Things a Debt Counselor Might Say to You

Debt counselors are people who use common sense and knowledge of how the debt system works to help you find ways out of debt. When you're starting to bring your spending under control, or when you're looking at your bills and thinking bankruptcy, a debt counselor can give you the best alternatives.

You should get started before visiting your counselor, though. Every debt counselor is going to give you the following advice, so get a jump on him and do the following:

1. Stop spending too much now! Don't buy the new car, or the wide-screen television you've been wanting, or the new clothes your kid needs for school, or even the steak you've been craving. Spending more than you make is how you got to where you are. Right now, make a commitment to create a realistic budget and stick to it. Pay in cash if you can, and put the credit cards in a drawer at home. Try to use cash to pay for gas, either with a debit card or a pre-paid gas card available from many fuel companies, and cut back on your driving. The more you use cash, the less you use credit.

2. Get your credit reports from all three credit bureaus. Equifax, Transunion, and Experian are required by law today to supply you, free, with one copy of your credit report per year. Don't get all three simultaneously, especially if you're in a lot of debt. Instead, get one, work on the credit there, and three or four months later get the next. This gives you a steady stream of credit reports and a better ongoing picture of what's going on with your credit while you're working on it. Each credit report will be slightly different, but they won't be so different that you need to work on all three simultaneously. Use annualcreditreport.com; there are several organizations that are masquerading as free credit reporting companies, but they are invariably trying to sell you something (and have been successfully sued for fraud by the FTC) and the last thing you need right now is to spend more money!

3. Don't cut up your credit cards; prioritize them. From your credit reports and your current debts, prioritize your debt payment. Number one is bills you must pay: your car payment, your house payment, utilities, etc. Put these bills directly on your budget, before anything else. If you have extraordinary medical bills, put these in a separate column; you may be able to negotiate lower payments. Now look at your credit cards. Eliminate any with a low balance and an annual fee pay them off! Chances are, the annual fee is the biggest part of what you pay for the card. Close these accounts. You want to get rid of all other cards with an annual fee as well; and you should also get rid of store-based credit cards. These cards cost more than they're worth in interest and fees, and store credit cards have limited application. Now look at your relative interest rates. If you're fortunate enough to have a card with a low interest rate and low balance, see if you can use that card to pay off your high-interest card. Any high-interest cards are the ones you want to start paying down next.

4. Stick to a budget when you shop. Eliminate entertainment, costly vacations, new clothes, anything that is legitimately a luxury. All the money you save here needs to go to paying down those credit cards. Use coupons, shop sales and discount stores, do anything you can to cut down your regular daily expenses. And if you have cable, see what you can do to eliminate or at least reduce your services.

5. If you still don't see how you're going to be able to pay down your debt, it's time to look at drastic measures: can you sell your home or car and purchase less-costly ones? Unfortunately, the rising cost of real estate has leveled out, and many who jumped into the market anticipating a profit and a flip are finding that the market is not so friendly to them any more. It might be best to just sell out and find something cheaper. With cars, do you have three? Each of these vehicles costs you in payments, taxes, and insurance. Is there any way you could get by with just one vehicle? Do you have other luxury items, like a boat, that you don't need?

6. After taking all these steps, you are ready to go to a credit counselor. Bring records of everything you've done so far. A credit counselor can work with your remaining debt, especially extraordinary emergency expenses like medical bills, and help you reduce payments or even the amount you owe. Your creditors would rather work with you than have you file bankruptcy, and a credit counselor often has special arrangements with large creditors that you would not be able to get on your own. Before selecting a credit counselor, look up credit management information at the United States FTC website; there are fraudulent credit counselors out there too, and the FTC will educate you on what to look for.

Okay, ready? Take a deep breath, and start fixing your life.