The goal here is to create balance: reduce your monthly expenditures or increase your income to create a more comfortable ratio between the two.

 

The first step is to assess what you owe and what you have. Make lists. If you don’t know where your money is going, and most people don’t, have every adult and child in the house who spends money log their expenses for a month.  Write down everything, even a pack of gum.

 

Now, can you tighten up the budget enough to take care of the problem?  If not, can you sell something – perhaps a second car, a boat, a set of silverware – and get enough money to resolve your issues?

 

Can anyone in the family who is working handle a second job? Can a teen who is not working take on that responsibility? 

If not, can you replace a troublesome debt with a cheaper, more easily handled debt?

 

 

While this is worth consideration, it can be tricky. Remember, the goals is to make your debt more manageable.

 

When it comes to using debt to pay debt, that manageability generally comes from stretching payments out for a longer period of time so each individual payment is lower and places less pressure on your monthly budget. However, even if your monthly payment amount drops, your long-term cost may climb if the new loan carries a higher interest rate.

 

You will want to make sure you are not hurting your situation more than you are helping it.  Search for a calculator online that can help you assess the effects of any change you may be considering.

 

Here are a couple of possibilities:

 

If you have a home equity line of credit on your home, you may be able to draw on that for cash you can use to pay something else off. The equity in your home is the difference between the amount you owe on the house and its fair market value. There may be tax consequences to tapping a home equity line of credit so you may want to seek tax advice before taking this step.

 

You may also consider a consolidation loan. Sometimes you can save money by pooling all your unsecured debts into a single loan from a bank, credit union or other lender. Unsecured debts are those—such as credit cards -- that have no property serving as collateral to be seized in the event of nonpayment.  If the term of the consolidation loan and its interest rate are right, your payment may be lower than the combined payments on your current debts.

 

 

A negotiate settlement is an agreement between a borrower and a lender.

 

What you want from a debt settlement is a deal in which you will pay a portion of what you owe and the rest will be forgiven.

 

There are companies out there that will negotiate settlements with your creditors on your behalf, but Gail Cunningham, vice president for public relations at the Maryland-based National Foundation for Credit Counseling, says they charge high fees and seldom can do any more for you than you can accomplish talking to your creditors on your own.

 

Any settlement is likely to be reported to the credit reporting agencies which maintain your credit history.  It will show on your credit report for seven years and will affect your credit scores and, therefore, likely to reduce your ability to get loans and increase the interest rate you will pay for them.

 

 

If you have a steady income, you may benefit from credit counseling. 

 

The National Foundation for Credit Counseling is an association of nonprofit credit counseling agencies. Cunningham says NFCC agencies receive funding from the federal government, foundations and creditors, so the cost to you is minimal -- or zilch. You will not be refused service if you can’t pay.

 

A credit counselor will go over your finances with you, she said, and, if you need a debt management plan will work one out for you by negotiating with your creditors to have fees stopped or reduced and payments dropped to a level appropriate for your income.

 

It will require that you have your debt fully paid off in five years. A credit counselor will not set up a debt management plan for you unless you will be able to meet the obligations it imposes over the long haul. If your only option is bankruptcy, the credit counselor will tell you so.

 

No one can file for bankruptcy unless they have gone through credit counseling within 180 days of the bankruptcy filing.

 

A debt management plan is a form of settlement, and therefore stays on your credit report for seven years. The fact that you used a credit counselor also appears on your credit history, but it won’t factor into your credit score, said Rod Griffin, director of public education for credit reporting agency Experian.

 

The National Foundation for Credit Counseling’s Web site provides contact information for its affiliate agencies. Cunningham says they are available to work with you by

phone or e-mail, or in person. 

 

A complete list of credit counselors approved by the government for use before a bankruptcy filing also is available online.