At some point, you’ll realize that the debt you’re carrying has gotten way out of hand. You may have a bit of a panic attack when that moment comes. You may feel a bit trapped.

Take a breath. You can get through this. It’s going to take some time and a bit of discipline, but you can chip away at that debt regret – and the sooner you get started, the sooner you’ll begin to feel better. In fact, taking the first step will relieve a great deal of your anxiety.

Assess the Damage

Maybe credit cards were your weakness. That’s common. Revolving debt, made up mostly of credit card charges, is increasing by an annual rate of over 9%, according to the Federal Reserve. It totals over $860 billion. That’s a number that’s just too big to comprehend. But the good news is, Americans are getting better about managing credit card debt, and the rate of late payments is falling: down to a 22 year low, as reported by the American Bankers Association. We’re crawling out of the recession, getting smarter about managing debt and seeing our financial situations slowly improve. Let’s begin with an important first step: 

    1. Gather all of your statements and sort your debt in piles by lender. Eliminate duplicate or old statements and list your each amount due on a piece of paper, or spreadsheet. Include the interest rate being charged for each debt and the current monthly minimum amount due.
    2. Now, on a separate line, write down your monthly income. Make sure this is the amount of your take-home pay, after all taxes, insurance and any other deductions.
    3. Total the outstanding debt, and also add up the monthly minimum payments.
    4. Subtract the monthly payments from your monthly net income. Hopefully, you’re left with a positive number.

Congratulations! You’ve just completed a personal income statement.

Seriously, once people start to sink into debt, they begin to ignore it. For many folks, it just becomes too overwhelming. After a while, they don’t even know how much they owe – they simply can’t face it. Sound familiar?

In a report by the American Psychological Association, this behavior is called “financial denial.” Not opening statements or sticking to a budget – generally not paying attention to matters of money; it’s all a symptom of a bigger issue and can lead to depression and severe anxiety.

But you’ve made that first step: you know what you owe.

The Simple Solution

You’re about to feel a giant weight lifted from your shoulders. The solution to getting out of debt is so much simpler than you might have imagined. Two words:

Get help.

You can get so much more accomplished with an objective view. Someone experienced in debt management: a professional credit counselor.

A study published by the Association for Financial Counseling and Planning Education explored the health-related benefits of financial well-being. “Respondents who reported having improved health since joining credit counseling were more likely to report their overall personal finances had also improved,” the report states.

How do you find a qualified credit counselor? The Federal Trade Commission offers these tips: 

    • Look for a non-profit agency: Even though you are looking for a non-profit credit counseling organization, that does not mean you won’t pay a fee. Reputable, licensed counselors will assist you in budgeting, offer savings strategies, and host debt management classes.
    • Beware of Debt Management Plans: The name alone sounds helpful; you want to have a plan to manage and pay off your debt, but disreputable counselors will lead with adebt management plan (DMP), which requires you to deposit your payments with the credit counselor who negotiates discounts and issues payments on your behalf to creditors. Even though this can be a helpful service, the Federal Trade Commission has found the industry is fraught with fraud. You want to start with a detailed analysis of your financial situation first. Then, if a debt management plan is warranted, you can give it careful consideration.
    • Free Resources: Legitimate credit counselors will offer a free initial consultation, as well as complimentary educational materials.
    • Transparent Fees: Of course, you’ll want to get a careful explanation of any and all fees that will be charged, in writing.
    • Counselor Qualifications: Learn as much as you can about the credit counselors, their training, qualifications, and how they are compensated.

Healthy, Wealthy, and Wise

With the income statement and all of the invoices you gathered in our first step, you’re ready to see a licensed credit counselor. Or you may find, with the information you’ve gathered, you now feel confident solving the situation on your own. Just remember, having a plan is the critical first step.

Putting into place a practical strategy to reducing debt doesn’t have to be complicated. Creditors will negotiate. And regular payments combined with reduced spending solves most debt crises. Now that you don’t suffer from “financial denial” the healing can begin.

You feel better already, don’t you? 


Hal M. Bundrick is a Certified Financial Planner® and former financial advisor and senior investment specialist for Wall Street firms. He writes for TheSimpleDollarTheStreet and TheMoneyPivot, among others. Follow him on Twitter: @HalMBundrick.

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