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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The credit crisis has taken its toll on many consumers’ immediate ability to borrow and pay down their debt as, over the last year, banks and other lending institutions have slashed credit limits and hiked interest rates in an effort to protect themselves from rising consumer defaults. But economists predict that this vastly altered consumer credit market won’t be a fleeting change.

“In the previous two decades, our credit scores have become more important over time,” said personal finances expert Liz Pulliam Weston (“Rules Have Changed for Consumer Credit,” Chicago Tribune, April 19, 2009). “Then in the past year, it’s suddenly become critical.”

She warns that if consumers don’t pay attention to these recent credit developments they could make some costly mistakes that could negatively affect their personal finances.

1. Credit Scores

The overhauled credit markets have polarized the world of credit scores: now there’s good credit and bad credit and relatively little in between. Consumers with good credit have seen little to no effect on their financial lives, while consumers with less than stellar credit are increasingly facing higher interest rates, more stringent loan terms, and disqualification from all types of loans — home, auto, student, etc.

The Recommendation: Don’t take on any more debt and start paying off your existing debt.

2. Credit Benchmarks

The qualifications for good credit and bad credit have also shifted. About a year ago a 700 to a 720 FICO credit score — the most widely used credit score formula — was considered acceptable for most consumer loans, and a 620 FICO score was considered subprime and subject to less favorable terms. Today, consumers need a 740 to a 760 credit score to get the most consumer-friendly loan and credit card terms, and consumers with a 660 to 680 score are considered subprime.

The Recommendation: Pull your credit report to see if there are any unforeseen blips or mistakes that could have dinged your score. You can get a free copy of your credit report from each of the major reporting bureaus once a year at annualcreditreport.com. For a free estimate of your credit score, you can use some of the new credit simulators at Bankrate.com, Quizzle.com, or Credit.com to get an idea of where you stand, but if you’re considering taking out any new loan you may want to use a site like MyFICO.com to pull your actual credit score and see where you really fall on the new scale.

3. Credit Limits

Consumers with lower credit scores are having their credit limits slashed by credit card companies, which can severely throw off your credit utilization ratio — the ratio of your available credit to how much you’ve borrowed — and consequently, lower your credit score.

The Recommendation: Consumers with good credit scores, 750 and above, can try negotiating with their creditors to reinstate lines of credit, if need be. Creditors are more willing to accommodate consumers with good credit since they are harder to come by in this recession.

4. Card Cancellations

In addition to lowering limits, credit card companies are shutting down lines of credit due to low use, which may be one of the few credit changes to hurt consumers with good credit.

The Recommendation: Make sure to occasionally use the cards that you keep in the “back of your wallet” — charging some purchases at least a few times a year — and promptly pay off the balances on these cards in full.

5. FICO Score Formula Changes

One of the three major credit reporting bureaus, TransUnion, has begun using Fair Isaac’s new FICO score formula, which places more emphasis on your credit utilization and ignores overdue balances of less than $100. It’s unknown when or if the other credit bureaus, Equifax and Experian, will follow suit.

The Recommendation: Keep balances to below 30 percent of your available credit, and if possible, try to bring your credit utilization down to 10 percent to get better interest rates and more favorable borrowing terms on consumer loans.

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Sen. Bernie Sanders, I-Vt., has a plan to rescue consumers from interest-rate hikes on everything from mortgages to credit cards: He’s proposed a piece of legislation that would force all companies offering consumer loans to cap interest rates at 15 percent, according to The Bennington Banner (“Sanders Seeks Interest Rate Cap,” March 13, 2009).

Currently, credit card companies, based on a 1978 Supreme Court decision, are only required to abide by the interest-rate restrictions enforced in their home state. Many financial services companies have taken advantage of this state-by-state enforcement and established headquarters in South Dakota and Delaware, states that don’t have restrictions on how much interest banks can charge.

Sanders’ bill would overrule that court decision, imposing the 15-percent interest rate cap on credit cards and consumer loans issued in all states, and would limit the fees banks can charge. His plan is modeled after a similar interest rate cap implemented under the Federal Credit Union Act nearly 30 years ago, which was set at 15 percent and later increased to 18 percent in 1987 by the National Credit Union Administration.

“If a rate cap has worked for credit unions all these years, it could work for our friends in the financial industry as well,” Sanders said.

A New Era for Credit Card Rates

Sanders believes his legislation will be met with staunch resistance from banking industry lobbyists, but he says it’s time for financial service companies to end their “culture of greed.”

Credit card companies are taking billions of dollars in taxpayer bailout money, and, in some cases, receiving zero-interest loans from the Federal Reserve, all while ratcheting up fees and interest rates. Citigroup credit card holders, for example, have been told their rates could go as high as 30 percent if they miss a single payment, and JPMorgan Chase customers who have large balances may have to start paying $10 monthly fees.

Sanders says the free-wheeling rate hikes and fees currently implemented by banks is “loan sharking,” and these banking tactics are making it even more difficult for struggling consumers to pay down their debts.

“This is very significant because right now there are millions and millions of people who are paying outrageously high interest rates on their credit cards. We think enough is enough,” Sanders said. “At a time when things are so bad, they need relief in terms of these interest rates.”

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Credit card holders just barely bucked year-end credit card trends at the end of last year, charging less than expected and making slightly more of an effort to get caught up on their credit card balances compared to 2007, according to a recent anonymous survey of 27 million random TransUnion credit profiles. (more…)

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A father and son duo from Ohio, whose credit card debt relief scheme caused consumers to lose more than $2 million, have been sentenced to the maximum federal prison terms offered as part of their plea bargain (more…)

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If you’re facing eviction or foreclosure or if you’ve already been evicted or lost your home to foreclosure, you’re not alone, and you could soon get government aid thanks to a new program created under the American Recovery and Reinvestment Act. (more…)

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