How to Reorganize Debt

You could be a good candidate for debt reorganization if debt collectors are calling you day and night. A job loss or extended illness may have left you struggling to make even the minimum payments on your accounts and still have enough money left over for groceries and other basic expenses. The Federal Trade Commission calls this "knee deep in debt," and getting out of the quagmire may require a lot of discipline and sound planning.

Instructions

1

Gather important documents related to your debt and living expenses---billing statements, past-due notices, letters from collection agencies, utility bills and more. Pull out a copy of your more recent tax returns, along with recent paycheck stubs. Review all the information to create a thorough list of all expenses and income.

2

Create a diary. For a month---or longer, if you have the time -- make notes about every penny that you spend. Document each purchase or payment, no matter how small. Review your diary each week. Challenge yourself on everything you spent money on. Should you have eaten out twice or cooked at home? Getting control of your spending will be helpful as you start to reorganize your debt.

3

Get a copy of your credit report from AnnualCreditReport.com. Order from the homepage or call 877-322-8228. TransUnion, Experian and Equifax---the three major credit bureaus---established the site to offer free credit reports as required by law. The credit report will include a provision for ordering your credit score separately. Order the score for a complete overview of your credit. According to Bankrate.com, a score of 620 is at the bottom end of "good" credit, and could qualify you for a home equity or bill consolidation loan.

4

Select the bills you would like to pay off and add up the total. Then, if your credit score is high enough, see your bank or credit union to apply for a home equity or bill consolidation loan. Shop around at several banks and online to find the best rates. Use proceeds from the loan to reorganize your debt by paying off as many bills as possible.

5

Get help from a nonprofit credit counselor. Counselors from agencies such as Consumer Credit Counseling Service can help you build a new budget based on your reorganization, as well as offer advice and financial literacy training. Take your diary, credit report and list of income and expenses with you when you visit the counselor. The CCCS agencies are in communities nationwide; look in your telephone directory for an agency in your area. Community groups like the Urban League, Salvation Army, Red Cross or your bank or credit union also can refer you to other credit counseling agencies. Also, the counselors can help if you were turned down for a loan. They can tell you about debt management plans that allow you to reorganize your debt by making just one payment a month to the counseling agency, which in turns pays your creditors. The agency negotiates lower interest rates on your behalf, making it possible for you to emerge from the program about four years later with improved credit scores and a successful debt reorganization.