How To Dig Out of Debt? Grab More Than a Shovel

Millions of Americans are dealing with debt overload every day. If you’re struggling to pay your loans, credit cards or other bills, here are some steps you can take to begin managing the problems.

Create a budget. Budgeting gives a clear picture of what you can afford so you can balance your income and expenses.

Try to get a clear picture of your monthly income and expenses. "Even if you have a regular weekly, bi-weekly or monthly paycheck, budgeting enough money to pay your regular expenses and pay down debt may not be easy," said Elizabeth Ortiz, the FDIC’s deputy director for consumer and community affairs. Ortiz added: "Also, many individuals have incomes that vary considerably from month to month because they work on a contractual or temporary basis with hours that equate to full- or part-time work. For them, budgeting can be tricky, especially when they are trying to pay down debt. That makes it especially important to know how much money is available and the expenses that must be paid regularly so that accidentally overspending doesn’t become an issue."

Contact your creditors about easier ways to make your most important bill payments. Many people find it helpful to schedule their essential monthly payments sometime soon after the deposit of their first paycheck of the month. In that case, you can ask your lenders, utility providers and credit card issuers to change your monthly billing-cycle date to line up with your first monthly paycheck. Also, if you think you can’t make payments as scheduled, you can be proactive and ask your creditors to consider an extended payment plan that results in lower monthly bills over a longer period of time. Keep in mind, though, a longer payment period could mean you’ll pay more in interest.

Have a strategy for saving money on interest and fees. Consider paying off debts with the highest interest rates first. Also, avoid late fees by making sure all bills are paid on time.

Consider getting help from a reputable credit counselor. Many companies and public service organizations offer assistance to individuals in creating a budget and learning to manage money, including debt, often for free or at a low cost. Under the Credit Repair Organization Act, companies and service organizations are required to explain the total cost of the service, timeframes to see results, a written contract of the services you will receive, and your right to cancel service without charge within three days. Also, be on guard against companies that promise to settle your debts or erase a bad credit history if you pay a big fee upfront. These are usually scams to steal your money and perhaps valuable information like your Social Security number, without delivering on their promises.

Know your rights if a debt collector contacts you. Debt collectors have rules they must follow under the Fair Debt Collection Practices Act, such as providing you with a debt validation notice stating the amount you owe and the creditor's name.  Debt collectors are also limited on when and how often they can contact you.