Currently, U.S. households owe an almost unbelievable $2.3 trillion in non-real estate debts like credit card debt and auto loans. For some Americans, getting out of debt is just plain hard. Whether your debt is the result of unemployment, overspending, or both, here are six personal debt relief tips that will help you start — and successfully complete — a much-needed debt diet.

For part one, we offer three tips about calculating your debt, cutting up your credit cards, and trimming the fat. Make sure to check back for part two, where we offer three more tips on seeking professional help, finding additional income, and rewarding yourself to keep your momentum going.

1. Calculate how much you owe

The first step to beginning your debt diet is to sit down and determine how much you actually owe. Whether you use a money management program, a spreadsheet, a free service like Mint.com, or a pad of paper and a pencil, gather all the information from your various debts and record your current balances. Include credit card debt, student loan debt, auto loan debt, and any personal loans. Record minimum monthly payments, interest rates, and terms. Now you know how much you owe and which debts are costing you the most to carry.

2. Cut up your credit cards

Whether you use your credit cards to pay for living expenses because you’re out of work or use them to pay for things you want but don’t need, one of the only ways you’re going to get out of debt is to avoid going into debt any further. You’re best bet is to cut up your credit cards and cancel your accounts (and pay off your balances under current terms) to prevent further use. Some financial experts caution against closing accounts because doing so could lower your credit score and advise that you keep at least one credit card for emergencies. The important thing is to prevent access to credit cards if you have a problem with spending. Instead, opt for a cash-and-carry lifestyle and use debit cards if you have to.

3. Make a budget and trim the fat

Make a budget based on your income and track your spending for 30 days. It can really open your eyes to how you’re spending — and wasting — money. That $4 cup of coffee you buy every day at work could end up costing you nearly $28,000 over a 35-year career. Investing the same amount of money could earn you $247,000 at 3 percent interest over the same period. And that’s just coffee. Your debt diet should include cutting out expenses such as eating out and pricey cell phone plans. You should cut back on groceries, utilities, gas, clothing, and gifts, and drop services that you don’t use, like gym memberships. You should also change your behavior and stop smoking, playing the lottery, and spending money on other costly habits.

Calculating your total debt, cutting up your credit cards, and trimming the fat will get you enough personal debt relief to get you started on your healthy debt diet. Check back for part two for three more tips that will help you follow through on your debt diet and get you where you want to be financially.

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If you were a customer of a debt relief service this year — including mortgage debt relief, credit card debt relief, or debt settlement services — and had some of your debt forgiven as a result, you’ll probably receive form 1099-C from the Internal Revenue Service (IRS) and may owe federal income taxes on the forgiven debt when you file your taxes in April. Here’s four tax liability tips to help you familiarize yourself with what and how much you owe.

1. What the IRS considers when it comes to debt cancellation

Generally speaking, the IRS considers any type of forgiven debt from a commercial lender or creditor, including but not limited to home mortgage loans and credit cards, to be subject to federal income tax in the year the debt was cancelled, as long as the amount cancelled is $600 or more. For example, say you borrow $10,000 and default on the loan after paying back $2,000. If the lender forgives the remaining $8,000, then that $8,000 is considered income for purposes of federal income tax and should be reported on Line 21 of the 1040 tax form.

2. Debt cancellation amounts are not always taxable

Although the amount of debt cancelled through things like mortgage principal reduction and credit card debt negotiation is generally considered taxable, not all debt cancellation amounts are taxable. There are several categories of nontaxable forgiven debt:

• Bankruptcy — Debts discharged as the result of bankruptcy proceedings are not counted as taxable income.
• Insolvency — If you are insolvent (your total debts are more than the fair market value of your total assets) some or all of your forgiven debt may not be taxable.
• Certain farm debts — If you had any debt forgiven that was incurred directly in the operation of a farm, more than half your income from the previous three years was from farming, and the loan was from a regular commercial lender or and individual who regularly lends, your cancelled debt is generally not considered taxable income.
• Non-recourse loans — If your debt was incurred through a loan for which the lender’s only recourse in case of default is to repossess the property being financed or used as collateral — and the lender can’t pursue you personally — doesn’t result in taxable income from the cancelled debt but may result in other tax consequences.

3. Homes lost through foreclosure

If you lost your home through foreclosure, there are two possible tax consequences. In the first possibility, for recourse loans, the amount of cancelled debt (called cancellation of debt income) is considered taxable if the total amount of debt owed prior to the foreclosure is greater than the fair market value of the property. You may also be taxed if you received gain from the foreclosure, which means the fair market value of the foreclosed property is greater than your adjusted basis in the property (usually your purchase price plus the cost of improvements).

In the second possibility, for non-recourse loans, the cancellation of debt income is considered taxable if you received gain from the foreclosure (in this case, the amount of debt immediately prior to foreclosure is greater than your adjusted basis in the property).

For both recourse and non-recourse loans, gain from foreclosure is subject to certain exclusions. For more information, visit www.irs.gov or contact a tax professional.

4. Losses on foreclosed homes

While you may be taxed on gains from foreclosures, you unfortunately can’t deduct losses from the sale or foreclosure of personal property.

As with any tax issue, it is advisable to contact a tax professional if you have any questions. We strongly recommend contacting a tax professional if you have been the customer of a debt relief service of have had any debt cancelled or forgiven this year.

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Many military servicemembers deployed in the Middle East or elsewhere are experiencing trouble with credit card debt, mortgage debt, or other forms of consumer debt. Whether it’s just you or you have a family back home struggling to pay the bills in your absence, there are several debt help and debt management resources available.

Military OneSource

The first debt help resource you should consider using is Military OneSource, a free service provided by the U.S. Department of Defense (DOD). Military OneSource helps service members and their families with a broad range of issues, including money and debt management. Services are available 24 hours a day by telephone or over the internet. Many of the professional consultants have military experiences and all receive training on military matters and military lifestyle to better help you.

Military OneSouce: (800) 342-9647, including via Voice Over Internet Protocol (VOIP), or online at www.militaryonesource.mil

Credit Counseling

Credit counseling is available in person or over the phone through a DOD partnership with the National Foundation for Credit Counseling (NFCC). You can also contact the Association of Independent Consumer Credit Counseling Agencies (AICCCA) directly for assistance. Make sure to spend time with the person you end up contacting so they can better assist you and your family.

NFCC: (800) 388-2227 or online at www.nfcc.org

AICCCA: (866) 703-8787 or online at www.aiccca.org

Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act (formerly called the Soldiers’ and Sailors’ Civil Relief Act) provided a wide range of protections for servicemembers, including helping you and your family postpone or suspend certain obligations, such as financial obligations, while you’re serving. Financial protections include deferring credit card debt, mortgage payments, and tax payments. For example, interest rates on credit card accounts that you had prior to beginning active duty can be reduced to 6 percent while you’re deployed, but you have to ask your credit card company for the protection.

For more information, contact Military OneSource or visit www.military.com/benefits.

Other Debt Help Resources

Depending on your service branch, you may be able to also receive debt help and money management advice and assistance through the Army Emergency Relief, Air Force Aid Society, Coast Guard Mutual Assistance, and Navy-Marine Corps Relief Society.

Army Emergency Relief: (866) 878-6378 or www.aerhq.org

Air Force Aid Society: (800) 769-8951 or www.afas.org

Coast Guard Mutual Assistance: (800) 881-2462 or www.cgmahq.org

Navy-Marine Corps Relief Society: (703) 696-4904 or www.nmcrs.org

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Debt management plans that offer to help pay your creditors by settling your debts with them can be helpful if you’re struggling with a lot of debt. Of course, the best way to manage your debt is to get debt free and stay that way. To help you achieve debt freedom, and maintain it, here are six tips for creating a personal debt management plan that will help you minimize and avoid debt.

1. Avoid using debt to buy depreciating assets

It’s hard to buy a car, new or used, without taking out a car loan. However, you should strive to avoid taking out loans or using credit cards to buy depreciating assets like cars. No matter what you hear from car salespeople, cars are not a “good investment” because of a high resale value; they never increase in value like an actual investment can (although maybe some super-collectable car will 50 years from now). Unlike appreciating assets — such as homes, investments, and rental properties — cars and other depreciating assets continually decrease in value from the moment you buy them. Add interest payments to the mix and you start paying a lot more for something that’s worth a lot less.

2. Follow a strict budget

The best way to ensure that you manage the debt you have while avoiding going into further debt is to develop a good monthly budget and follow it. The key component is spending less than you earn. Try using the Build-a-Budget Worksheet if you don’t already have a budget.

3. Build an emergency fund

Part of your monthly budget should be setting some money aside in a savings account that you can use for emergencies instead of breaking out your credit card. Emergencies, like medical treatment, home repairs, or unemployment, are bad enough. But paying 19.99 percent interest on related expenses because you don’t have an emergency fund is only going to make it worse and saddle you with more credit card debt. Ideally, you should strive to save from three to six months worth of wages to cover unexpected expenses.

4. Save for big purchases

Need to make a big purchase on the horizon, like a TV, computer, or dishwasher? Obviously, it’s best to not be blindsided with an emergency situation that you have to cover with a credit card. But if you know you’re going to need something on the horizon, or want something you don’t really need (like a 60-inch LCD TV), the best thing to do is to save up for the purchase. As part of your monthly budget, take part of your earnings — after saving for your emergency fund — and put it away in your savings account. Keep track of these additions and, when you have enough money, pay cash for your purchase. This way, you’ll avoid having to spend a lot more for the things you buy.

Here’s an example of how bad buying things on credit can be: if you have a credit card with an 18 percent interest rate (pretty common these days), making minimum monthly payments on a $1,500 TV will take you roughly 153 months to pay off (that’s almost 13 years) and will cost you a total of about $3,175. That means, in exchange for instant gratification and not having to save your money, you bought a $1,500 TV for $3,175. Not exactly a great way to spend your money or a wise way to stay out of credit card debt.

The best way to manage your debt is to not incur any. But for those who are in debt, including those enrolled in a debt management program to pay off a lot of debt, these four tips for creating a personal debt management plan can not only help you get out of debt, they can help make sure you stay there.

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Mortgage debt relief and credit card debt relief are the most common types of scams that target financially distressed consumers, according to the Federal Trade Commission (FTC).

In these scams, desperate consumers are often told that they can have mortgage payments significantly reduced or credit card debts slashed and settled for far less than what is owed — if the price is right. The con artists typically charge thousands of dollars in advance fees before they lift a finger to help consumers, and often continue to charge monthly service fees while consumers’ bills mount and go unpaid on instructions from the debt relief provider. And, as is often the case, consumers never receive any debt relief service for their payments and frequently end up in worse financial shape than when they started.

The FTC refers to these practices as “last-dollar frauds” because the scammers specifically target consumers who are severely financially troubled. In fact, David Vladeck, director of the FTC’s bureau of consumer protection, said that the “single factor that is the best predictor that someone will be a victim of fraud is financial insecurity.”

Last-dollar fraud has increased since the financial meltdown began, fed by growing consumer desperation brought on by the recession. However, the FTC has been cracking down on last-dollar-fraud. Every week, it seems, another debt relief, debt settlement, or debt collection company is being sued and shut down for breaking the law.

Two FTC Rules Protect Debt Relief Customers From Advance Fee Schemes

The FTC has been especially targeting operations for violating two new rules the commission instituted to help fight con artists, protect consumers from handy over money in exchange for empty promises, and recover damages for scam victims (“Down to Your Last Dollar? Don’t Let Con Artists Take it From You,” The Washington Post, Oct. 15, 2011).

Under the Mortgage Assistance Relief Services Rule, companies offering mortgage debt relief services, including mortgage loan modifications, are prohibited from collecting any fees until they provide a written offer from the lender or servicer — which must fully describe the proposed changes to the mortgage — and the consumer accepts.

The FTC also amended the Telemarketing Sales rule to ban companies that sell debt relief services over the phone from charging advance fees before they successfully settle or otherwise reduce a consumer’s credit card debt or other unsecured debt. However, the ban only protects consumers who enrolled in a debt relief program after Oct. 27, 2010.

While the FTC says it has made progress, it admits that there is still a long way to go when it comes to protecting consumers in financial distress. “As long as the economy is sluggish and struggling, fraud artists are going to be concentrating on people vulnerable in the downturn,” Vladeck said. “I think we are having an impact. Are we draining the swamp of these guys? No, we are not.”

In addition to mortgage debt relief fraud and credit card debt relief fraud, the FTC has identified credit card interest-rate reduction fraud, investment seminar and precious metal schemes, government grant fraud, work-at-home scams, and other credit card and line-of-credit scams as the most common last-dollar scams in the U.S.

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There’s a lot of talk about debt relief programs, including debt settlement, debt management, and debt negotiation, that promise to decrease your debts in exchange for sometimes hefty fees. Some people may need these programs, but others could do with help that’s a little less extreme. If you’re one of these people, and just need some help organizing your debts and staying on top of them, here are six steps for making your own personal debt relief program.

1. Create a system for paying bills

The first step to building your own personal debt relief program is to create a system to organize and stay on top of all your bills, not just your credit cards, so you can avoid late fees and interest charges that might put you further in debt. Consider setting up a little “bill station” at your computer desk or kitchen counter with an envelope opener, checkbook, pen, and stamps, if you pay your bills by mail. Open all your bills immediately and pay them immediately, regardless of when they’re due, or create a system to file and pay bills by their due date. Whatever you do, keep your system simple and use it every day.

2. Consider using prepaid credit cards

Prepaid credit cards allow you to front-load money so that you can still use the card — and gain all the conveniences and benefits of using a credit card, such as building a credit history — while easily budgeting for what you can spend over a certain period.

3. Use software tools to help you create and maintain a budget

Software such as Quicken or websites like Mint.com allow you to manage your finances easily on your computer and often come with smartphone apps to help when you’re out and about. You can use the tools to set spending limits, track your purchases, and send alerts when you’re over budget.

4. Sign up for text message and e-mail alerts

Many credit cards offer to send you text message and e-mail alerts when your statement has been issued. You can also probably set up your account to send alerts as certain number of days before your bills are due. Other companies, such as cell phone companies, also provide alerts. Sign up for all of them so that you’re never blindsided by a past-due notice.

5. Set up automatic payments

While alerts are very useful, the most sure-fire way to avoid past due bills is to set up automatic payments on your accounts. Automatic payments can be set up to draw the minimum due from your bank account each and every month so that you never have to worry about being late. You can always make additional payments on things like credit cards when you have the money. However, make sure you budget for the payments and have the money in your account. You’ll get charged a fee if you don’t.

6. Build an emergency fund to stay out of debt

Now that you’re on your way out of debt, the best way to avoid going back into debt in the future is to build up an emergency cash fund. To avoid using your credit cards for emergencies, set up a free savings account with your bank as soon as possible and make deposits to it each paycheck. You can start small — even $10 helps. Make sure you find out if your free savings account requires that you have to deposit a certain amount each month or if there are minimum balances. You don’t want to have to pay to have an emergency fund.

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If you’ve stopped making your credit card payments because you’re out of work or for other reasons, the last thing you probably want to deal with is a letter from a debt collection company threatening to sue you over an unpaid credit card debt. However, you should take debt collection letters seriously. If you don’t, you could be setting yourself up for disaster.

When the economy crashed in 2008, millions of Americans lost their jobs and stopped making payments on their credit cards. Many who eventually received debt collection notices ignored them, including those who thought they were safe because they had enrolled in a fraudulent debt relief program that falsely promised to settle their debts for a fraction of what was owed. For those who ignored debt collection letters, the letters were often eventually replaced with notices from debt collection companies threatening to sue.

And that’s when the real problems can start, especially if you continue to ignore the letters, Texas attorney Michael Weston told Houston’s KTRK-TV.

According to Weston, 90 percent of consumer who receive notices of debt collection lawsuits ignore them completely. The problem with ignoring debt collection lawsuit notifications, Weston explained, is that debt collectors can show up in court and, if you’re not present, get a default judgment against you. “With a judgment, creditors in Texas [and some other states] can actually garnish your bank account,” Weston said. “They can clean out your bank account” (“Letters From Debt Collection Agencies Need to Be Taken Seriously by Customers,” KTRK-TV, Sept. 6, 2011).

Weston advised consumers who get letters from debt collection companies that threaten lawsuits to pay attention to the letters and take action. Weston said that consumers should first verify the debt. Many debt collection letters are being illegally filed by companies that claim to review the debt history but in reality are signing hundreds of affidavits a day without doing any research. The practice, called robo-signing, can result in debts that are inaccurate or credited to the wrong person and is the subject of lawsuits by attorneys general in Texas and other states.

Consumers should also find out how old the debt is. If the debt is older than permitted by law, consumers might be able to get the debt thrown out.

Weston warned if a lawsuit is ignored and the incident goes to court, a judge will likely rule in favor of the debt collection company.

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Some homeowners in New Jersey who are looking for debt help to avoid foreclosure might be able to get some assistance from a free state mortgage debt relief program.

The New Jersey Judiciary Foreclosure Mediation Program, signed into law at the end of 2009 by then New Jersey Governor Jon Corzine, helps resolve foreclosures and keep residents in their homes through collaborative mediation between the courts, the attorney general’s office, the Housing Mortgage Finance Agency, the Public Advocate, the Department of Banking and Insurance, and Legal Services of New Jersey.

In the program, troubled homeowners facing foreclosure are first referred to certified counselors from the U.S. Department of Housing and Urban Development and the state of New Jersey, as well as volunteer lawyers. The counselors and lawyers will work with lenders to try to find a solution that avoids foreclosure, such as waiving penalties or providing other mortgage options like loan modifications.

If an agreement between lenders and homeowners to resolve delinquent mortgages can’t be reached, the parties will be required to work with court-appointed mediators to try to reach out-of-court agreements for rehabilitating defaulted mortgages (“New Jersey’s Foreclosure Mediation Program,” Scura, Mealey, Wigfield & Heyer LLP press release, Aug. 12, 2011).

To qualify for the program, homeowners must meet several requirements:

• Homeowners must be residents of New Jersey who haven’t filed for bankruptcy
• The primary residence must be in default or foreclosure
• The property must be a one- to three-family residence

In January, New Jersey foreclosures were occurring faster than the national average, according to RealtyTrec, and online foreclosure resource. While nationally foreclosures were up 1 percent between December and January, they climbed 13 percent in New Jersey. Although total foreclosures in the state were down from a year ago, analysts said it was a ”false positive” due to a backlog of foreclosure paperwork and unethical mortgage practices.

For more information about the New Jersey Judiciary Foreclosure Mediation Program, residents can call (888) 989-5277 or go online at www.nj.gov/foreclosuremediation.

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California homeowners and residents burdened by mortgage loan debt, credit card debt, and other kinds of consumer debt will be able to get some debt relief information at a debt help seminar to be held July 23 from 9 am to 5 pm at the San Francisco Airport Marriot in Burlingame, Calif.

The Mortgage Debt Relief Conference, hosted by the FESPIR Organization (which stands for Foreclosure Prevention — Principal & Interest Reduction) will offer a presentation by FESPIR CEO Tim Kirchner, JustUsDebt CEO Dean Newton, and attorney Patricia Rodriguez that will educate and inform homeowners of their options when it comes to saving their homes.

FESPIR is a non-profit organization of consumer advocates, attorneys, financial analysts, and professional debt arbitrators. At the conference, the organization will provide attorneys and debt relief specialists to individuals who need information on mortgage debt relief and other kinds of debt help.

“The Debt Relief Conference offers the perfect opportunity for anyone with an upside-down mortgage or other debt burden to get help on-the-spot from the attorneys and debt relief specialists who will be there,” Kirchner said in a statement.

“If you are under financial stress, facing foreclosure, need mortgage principal and interest reduction, have failed loan modification, have an upcoming trustee sale, or simply need help saving your home, you owe it to yourself to attend this conference” (“Homeowners With Underwater Mortgages Will Get On-the-Spot-Help on July 23rd, 2011,” FESPIR press release, July 14, 2011).

Consumers seeking information about various kinds of debt help are encouraged to register early by going online at www.DebtReliefConference.com or by calling (877) 247-0080.

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In what is turning out to be the worst recession since the Great Depression, many Americans are struggling to pay their bills as companies continue to shed jobs and the economy continues to contract.

In this recession, costly expenses like medical bills are taking a backseat to daily expenses like water, electricity, food, car, and mortgage payments. Now, as with credit cards, consumers are struggling to keep up with their medical bills and increasingly letting more and more of their bills go unpaid.

The Commonwealth Fund, a healthcare research foundation, reports that in 2007, 41 percent of adults were struggling to pay their healthcare bills, up from 34 percent in 2005 (“When Medical Bills Outpace Your Means, Seize Control Swiftly,” The New York Times, April 25, 2009). And it’s not just the uninsured who have fallen behind on their payments, nearly two-thirds of people with medical debt actually have health insurance.

Experts say, however, that there are ways to manage your medical debt even if you aren’t capable of paying it off right away.

1. Communicate with your creditor.

If you know you’re going to be late on one or more of your medical bills, let your creditors know. Just talking with them won’t obligate you to make a payment, but if your creditor is aware that you’re trying to stay on top of your debt you may be able to avoid collections, at least temporarily, and protect your credit.

2. Review your bills.

Keep a running tab of your doctor visits and medical procedures to accurately review your bills when they come in. Errors in medical billing can occur often, so if you find a discrepancy call your provider for an explanation. And remember that it can never hurt to resubmit bills to your insurer if you’ve been denied coverage.

3. Bring in extra help.

Try negotiating with your provider for a discount or for some leeway on repayment. If your creditor still won’t work with you, consider hiring a billing specialist who may be able to help you find errors in your medical bills and better understand the often-complex language of medical billing.

4. Avoid the plastic.

Don’t react with panic when you receive a late-payment notice by transferring your medical bill debt onto your credit card. Chances are if you can’t pay your medical bill now, you’re not going to be able to pay the credit card bill when it comes in later. And medical bill charges that stay on your credit card will immediately start earning interest, not to mention that charging a large sum to your credit card could negatively affect your credit score, if you’re carrying too high a debt load.

5. Know your rights.

Just because a medical bill goes to collections, doesn’t mean creditors have free rein to hassle you into paying; they have guidelines and rules to abide by — they can only call between 8 a.m. and 9 p.m. and they can’t scare you into paying the debt. Ask for the caller’s name and request that they send you the name of the creditor and the amount you owe in writing. Visit the Privacy Rights Clearinghouse for a guide to debt collection.

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