Many Americans are facing serious debt problems. There are many reasons that lead to financial turmoil, but the most common include: overspending, unemployment, and being uninsured. Thousands of people file medical bankruptcy each year because they did not have adequate insurance coverage when tragedy struck.

Debt problems can lead to stress, depression, anxiety, and even divorce. Countless married couples have separated because a spouse couldn\’t keep spending under control. Lack of money causes people to lay awake at night worried about losing their home to foreclosure or not being able to put food on the table.

While it\’s true that chronic unemployment has led to debt problems for some people, many others are experiencing financial problems because they were never taught how to properly manage their money.

We live in a society that encourages us to spend money on big houses, fancy cars, and designer clothes in order to \’fit in\’. Certainly, the economic recession has curtailed consumer spending, but many people don\’t have a clue where their money goes or how to establish a household budget.

When debt problems become severe, people often file personal bankruptcy. Although this option can be tempting, it can actually make matters worse. In 2005, new bankruptcy laws were enacted under the Bankruptcy Abuse Prevention and Consumer Protection Act. These laws require debtors to reorganize their debt under Chapter 13.

Chapter 13 payments can extend up to 5 years. Debtors remit monthly payments to the bankruptcy Trustee who distributes payments to creditors. These payments are in addition to normal monthly expenses and can cause additional financial hardship. If debtors do not comply with their payment plan their creditors can petition the court to have the bankruptcy dismissed.

If debtors successfully complete the bankruptcy program they will still experience reduced FICO scores that can prevent them from obtaining credit in the future. Debtors are not allowed to incur new debt during the Chapter 13 payment phase. Additionally, bankruptcy is reflected on credit reports for up to 10 years.

Instead of filing bankruptcy, debtors should spend time researching alternative options. One of the most effective and affordable options is budgeting. The concept is simple. Spend less than earned. Those who earn less than their monthly expenses must find a way to increase income or reduce expenses.

Those who are struggling with money management skills may find it helpful to obtain credit counseling. Individuals who believe they may have to file bankruptcy should consider working with credit counseling agencies approved through the U.S. Trustee.

The new bankruptcy laws require debtors to participate in credit counseling before their petition is approved through the court. Counseling can occur up to 180 days prior to filing the petition. Credit counselors can help consumers develop a get out of debt plan and might be able to negotiate with creditors to reduce interest or principal balances.

Debtors who own real estate might be able to consolidate high-interest loans into a home equity loan. Real estate loans are charged a much lower interest rate than credit cards and unsecured loans. Homeowners can save a substantial amount in interest by consolidating debts into a home equity loan.

It is important to calculate the true costs of home equity loans and carefully evaluate the risks. These loans require homeowners to use their property as collateral to secure financing. If loan default occurs the property will be at risk for foreclosure.

Individuals owing more than $10,000 in debt might consider working with a debt settlement company. This option can be somewhat costly as debt settlement companies charge startup and monthly fees which often range between 20- and 40-percent of the overall debt amount.

It is imperative to conduct due diligence to ensure the debt settlement company is legitimate. Unfortunately, many of these organizations have been under investigation for consumer fraud.

Regardless of the debt help option chosen it is important to commit to the strategy to obtain the best results. Those who commit to curbing wasteful spending and doing what is necessary to eliminate outstanding debt can be freed from financial bondage.

Author Bio: Simon Volkov is a real estate investor and author and has published hundreds of money management articles to help consumers overcome debt problems. Topics range from developing a household budget to filing personal bankruptcy. Learn more about available debt relief options at www.SimonVolkov.com.

Category: Finances
Keywords: debt problems, debt help, debt relief, debt settlement, debt consolidation, chapter 13 bankruptcy