Overwhelmed. Stressed out. Can't sleep. Any of these may describe just how you're feeling if you're having trouble managing your debt. Americans have trillions of dollars in personal debt, with billions being tied up in credit cards, according to the U.S. National Debt Clock. Getting a handle on your debt takes a considerable amount of commitment and, many times, significant sacrifice as well. Arming yourself with the knowledge needed to take on your credit crisis is the first step in making progress.
Crunching the Numbers
It's tempting to not look too closely at that pile of bills when you're in debt. Before contacting a credit counselor, however, it's important to know where you stand. Take an honest assessment of your spending habits and examine each bill statement. Compare what you owe, what you're spending and how much income you have coming in each month. This can be a real eye-opener if you haven't been considering all the unnecessary spending you do in a month's time. Taking a hard look at your finances can be sobering, but it also can help you figure out where changes can be made.
Credit Counseling
If you decide that you may need credit counseling, make sure you know exactly what such services have to offer. Credit counselors examine your income, debt, fixed expenses and other spending. Their goal is to help you develop a realistic budget -- one that may require you to make some hard sacrifices. Working with a counselor will only be successful if you're willing to commit to changing your spending habits. Extras like eating out, going to the movies or taking a trip will have to be put on the back burner. These organizations typically offer materials and workshops providing financial education as well.
Debt Management Plans
Sticking to a budget isn't always enough if you have little income and a mountain of debt. You may need a credit counselor to help set up a debt management plan in such a case. DMPs do not settle or cancel your unsecured debt with creditors. You still have to pay back what you owe, but the counselor may be able to get your creditors to agree to reduced monthly payments or lower interest rates. You will have a set amount of time to pay off the debt and your payments are sent to the credit counseling organization, not directly to creditors. Agreeing to not use credit or apply for new lines may be part of the DMP agreement.
Choosing a Counselor
Revealing your financial information and handing over payments can be risky, so it's vital that you choose a reputable organization. Work only with accredited organizations that employ certified credit counselors. The National Foundation for Credit Counseling has a searchable database of accredited organizations on its website. Counselors should be upfront with you about benefits and risks of enrolling in DMPs. If you do decide to enroll in such a plan, always check with your creditors to make sure they have agreed to it -- before you start sending payments to the counseling organization. Stay vigilant about regularly checking that the payments are making it to your lenders each month.
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