The following may be signs of a potentially serious debt problem in your life:
• Relying on home equity or student loans or borrowed money for income
• Making late mortgage or rent rental payments that result in extra penalty fees and could even put your home at risk
• Paying for frequent "overdrafts" on your checking account
• Having credit card accounts that have been maxed out
• Making late credit card payments that result in penalty fees and increased interest rates
• Having no savings or emergency fund
• Using credit cards to pay for day-to-day expenses such as groceries

If one or more of the above warning signs applies to your situation, consider various ways to learn more about debt management strategies, such as reading about personal finances or working with a nonprofit consumer credit-counseling agency.

Credit counseling or debt management programs are supposed to provide debt-counseling services that involve negotiating with creditors to set up a debt management plan. The purpose of this type of plan is to help the debtor repay his or her debt by working out repayment plans with creditors that may include reduced payments, fees and interest rates to the debtor.

If you decide to use this type of service, keep in mind that some credit counseling programs are ethical while others charge excessive fees and provide poor service to consumers. Be certain that you use a nonprofit agency and have full knowledge of any fees you will be charged. Also, understand whether the service promises to lower the amount you owe, or the interest rate you pay, or to only lower the payments you make every month without significantly changing the terms of your debt. Keep in mind that many credit-counseling agencies receive most of their compensation from the creditors to whom the debt payments are distributed.

Handling Financial Emergencies

Financial emergencies come from life events such as loss of employment, family changes, legal problems, sudden illness or long-term disability. Taking steps to prepare for such emergencies in advance may help you avoid serious stressors and a possible financial crisis.

The following steps may help you be better prepared to deal with a future financial emergency:
• Put away savings to build a cash reserve (emergency fund) that can help you cover unexpected events. Your cash reserve amount should ideally be able to cover three to six months of living expenses.
• Keep cash reserve funds in an account that you can easily access if the money is needed.
• Consider putting additional savings in investment accounts that generate a higher return than a regular savings or checking account.
• Purchase long-term disability insurance.
• Create a plan to deal with unexpected emergencies, including what you could do, where you could you go, who might help you.
• Identify potential credit and loan sources or other ways you might be able to quickly increase your income during a financial emergency

If you are already dealing with a financial emergency, take the following steps:
• 1. Evaluate the financial emergency. Ask yourself questions such as:
  • How much is this emergency situation likely to cost?
  • Whom will money be owed to?
  • What terms (when and how) will be available for payment?
  • Are there options if the debt cannot be paid?
• 2. Find out what your options are. Consider a number of ways you may be able to manage during a financial emergency, such as:
  • Work out an agreement with the creditor to temporarily make partial payments, skip or delay payment for a short period or waive rate fees and penalties.
  • Eliminate unnecessary expenses in order to still pay important bills such as your mortgage or rent
  • Arrange a loan or borrow from a friend or family member
  • Develop a plan for paying off the debt over a period of time
  • Avoid harassment by submitting a request in writing that asks debtors and collection agencies to contact you only by mail and not by phone
  • If you have a health care need but do not have the ability to pay, contact your area Department of Health and Human Services or a hospital social worker to find out if there are services to help you
  • If you have a hospital bill, communicate with both the hospital billing office and your insurance company about the status of your bill
  
  Consider whether other options may be available to meet health care needs, including:
  
  
  • Community health centers.
  • Hospital and medical center financial assistance programs
  • Federal and state medical benefit programs
  • Medical benefits for veterans
  • Assistance through local cancer programs
  • Other community-based programs that support people who are disabled or aging
• 3. Decide on the best method to manage the financial emergency, including:
  • Taking immediate control of your spending
  • Keeping communications open with creditors to show your positive intentions to repay the debts
  • Talking with a debt counselor, financial planning professional or someone who is knowledgeable about using credit cards, retirement plans, savings accounts and personal loans to identify the best way for you to recover from the financial emergency