She owed roughly $25,000, about half from credit cards. Between those debts and her $500 rent, Kalakau each month was digging herself into a deeper hole.

Then she decided to do something about it.

Kalakau entered a debt-repayment program with Hawaii Credit Counseling, a nonprofit organization that helps people manage debt problems. Kalakau's aim: to get her financial house in order so she could purchase a home.

Today, the preschool teacher is free of most credit card debt. She also is a homeowner.

Kalakau's case underscores how people with financial problems can recover and, if they set their mind to it, become homeowners, even in high-cost Hawaii, said Michael Haxton, president of the credit counseling service.

Photo By Dennis Oda, Star-Bulletin
Julie Kalakau went from being about $25,000 in debt to
owning a Kaneohe condo in four years with the help of
Hawaii Credit Counseling, a nonprofit organization.

Where they are usually isn't cash city.

In today's tough economy, many people - having lost their jobs or had their hours curtailed - are struggling to pay bills. Delinquencies have risen dramatically, lenders say.

"Getting behind in bills is so common now it's scary," said Mark James, vice president and branch manager for All Pacific Mortgage Co. of Hawaii.

Yet in somewhat of a cruel irony, today's market conditions make this an opportune time to purchase a home.

With prices down, supply up, interest rates in single digits, government programs for first-time home buyers on the rise, and lenders aggressively looking for customers, good deals can be had, housing experts say.

"Right now would probably be one of the best times to buy a home you could ever find," said Haxton, whose organization is approved by various government agencies to provide counseling for people interested in purchasing homes.

For those on the ropes financially, however, getting their finances in order is the first priority, Haxton said. And doing that requires developing a detailed budget - something few people do.

"There's no way you can qualify to purchase a home or get a mortgage if you don't know where your money is being spent," Haxton said. "Most people have no idea and have never, ever written it down."

Developing a budget means keeping track of how you spend your money - down to each dollar, he said.

Kalakua, 30, said she had never compiled a budget until she sought help from Haxton. What she discovered once she started keeping track of her spending was astonishing, she said.

"That was the most eye-opening experience."

The people who seek help from Haxton's agency owe an average of about $18,000 in unsecured debt (mostly credit cards), are at least 45 days behind on payments and often can't scrape up minimum amounts due.

Of that group, Haxton said, more than three-fourths have the ability to purchase a home. Whether they have the resolve is another question.

But with an abundance of assistance available in today's soft housing market, it's not unusual for someone to get into a home - granted, not their "dream home" - for less than $10,000, Haxton said.

The debt repayment and home ownership program, which has a fee of up to $15 monthly to cover administrative expenses, spells out exactly how those goals will be reached, including a step-by-step process and time schedule for retiring debt and saving for a down payment.

The idea is to pay off the unsecured debt as quickly as possible because the balance usually carries a high interest rate - much higher than what someone could earn by putting money into a savings vehicle.

Under the repayment program, all discretionary income is applied to retire the debt. The participant pays a set amount each month to the credit agency, which works out repayment schedules with the customer's various creditors, often at reduced rates.

Once the debt is paid off, the monthly amount that had been applied to retiring the debt is regularly deposited into a savings account, mutual fund or other investment fund pegged for the down payment.

Haxton said clients in the program average about seven years to pay off their debt, save a down payment and get into a home.

Some achieve the goal quicker. Haxton recalled one homeless family that took only five years to pay more than $30,000 in unsecured debt and purchase a home.

Kalakua took less than two years to retire her debt, after which she got married and bought a two-bedroom Kaneohe condo for $160,000.

When she and her husband applied for a mortgage, Kalakua added a statement to her credit report detailing why she fell behind on payments.

James, the mortgage company executive said lenders typically will not hold a credit problem against an applicant if he can explain the problem was due to extenuating circumstances, such as job loss or a medical calamity.

If the applicant also has at least one year of stellar credit since the problem, he's considered a good loan candidate, James said.

If the past delinquencies are due to mismanagement of funds, that's a bigger problem - but not necessarily a loan killer, he said.

In that situation, the applicant needs two to four years of stellar credit since the problem, James said. If that is achieved, the customer will generally be treated the same way as a person with unblemished credit, he said.

Bankruptcy is another story. Some lenders won't issue loans to someone who has filed for bankruptcy recently, said Haxton.

Other institutions require an applicant to have at least two years of spotless credit since the bankruptcy. And if the bankruptcy was within the past five years, the customer likely would be charged a higher interest rate on the loan, James said.

Despite such problems, lenders are anxious to work with customers. They can't make money unless they issue the loan - so they are willing to downplay past credit blemishes. "When you get down to it, a lot of stuff can be forgiven," James said.