There is no easy way out of debt problems, but you should first try to dig out from under your hill of bills yourself before taking more drastic action such as seeing a credit counselor or filing for personal bankruptcy. One way or another, you can and will emerge from your predicament. It's not the end of the world. In fact, many who have trod the well-worn path of over indebtedness emerge with much-improved money habits and a bright financial future. The best and most enduring financial lessons are often those hardest learned.
First try to solve the problem yourself. Here are six steps you can take to solve your financial problems. There are no quick fixes; expect to endure some psychological and financial pain. But working through these problems yourself is preferable to the alternatives discussed later.
It's a lot easier to save when you know you'll get to keep the money, instead of feeling that it's all going toward paying off last year's binge. (If the cause of your debt problems was something beyond your control, you already know how important it is to save and will welcome the opportunity to resume saving.) It feels good to accumulate some savings, and if your finances catch the flu again, you'll be able to recover a lot faster. Remember, until you get into the habit of spending less than you earn - living beneath your means - you won't save a penny.
If you find that you are over your head in debt - beyond your ability to work out of it with your current income - speak with your creditors again. Contact each creditor and explain why you are overextended. They may be able to arrange an easier repayment plan. Many creditors will go along with a reasonable plan under which they will receive their money slowly, if you show that you are trying to pay your debts, not avoiding them. Most creditors prefer doing this to repossessing the goods or taking you to court, which is time consuming and costs them more in the long run.
Next, try credit counseling. If you have financial problems that you can't resolve on your own, the next step is to consult a credit counselor. Various institutions offer such counseling, including many banks and credit unions, family service agencies, and nonprofit consumer credit counseling organizations. If you are slightly overextended, the agency will usually help you develop a repayment plan for a nominal monthly fee. The agency may take monthly payments from you and distribute them to your creditors. The agency also talks to the creditors and may get them to agree to a delayed or reduced payment. By the way, make sure that you are dealing with a credit counselor who is affiliated with a nonprofit consumer credit counseling service. There are a variety of charlatans out there who hold themselves out as credit counselors and have slick advertising campaigns but will do nothing more than wreak further havoc on your predicament.
One important thing to remember: If you use a consumer credit counseling organization, it will be reported to the credit bureaus and noted on your credit record. That fact should not deter you from using a credit counseling service, particularly if your only other alternative is filing for bankruptcy. While you may ultimately have to resort to bankruptcy, give credit counseling a try first.
Personal bankruptcy, when all else fails. If you find that neither your own good efforts nor those of a credit counselor can salvage your situation, personal bankruptcy may be your only alternative. Some attorneys make it sound easy, but you should consider it only as a last resort. Bankruptcy is by no means the end of the world, but it will impede your access to credit for at least a few years.