How to Dig Out of Debt? Grab More Than One Shovel

Millions of Americans are dealing with debt overload every day. If you’re struggling to pay your loans, credit cards or other bills, here are some steps you can take to begin managing the problems.

  • Create a budget. Budgeting gives a clear picture of what you can afford so you can balance your income and expenses.
  • Try to get a clear picture of your monthly income and expenses. "Even if you have a regular weekly, bi-weekly or monthly paycheck, budgeting enough money to pay your regular expenses and pay down debt may not be easy," said Elizabeth Ortiz, the FDIC’s deputy director for consumer and community affairs. Ortiz added: "Also, many individuals have incomes that vary considerably from month to month because they work on a contractual or temporary basis with hours that equate to full- or part-time work. For them, budgeting can be tricky, especially when they are trying to pay down debt. That makes it especially important to know how much money is available and the expenses that must be paid regularly so that accidentally overspending doesn’t become an issue."
  • Contact your creditors about easier ways to make your most important bill payments. Many people find it helpful to schedule their essential monthly payments sometime soon after the deposit of their first paycheck of the month. In that case, you can ask your lenders, utility providers and credit card issuers to change your monthly billing-cycle date to line up with your first monthly paycheck. If you think you can’t make payments as scheduled, you can be proactive and ask your creditors to consider an extended payment plan that results in lower monthly bills over a longer period of time. Keep in mind, though, a longer payment period could mean you’ll pay more in interest. "Discuss a payment plan that can help you avoid getting too far behind," said Berry Holston, an FDIC consumer affairs specialist. "That’s especially important with a mortgage."
  • Have a strategy for saving money on interest and fees. Consider paying off debts with the highest interest rates first. Also, avoid late fees by making sure all bills are paid on time. "You can track payment due dates on a calendar or use your bank's online bill paying service," said Heather St. Germain, an FDIC senior consumer affairs specialist. "Many banks offer this service, which allows you to see all of your bills in one location online and make payments directly from your bank account."
  • Be on guard against companies that promise to settle your debts or erase a bad credit history if you pay a big fee upfront. These are usually scams to steal your money and perhaps valuable information like your Social Security number, without delivering on their promises.