Surviving and Controlling Debt

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An illustrated fact sheet that discusses the importance of managing debt so that it does not become a problem. Explains debt danger signals and how to reduce debt. Also explains collection agencies, debt counseling, and bankruptcy.

Surviving and Controlling Debt

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Note: Last revision 1993. Use this information as a general guide only; consult with a local consumer group for laws specific to your state.

A spending way of life

Debt is a way of life today. Everybody owes somebody something: products, services or money. Financial debt (owing money) is a choice you make to defer payment on something you want or need now. In return for this, you usually pay the person or business (called the "creditor") extra money ("interest"). Debt is not a problem as long as you can repay. However, millions of Americans have financial problems--due to overspending, low income or life circumstances such as unemployment or illness--which may cause them to get into deeper debt than they can handle.

Time to take control

There are many reasons why people owe a lot of money. One of these is advertising. Day after day we are bombarded by powerful and carefully chosen images that convince us that certain products will fulfill our needs. Spending on products is often equated with personal fulfillment or sexual and social success. The most important step in conquering debt is controlling spending. This starts with being a critical consumer and learning to separate real needs and desires from artificial ones.

When it's too much

How much debt is too much depends on your income and what it costs for you to live. Financial advisors suggest that 12 to 15% of income may be safely directed toward debt repayment. However, if you live in an area where rents or food costs are high, or have major medical bills, less of your disposable income is available to pay off bills that are non-essential.

How debt affects the rest of your life will also help you determine what is too much. Think about what you want out of life, what you enjoy doing and what gives you satisfaction. Then think about where your money is going. If you are unable to do things you want because of paying old bills or if you spend time worrying about having enough money to meet expenses, it may be time to develop a debt reduction plan. Debt reduction starts where credit ends: stop charging. The best way to do this is "cold turkey." Put the credit cards away, or—if necessary—cut them up and close your charge accounts.

Debt danger signals

By looking at your spending patterns, you can tell if you have a problem:

  1. Are you using credit more often?
  2. Do you borrow to pay current bills?
  3. Are you regularly late at paying bills?
  4. Do you have to choose which bills to pay and which to put off until later?
  5. Do you often pay only the minimum amount due?
  6. Has your standard of living remained the same but checkbook and savings balances gone down and credit balances gone up?
  7. Are you being contacted by creditors?
  8. Have you just given up on some bills?

If you answered "yes" to most of these, it is time to take action NOW.

Planning away debt

When you see financial problems coming, the first step is to take stock of your financial situation. Counselors say consumers tend to overestimate the seriousness of their financial problems. Most problems can be remedied with planning and budgeting:

  1. Make debt reduction your #1 priority.
  2. Determine all sources of income now and for the next few months.
  3. Face up to how much you owe and the cost of monthly payments.
  4. Determine which bills are essential (rent, utilities, food, car payments, etc.) and which are avoidable.
  5. Quit charging and apply extra cash to reducing balances.
  6. Find ways to generate extra income (overtime, baby-sitting).
  7. Cut back on nonessentials (eat out less, ride share, bargain shop).
  8. Track spending, balances and minimum payments due.
  9. Watch debts melt. It happens fast.

Now is the time

Contact your creditors. Don't wait for them to contact you. Many are willing to give you extensions or negotiate lower payments to help you get control. It helps them, too - collections are costly.

Be honest about what's happening. It is better that they hear it from you. Don't make promises you can't keep; your word is your contract.

Collection agencies

Collection agencies are often the last resort for creditors. Agents can be aggressive and resourceful in putting pressure on you to pay. That's their job. Because of past abuses, collection agencies are now regulated. Agents may call between 8:00 AM and 9:00 PM. They cannot use profane or abusive language or threaten you with arrest, imprisonment or bodily harm. They may contact other people to locate you but they cannot discuss your case.

Collectors may call you at work unless your employer does not allow this. Always communicate in writing. They may also contact your employer to verify employment or to attach wages once a court judgment orders it. You can stop a collection agency from contacting you by requesting this in writing, but this leaves no alternative other than to take you to court. If you dispute a bill or are the wrong person, inform them of this within 30 days of first contact. They have to investigate and verify the creditor's claim.

Debt counseling

If debts and spending are out of your control, professional help is available. Beware of people and groups that claim they can "fix" your credit. They usually can't. Be wary of taking out home equity or other loans secured by your property if you are not absolutely sure you can keep payments up. If you do borrow, stick with reliable lenders, ask questions, have a friend review contracts, read the small print.

Free or low cost counseling and budget planning are available from Consumer Credit Counseling Service (CCCS) and others, some of whom can help you work with creditors. Groups like Debtors Anonymous, based on the 12 Step Alcoholics Anonymous model, offer support in controlling spending.


If your financial situation is so serious that your well being is threatened, bankruptcy may be an option. It should only be undertaken with the help of a professional, usually a lawyer trained in bankruptcy law. Chapter 7 bankruptcy is the most common. In exchange for the surrender and sale of assets are exempt; however, as are some debts like child support and some back taxes.

With Chapter 13 you draw up a plan to repay existing debts from your disposable income after living expenses. Bankruptcy is not an easy way out. It is listed on your credit report for 10 years and makes it difficult to get credit and secure loans.

© Copyright 1993 Community Service Center for the Disabled and Patricia Woelk

Produced by Community Service Center for the Disabled
Electronic publication funded by BACEF

Published / Reviewed Date

Published: April 01, 1993

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Banking   ♦   Money Management   ♦  


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