Overcoming Financial Trouble

When bills are piling up and debt is mounting, it can feel overwhelming. But, getting out of debt is in your control. The FTC (Federal Trade Commission) recommends considering the following options to overcome financial trouble:

Realistic budgeting
Contact your creditors
Credit counseling from a reputable organization
Debt consolidation
Debt negotiation
Important Financial Resources

Design a Realistic Budget

Assess how much money you take in and how much money you spend. Begin by listing all of your income and then all of your fixed expenses that occur each month, like mortgage payments or rent, telephone and utility bills, car payments, and insurance premiums. Next, list expenses that vary every month, such as entertainment, recreation, gifts and clothing. This will help you track and prioritize your spending so that you will have enough money to pay for essentials.

Budgeting Resources:

There are several free online resources and Excel budget templates to help you create and manage a budget:

Free online budgeting resources:

Budget Pulse: www.budgetpulse.com
BudgetTracker: secure.budgettracker.com
Billster: www.billster.net

Free Excel Budget Templates:

Windows Excel Templates: More than 30 free budget templates available to download.

Contact your Creditors

Contact your creditors immediately and try to work out a payment plan that reduces your payments to a more manageable level.

Your Payday Loan—Extended Payment Plans

Member companies of the Consumer Financial Services Association, the industry association for payday lenders, must provide customers who are unable to repay a payday advance according to their original contract the option of repaying the advance over a longer period of time.

Be sure to ask your lender for an extended payment plan if you are unable to repay your loan at the end of the term.

Your Auto Loan

Under most automobile financing agreements, a creditor can repossess your car without notice if you default on payments. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you are unable to do this, the creditor may sell the car. If you cannot make car payments, you may be better off selling the car yourself and paying off the debt to avoid the added costs of repossession and harm to your credit report.

Your Home Mortgage

If you are unable to pay your mortgage, contact your lender immediately to avoid foreclosure. Most lenders will work with you if they believe the situation is temporary and you are acting in good faith. Some lenders may reduce or suspend your payments for a short time. You may have to pay an additional amount toward the past due total when you resume payments. Some lenders may agree to reduce your monthly debt by extending your repayment period.

Contact a housing counseling agency if you and your lender are unable to work out a plan. Visit Department of Housing and Urban Development to find to a foreclosure avoidance counselor.

Credit Cards/Other Debt

If you are unable to pay the minimum due on your credit cards or other debt, contact your lender before your payment becomes past due to discuss your situation. If you provide your lender with a plan of how much you are able to pay each month on the debt owed, they are usually willing to accept it.

Credit Counseling and Debt Management Plans

Credit Counseling

Many credit counseling organizations are nonprofit and work with you to solve your financial problems. However, just because an organization says its “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate.

The U.S. Trustee’s office (part of the Department of Justice) lists approved credit counseling firms on its website.

A good agency should charge $50 or less, meet with you for 60 to 90 minutes, review your situation and provide budgeting advice.

Debt Management Plans

A credit counseling agency may recommend that you enroll in a debt management plan (DMP). DMPs may not be the best option for everyone. Only sign up for a DMP once a certified credit counselor has thoroughly reviewed your financial situation and offered you advice on managing your money.

Under a DMP, you would deposit money each month with the credit counseling organization. The counseling organization would develop a payment schedule with you and your creditors and use your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills. A successful DMP requires you to make regular, timely payments, over a period of 48 months or more.

For more information about choosing a credit counselor: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm

Debt Consolidation

Consolidating your debt through a second mortgage or a home equity line of credit may help you lower the cost of your credit. These loans require you to put up your home as collateral. If you can’t make payments on-time, you could lose your home.

The costs of these loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. However, these loans may provide certain tax advantages that are not available with other kinds of credit.


Because consequences are severe and long-lasting, filing for personal bankruptcy is usually the option of last resort. People who file bankruptcy receive a court order that says they don’t have to repay certain debts. Bankruptcy information can stay on your credit report for 10 years, making it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. However, bankruptcy can offer a fresh start for people who have gotten into financial difficulty and can’t repay their debts.

There are two main types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court.

Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car. Rather than surrender any property, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period. After all the payments are made, you receive a discharge of your debts.

Chapter 7 is known as straight bankruptcy. It involves liquidation of all non-exempt assets. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property could be sold by a court-appointed official or turned over to your creditors.

You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government- approved credit counselors at www.usdoj.gov/ust/.

Debt Negotiation Programs

Debt negotiation firms may claim that they can negotiate that your unsecured debt, such as credit card debt, be paid off for anywhere from 10 to 50 percent of the balance owed.

Debt negotiation can have a long term negative impact on your credit report and your ability to get credit. Many states have laws regulating debt negotiation companies and the services they offer. Check with your state Attorney General to learn the laws in your state.

Be careful. While these firms may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. This is not necessarily true. They may also tell you to stop making payments to your creditors and to send payments to the debt negotiation company so they may pay your creditors on your behalf.

There also is no guarantee that a creditor will accept partial payment of a legitimate debt. And, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. Your original debt could double or triple.

Before you do business with any company, check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau.

Important Resources

Budgeting Resources

Budget Pulse: https://www.budgetpulse.com/
BudgetTracker: https://secure.budgettracker.com/

Billster: http://www.billster.net/
Windows Excel Templates: More than 30 free budget templates available to download.

Avoiding Foreclosure

U.S. Department of Housing and Urban Development

Finding a Credit Counselor

The U.S. Trustee’s office (part of the Department of Justice)
The Federal Trade Commission


National Association of Bankruptcy Petition Preparers
United States Courts Bankruptcy Resources
NOLO Bankruptcy Resources

Debt Negotiation Programs

Contact your Attorney General’s office

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