If you are having trouble paying bills, keep careful track of your actual expenses for a month or so, and compare your expenditures to your income. After you have identified where your money is actually going, and how much actual income you have, identify your spending priorities, and cut out all unnecessary purchases.

You should immediately contact your creditors if you are having trouble making payments. Determine a monthly payment that you can and will make. Many creditors will try to work out a suitable payment schedule if they believe you are acting in good faith.

If you are still having serious problems after attempting these steps, another option is to hire a credit counseling service to create a debt repayment plan. Before you contact a service, consider the following information below. In Massachusetts, credit counselors must be nonprofit organizations. Be advised that fees vary widely. Shop around and avoid credit counselors who charge large up-front fees or large monthly fees. Two other methods of dealing with debt problems are consolidating debt through a single loan, and filing for bankruptcy. There are serious consequences associated with both of these options, so consult with a trusted banker about debt consolidation or a competent bankruptcy attorney about bankruptcy before taking any action.

Before You Contact a Debt Elimination and Consolidation Service

Consider the following:

  • You may be able to manage your debt on your own. Some credit counselors tout the convenience of one monthly payment. That may be convenient, but it also may cost a lot of money. If you can use your own discipline to budget monthly payments to creditors (instead of minimum monthly payments, which send your debt and interest skyrocketing), you may be able to pay off your debt without paying a credit counselor.

  • Consider whether credit counseling is really a benefit. For consumers who may be considering paying a "credit counselor" or debt management plan for help in paying credit card bills, it is important to pay careful attention to exactly what services the credit counselor offers, exactly how the credit counselor claims to save you money, and how much the credit counselor charges for those services. If a credit counselor charges more money than they actually save, credit counseling may not really get the consumer out of debt any faster.

  • Determine real savings from credit counseling. The principal way credit counselors claim to save money is by getting creditors (like credit card companies) to reduce the interest rate charged while the customer pays their bills through a credit counselor. The interest rate reductions offered by creditors vary widely. Some may reduce your interest rate considerably; others may not reduce your rate at all. Only very rarely do creditors eliminate interest rates, even though some credit counselors advertise that they can achieve very low, or zero percent interest. If you are considering credit counseling, get details in writing concerning any promises of changes in terms the credit counselor says can be achieved for you.

  • Consider the impact of fees charged by credit counselors. Many credit counselors charge hundreds of dollars up-front, and then charge a monthly fee, which may be a percentage of each payment (e.g., 10%) or a flat fee (e.g., $25.00 per month). This money is paid to the credit counselor and not passed on to creditors. Therefore, it does not reduce your debt. It is important to compare any claimed savings against these fees to see if the fees "eat up" part or all of the savings. For instance, if creditors reduce your interest rates by 5%, but a credit counselor charges 10% of each payment as its fee, then you may pay more in fees than you achieve in savings. Credit counselors typically do not communicate this comparison for you.

  • Calculate the total amount of fees that will be charged. Remember, up-front and monthly fees do not go to creditors and do not pay off your debt. In essence, those fees are a new obligation of your enrollment in credit counseling. Calculate the total fees you will be charged over the debt management plan, and decide if it is worth it. For instance, if a credit counselor proposes a $40 monthly fee and proposes a three year re-payment plan (which is typical), then you will be charged a total of $1,440 ($40 x 36 months) that does not pay creditors, not to mention any up front fee.

  • A non-profit status does not necessarily mean you can skip doing your homework. Because many states, including Massachusetts, require credit counselors to be "non-profit" entities, some credit counseling entities may abuse the non-profit and charitable laws, creating charitable organizations that are mere shells for profit-making enterprises. The "non-profit" counselor which offers you assistance may be aiming to make a profit, rather than to help you out of debt.Beware of a credit counselor who promises to substantially reduce your monthly payment and get you out of debt sooner. You generally cannot do both at the same time. The less you pay every month, the longer it will take to pay off your balance.

  • Beware of a credit counselor who promises to substantially reduce your monthly payment and get you out of debt sooner. You generally cannot do both at the same time. The less you pay every month, the longer it will take to pay off your balance.