Put the Brakes on Debt

I hope this is one column you'll read and say, "Whew, I'm glad that doesn't apply to me." I'm talking about what can happen when someone's debt spirals out of control and they don't know where to turn next.
Many people spend far beyond their means and don't save adequately for tomorrow's needs or emergencies. Some are only one mishap away from disaster. Suppose you lost your job, your mortgage readjusted at a much higher rate or you incurred a catastrophic medical bill: What would you do?
Before you find yourself trapped in a cycle of debt collection - or worse, bankruptcy - here are a few warning signals and steps you can take to right the ship:
Know what you owe. Some folks have no idea how much they spend each month nor how that compares to money coming in. Before they know it, they're struggling to make minimum payments and may even miss a few payment deadlines, which can lead to costly late fees and elevated interest rates.
If you don't already have a budget, create one right away. Visa Inc.'s free personal financial management site, Practical Money Skills for Life, features an easy-to-use, downloadable tool called My Budget Planner that can help you track income and expenses and make spending adjustments where necessary (www.practicalmoneyskills.com/mybudget).
Don't hide from problems. As soon as you realize you're having difficulty paying bills, proactively call your creditors. Don't wait for them to contact you and certainly don't ignore their calls or correspondence. It's far better to work out a payment solution together than to let your options expire.
For example, many credit card companies will lower interest rates or work out repayment schedules for stable customers - but you have to ask first. And mortgage lenders today are much more open to renegotiating loan terms if it means keeping you as a paying customer versus foreclosing (which is far more costly and inconvenient for them). The Federal Housing Administration offers comprehensive advice on avoiding foreclosure, including links to local housing counseling services, at
http://portal.hud.gov/portal/page?_pageid=73,1827662&_dad=portal&_schema=PORTAL
Get help. If you feel trapped, resources are available. Legitimate credit counseling agencies can teach you responsible money management skills and, in extreme cases, help negotiate repayment plans with your creditors, often securing lowered interest rates and waived late fees. But use the utmost caution when choosing an agency; unfortunately, many unscrupulous firms prey on indebted people at times when they're most vulnerable.
If you don't have a recommendation from a trusted acquaintance, look for members of the National Foundation for Credit Counseling (www.nfcc.org). The Federal Trade Commission provides a guide for choosing a credit counselor, including questions to ask them (www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm).
Seek agencies that:
• Have been in business at least five to 10 years and have no unresolved consumer complaints with the Better Business Bureau (www.bbb.org).
• Charge reasonable fees that are spelled out in writing.
• Will waive or reduce fees for the financially destitute.
• Offer personalized advice tailored to your situation.
• Don't pay their employees on commission (potential conflict of interest).
• Don't automatically steer you into a debt management plan (DMP) - many people don't need a DMP unless their situation is truly dire.
• Don't make outlandish promises - for example, no firm can erase negative - but true - information from your credit report.
Remember, you didn't get into this fix overnight; it may take time to get back on your feet.
Jason Alderman directs Visa's financial education programs. Sign up for his free monthly e-Newsletter at www.practicalmoneyskills.com/newsletter.