You have debt problems. You're in hot water, and you need to find a way out. You may be fighting the urge to panic or at least worry intensely. Take a deep breath. I'm going to say some things that might surprise you.

The first thing you need is not more money. It’s information.

While you will definitely need to enlist the services of a certified credit counselor, you can do these steps on your own. The more you're able to dig out and work on by yourself, the better off you'll be. We learn best the things we teach ourselves. But if you get hung up, don't waste time. Get a certified credit counselor and keep going.

Step One

Before you jump into debt consolidation or some other way of dealing with your desperate situation (and I admit you're probably in serious financial trouble), you need to get a grip on your finances. You need to figure out how much you owe (both totals and what you have to pay each month). Then you need to work on a budget.

 The library has lots of books on these subjects (resist the urge to run to the bookstore and buy a bunch of books on credit).

Make a list so you know what you owe. You probably know your income by heart. If it costs you more per month to make your minimums and pay your basic bills than you're earning, you have a problem. Even if you make a little bit more than you need each month, you're still living on the razor's edge.

You also need to start controlling expenses. Believe it or not, your financial health is far more influenced by what you spend than what you earn.

For instance, let’s say one person earned $10,000 a month and another earned $4,000 a month. Who’s better off? Well, that’s impossible to know without seeing what they spend. If the guy who earns $10,000 spends $11,000 a month while the guy who earns $4,000 a month spends $3,600 a month, the guy with the lower salary is much better off. Not only do your expenses say a lot more about your financial health, they are more directly under your control than your income is.

There are lots of ways to economize and you probably need to start doing as much as you can. Of course, not every penny-pinching strategy is going to be right for you, but the more you can do to cut expenses, the better off you’ll be. Amazingly enough, some methods of saving money will not really change your lifestyle.

Step Two

If you are starting to have real problems with debts, talk to your creditors. Your credit cards have toll-free numbers printed on them. You can call your bank or other lenders, even your mortgage company. Don’t wait till you miss payments to explain what’s going on. Even if you have paid every bill on time, it does not hurt to call a credit card company and say you’re starting to have some financial problems.

Many lenders will work with people who seem earnest and sincere about wanting to pay. In particular, you may be able to get a different payment plan working. For instance, if you’re facing a huge financial problem because you lost your job, your creditors might be willing to let you skip a payment or to reduce your minimum. Know what you might want before you call but let them suggest what they might be willing to do.

Don’t expect every creditor to be so accommodating. Some will not be very helpful, and you cannot let this get under your skin. This debt is your problem, not theirs. But you may be surprised how many creditors are pretty agreeable about cooperating with you to help figure out a way so you can pay your debt. After all, it's in everyone's best interest if you pay the debt. 

One warning: don’t wait until your are seriously late or in collection before calling. Better to call too early than too late.

What if an account has already gone to collection?

In most cases, a company turns a bill over to collection after it has pretty much given up on ever getting the money. In other words, that account pretty far gone.

Most collection agencies are not the actual lenders. They work for a company that literally purchases debt and then tries to collect. (For instance, a collection company buys debt at a fraction of what is owed; they get to keep all that they collect. If they can collect more than they pay, they stay in business.)

What this means is that the person trying to collect money from you actually wants to get paid. If you offer signs that you’re willing to work with them, you may find them cooperative. Try to figure out a solution that’s fair to you, fair to them, and feasible. Then do everything to stick to it. Collectors are pretty good at collecting, so you might as well face the music.

Step Three

 If you have a car loan, be very careful about keeping it paid.

Car loans are usually secured in that the lender can repossess your car if you don’t pay on time. In some cases, even being late with one payment can open the door to the repo man. If you don’t know the terms of your car loan, dig out the paperwork, put on your glasses, and read it or call the toll-free number on your monthly statement and ask. You can even explain why you’re asking—that you’re in some financial trouble and you don’t want to jeopardize the car note.

Do whatever you have to in order to pay off your car loan in a timely way. If you fear you have to default on a payment, you are better off selling the car in order to pay off the loan. It’s much better to sell a car than to have a car repossessed. Either way, you have no wheels, but in the first case, your credit is preserved and you’ll find it easier to get another car loan when you get your debt under control.

Step Four

If you have a mortgage, you may find that the mortgage lender gives you a bit of breathing room if you call to say you're having financial problems.

Still, you do not want to default on your mortgage, which can lead to foreclosure. Foreclosure is the legal process that allows the lender to take title to your property when you default on the mortgage. After all, a mortgage is given with the property as collateral, so if you don't pay the loan, the lender takes your collateral. Foreclosure laws vary widely by state, so you may want to talk to your mortgage lender or an officer at your bank about how this process works (real estate agents know these rules, too).

In some states, you may be able to miss several payments before the loan goes into foreclosure; in others, it can take six months. Since laws vary, don't guess if you think foreclosure could happen to you. Find out what you need to know before you need to know it.

(By the way, sometimes a mortgage is set up so that after one or more missed payments the entire balance of the mortgage becomes due, after which, foreclosure occurs.)

Before you miss a payment, talk to your lender. Although mortgage loans are secured by property, most mortgage lenders do not want to foreclose; they prefer cash to property. So if you call them and explain your situation, you may be able to work out some arrangement. In some cases, the lender may allow you to skip a payment or two, particularly if you’ve had the mortgage a while and are in good standing with them.

Doing these steps first, before you start to work on a debt consolidation loan just makes good sense. In some cases, you may be able to get yourself out of trouble without debt consolidation. But even if you can’t, it helps you get organized for the next set of steps: debt consolidation.

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