After bankruptcy, back in debt again

Dear Debt Adviser,
Unfortunately, I had to file for bankruptcy in November 2009. The bad part is that I stupidly got myself back into some debt again. I would like to know what you think of debt management companies that you send money to each month and they pay a certain amount to the creditors.
— Louisa

Dear Louisa,
It’s more than unfortunate. It’s tragic! The good news, if you can call it that, is that you have to actually face your debts this time. You have no choice but to come up with a solution and pay those creditors. Luckily for you, there is help available.

I am very concerned that you filed for bankruptcy in November 2009 and less than a year later are once again dealing with debt in your own bankruptcy “hereafter.” This tells me that you didn’t learn anything from your near-debt experience. If only your near-debt experience included seeing a vision of a bright light at the end of a tunnel with an angel saying, “it’s not your time, go back and save.” But it didn’t. So now instead you have to listen to me.

What you need, Louisa, is a plan. In order to make the necessary changes to your spending habits that will help you avoid unwanted debt, you need a road map to follow. The major elements of your plan must be to stop spending more than you earn and to begin saving. Using credit to spend tomorrow’s money today only works out well if you will have excess money tomorrow to pay the bill. My guess is that you don’t have any excess money and therefore, should not be using credit at this time.

The simplest way that I know of to manage your finances without unwanted debt is to save for unexpected expenses. That means you have to add saving a regular amount of money to your monthly expenses. Start with what you can manage now, and increase as you can. Consider it an additional payday that will pay off big time when you don’t have to use credit for unanticipated expenses. A relatively painless way to begin saving is to have money taken directly from your paycheck and deposited into a separate savings account. If you already have automatic deposit for your payroll check, it should be easy to have your check split so some goes into savings automatically.

Next, you have to take a realistic look at your spending and cut back until you are no longer spending more than you earn. Areas where people typically overspend are eating out, unnecessary utilities like premium cable and Internet services, clothing and entertainment.

Now, for your question about debt management companies: To be sure we are on the same page, I believe that you are talking about a nonprofit credit counseling company that offers a debt management plan and not a debt settlement company. You could possibly be a candidate for a debt management plan offered by a nonprofit credit counseling service. They will assist you with paying off your debt, but you’ll need to visit with a certified credit counselor to determine if it would make sense for you. Visit the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling to find an agency to help you. Your counselor will go through a review of your finances with you and help you put together a workable budget/spending plan that will allow you to save for emergencies. This service is usually free, so no excuses!

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