Gallo, of American Express Travel Related Services, agreed, saying: “The worst thing anyone can do is bury their heads in the sand and pretend they didn’t get the notice. They somehow think if they ignore (the bill) it will go away.”

Gallo said consumers who can’t pay on time “should contact the lender and work out some payment schedule to pay it off over a period of time. If they talk to the creditor or charge card company, they can work it out. But there’s nothing worse than ignoring it.”

Stephen Getzoff, an Encino financial consultant, recommended that consumers aggressively seek help as soon as they realize they’re behind.

“Before you’re late with a payment, call the credit-granting agency and explain you need to work out a payment plan,” he said. “When you owe money, you’re in the driver’s seat. The company would rather get something back than nothing.”

Consumers will find that many creditors can help them.

“We will work with customers on an individual basis to help develop a repayment schedule that is practical,” said Mary Jean Houde of Sears. “You want to treat your customers with respect and consideration.”

Overextended consumers who do get put on special plans by creditors often will find those firms limiting their charge or credit card use and filing a notice on the consumer’s credit record, Getzoff said.

But that’s a lesser headache than the stiffer penalties consumers could face if they simply ignore debts, he said, adding, “When you make a payment plan agreement, you must live up to it.”

Some businesses, such as the Broadway department stores, urge overextended customers to seek help with the Consumer Credit Counseling Service, (800) 388-CCCS. It offers free counseling, though it does charge a small fee--6 1/2% of the amount distributed to pay a client’s bills but not more than $20 a month--for clients who must get on a “debt liquidation program.”

“In addition to budgeting, we like to stress that clients have money set aside in savings for emergencies,” said Gary Stroth, executive director of the service in Los Angeles.

“We recommend they have three to six months’ income in savings for anything unexpected that might happen.”

To get themselves dug out, consumers might try to lower credit card interest payments, particularly with costly retail accounts charging up to 23% interest, by consolidating their bills “to a couple of low-interest cards,” Detweiler said.

“There are cheap Visa and MasterCards available at 16% interest and below. . . . They could take a cash advance on one of those and pay off the bills on the higher cards.”

But, Detweiler added, “watch the fees on cash advances. Some banks are starting to charge a 2% fee for cash advances.”

For consumers searching for lower-rate cards, Bankcard Holders of America publishes a “Fair Deal” list ($1.50 from BHA, 560 Herndon Parkway, Suite 120, Herndon, Va. 22070) of 65 banks and savings and loans nationwide that charge 16.4% interest or less.

Consumers, Detweiler says, also might consider taking out a home equity loan--with tax-deductible interest--to help cover bills. That move, too, has its risks, converting short-term debt into a longer-term concern and potentially risking your greatest asset--your home. That is why Detweiler says consumers, before they consider this step, “should go to consumer credit counseling first. They need to understand why they’ve been overspending and how to work it out.”

Detweiler and other financial consultants warn consumers to be wary of loans from finance companies and debt-consolidation firms whose interest rates can run as high as 24%. Their fees can end up being their own separate drain, Detweiler said. And more conservative lenders may consider you a riskier proposition later if they see a finance company or debt-consolidation firm loan on your credit record, he said.

The best way, of course, to avoid the post-holiday credit hangover is for smart consumers to “budget carefully before they shop,” said Virginia Stafford of the American Bankers Assn. in Washington.

She and other experts advise that your shorter-term credit obligations--including cards, car payments and student or personal loans--should not exceed 10%-15% your of take-home pay; this expense, plus your mortgage or rent payments, should not exceed 35%-40% of your gross income.

And, by chance, if you’re one of the lucky folks who has seen or will be seeing some added income shortly from a pay raise or year-end bonus, Getzoff has a suggestion for what to do with that cash: Use it to pay down those expensive credit cards.

“That’s found money,” he said. “You should be able to throw it toward the credit debt.”

Consumers expecting federal or state tax refunds also might want to consider filing returns early, he added, because their money will come back sooner. They then can apply that sum--quick--to climbing out of the debt pit in 1990.