Do it yourself. If it is at all possible, begin to manage your debts yourself. Contact your creditors and work out payment plans with them; they would rather know that you are planning to pay them regularly than to get nothing at all. Also be sure to think about how you are going to plan your budget in the future so that you avoid future debt. A reasonable budget may look something like this:
- Housing (mortgage or rent) 25%-30%
- Food (groceries, household items, meals out) 15%-20%
- Transportation (car maintenance and insurance, public transportation) 10%-15%
- Household (utilities, fuel oil, minor repairs) 10%
- Clothing 5%
- Health (costs not covered by insurance) 5%
- Personal (personal care, recreation) 5%
- Insurance (personal property, life health) 5%
- Debt (credit cards, car and personal loans, etc.) 15%-20%
- Savings 5-10%
(Based on a monthly budget consisting of after-tax income for a family of four. Every family's needs are different; you may have expenses that are different or exceed the ones listed above. But, if one of your monthly expenses dramatically exceeds the percentage suggested, most experts suggest that you reevaluate your budget.)
Reducing unnecessary expenses is essential to any budget plan. You should also look for sources of financial assistance from private or governmental agencies. If you have any savings, it is advisable to use as much as possible to pay off your debts; it is usually a good policy to reduce high-interest loans and credit accounts quickly. And above all, avoid incurring new debt.
Make sure the debt consolidation organization you use has non-profit status. Remember that in New York State, budget planners need to have non-profit status and be licensed by the Department of Banking unless they are attorneys.
Budget planning involves long-term as well as short term advice. Your debt consolidator should advise you on how to stay out of debt, not only how to get out of it.
Bankruptcy is not the only option. Declaring personal bankruptcy should be your last resort. Consider what the consequences are of filing for bankruptcy.
Beware of firms that make vague claims about their services. A firm that claims to be able to help you with debt or credit problems may be just offering services such as secured credit cards or credit repair. While these services may be part of a long-term budget plan, there is no such thing as a "quick fix" to a serious budget problem.
Beware of large advance fees. No reputable non-profit debt consolidator will ask for more than a small fee in advance. Again, any advance fee for credit repair is illegal in New York State.
For more information:
National Foundation for Consumer Credit
8701 Georgia Avenue, Suite 507
Silver Spring, Maryland 20910
Call or send a self-addressed stamped envelope for the nearest member non-profit consumer credit counseling service (CCCS). These over 1,100 local CCCS offices will provide debt consolidation services for a nominal fee.
The New York State Department of Banking
2 Rector Street
New York, New York 10006
Call to find out whether a debt consolidator is licensed.