If you're one of the 5 million to 7 million Americans drowning in credit card debt, Becky Cutler has some lifelines to throw you.
But don't expect the trip back to financial dry land to be a cinch. Getting out of a credit crisis requires discipline and determination, says Mrs. Cutler of the National Consumer Credit Foundation, a Denver-based non-profit organization that helps train people to use credit wisely.
Two-thirds of those who have larger credit card bills than they can handle got into trouble because of "extenuating circumstances," such as unforeseen medical bills or layoffs, she told an audience recently at a seminar in Baltimore on managing credit.
But the remainder sank into debt without even realizing it.
"They did the things we all do. They were trying to keep up with the Joneses," she said. "They allowed the kids to buy expensive clothes. They went on shopping sprees because they were depressed, or they rewarded themselves with a vacation they couldn't pay for."
When the bills pile up, many people make the "common self-help mistakes" of borrowing from their savings or from relatives, using one credit card to pay off another or getting a so-called debt-consolidation loan, Mrs. Cutler said.
The worst mistake, however, is to file for bankruptcy, thinking that it will provide a painless "quick fix," she said.
A recent study by Elizabeth Warren, a University of Pennsylvania law professor, showed that two-thirds of those who file for personal bankruptcy under Chapter 7 of the federal bankruptcy laws don't achieve the financial "fresh start" they seek.
This is because they don't have enough income left to pay daily expenses after the bankruptcy is completed, Mrs. Cutler said.
Notice that you declared bankruptcy not only stays on your credit bureau report for up to 10 years but might deter a landlord from renting to you in the future or knock you out of consideration for a job, she added.
The growing number of personal bankruptcies concerns banks and credit card companies, said Barbara Garrett, a spokeswoman for Citibank, the New York-based bank holding company that sponsored Mrs. Cutler's seminars in Baltimore last month. Citibank is a corporate backer of the Consumer Credit Counseling Service, a network of free credit counseling agencies offered nationwide by the National Consumer Credit Foundation.
"There's a whole industry of lawyers and 'credit-fix' shops that are advertising out there and telling people that a $250 bankruptcy will get them out of trouble. We want people to understand what bankruptcy will mean to them before they consider it," Ms. Garrett said.
Someone who files for bankruptcy sometimes can wipe out debts owed to credit card issuers such as Citibank, but "in no way" have credit management seminars sponsored by the company "been tied to bottom-line objectives," she added.
Another recent study, however, shows that at least 20 percent of all the people who file for bankruptcy annually could have repaid their bills without resorting to the courts if they had only known how to organize and reschedule them, Mrs. Cutler said.
If you fear you're sinking into a credit crisis of your own, she advises taking these steps immediately to take charge of your debts:
* Find out where you stand financially.
This is most important because "you can't get a handle on your debts if you don't know what they are," Mrs. Cutler said.
First list your monthly net income, not counting overtime. Then make a second list of your fixed, everyday living expenses and your "periodic" expenses, such as clothing, property taxes or car insurance payments. Then make a third list of your monthly obligations, such as credit card payments, car payments, mortgage or student loans. List One should cover List Two and Three, but for many families it doesn't, Mrs. Cutler said.
* Reduce your debt by trimming expenses.
"Sit down as a family and do this," Mrs. Cutler advises. Your children need to know how much daily expenses really cost and how they can help cut back. "If only one person in the family does the budget you get either a dictator or a martyr," she said.
* Prepare a budget and stick to it by tracking your spending closely.
Set explicit budget amounts for fixed and variable expenses. Start a savings account to cover periodic expenses and emergencies. Determine how your family will work together to stick to the budget.
Mrs. Cutler suggests cashing your paycheck each week and dividing the bills into separate envelopes marked for daily expenses.
"It's the system we use in my house, and you wouldn't believe how quickly my children learned that if they bought candy bars at school the 'school lunch' envelope would be empty too soon," she said.
* Work with your creditors to find a way to pay your debt.
If you're honest with your creditors and explain that you truly want to repay your debt, you may be able to work out a system of reduced payments or get an extension on your account, Mrs. Cutler said.