It is no secret that consumers these days are carrying more and more debt. At the same time, personal savings rates have never been lower. It does not take a financial expert to see the problem with this situation. As consumers take on more and more debt, even the smallest financial setback can quickly spell disaster. One of the simplest ways to get a handle on debt is through the judicious use of a realistic monthly budget.

The monthly budget may just be the simplest and most basic of all financial documents. Even so, it is shocking how many people have never taken the time to produce even the simplest of budgets. There are many consumers who have not idea where their money is going. Without this basic knowledge, controlling spending is all but impossible.

Creating a budget does not have to be a complicated process. You do not have to have an accounting degree to keep track of your daily, weekly and monthly expenses, and you do not need to invest in fancy spreadsheet software either. All it takes is a small notepad and a calculator.

The best way to begin if you have never kept a budget before is simply to carry a notepad around with you everywhere you go. Write down every purchase and its cost, no matter how small. That means every cup of coffee, every lunch, every candy bar, every tank of gas. At the end of the week or the end of the month, go through all of it and add it up. You may be surprised at the amount of money that “leaks” out of your pockets every month on frivolous expenses. It is often possible to trim a significant amount of spending in ways that will not impact your life or lifestyle.

After you have repeated this exercise for a few months, you may be surprised at how your spending, and your debt level go down. Simply keeping careful track of purchases tends to make us more cautious, and the extra money you save can then be applied to paying down current debt. The more you can put toward your current debt payments, the more you will save in interest and other charges.

Creating a budget may not be the most fun or exciting way to spend your time, but a good budget is the foundation of your financial life. Once you have a realistic budget you can stick to, you are more than halfway to getting your financial house in order.

Should You Use Them?

More and more people are turning to credit counselors to help them get out from under a mountain of debt. Some consumers are finding out the hard way, however, that not all credit counselors are created equal. One so called "non-profit" counseling agency pockets your first month's check, which you assume is being applied to your debts, and calls it a "charitable contribution." Agencies like these may make you wary of seeking help from a consumer credit counseling agency, but if you know how to choose a reputable agency and you exercise a bit of caution, you can benefit from their services.

What Can I Expect From a Credit Counseling Agency?

Just what can you expect from a credit counseling agency? Besides providing general budgeting and money management advice to help you prevent future debt problems, they can negotiate with your creditors to get them to eliminate late fees, extend the term of your loan, or lower your interest rate. If your debt is burdensome enough, the credit counselor will encourage you to enter into a debt repayment plan requiring you to pay a set amount to the agency each month, which they then pay to your creditors.

How Do I Choose a Credit Counseling Agency?

For starters, find out which credit counseling agencies near you are members of the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA), the largest and most respected networks of credit counseling agencies. Members of these associations are put through a rigorous accreditation process performed by independent third-party organizations, which carefully review the operating practices of the credit counseling agencies and the effectiveness of their counseling.

The widely-known Consumer Credit Counseling Service (CCCS) is a member of the NFCC. You can find a list of agencies near you in your local phone book yellow pages or online at NFCC's Web site or AICCCA's Web site (see link box on upper right for links to Web sites).

Once you've narrowed your search down to one or two agencies, it's a good idea to check them out with one or more of the following to see if complaints have been filed against them: your state Attorney General's office, local consumer protection agency, and Better Business Bureau. You can find contact info for your State Attorney General at the National Association of Attorneys General Web site.

Now you're ready to call the consumer credit counseling agencies and ask them a few questions such as:

• What services do you provide?
• Do you provide free educational materials? If so, how can I obtain them?
• Are there fees for your services? What are they? Do I have to pay anything up front? Are there monthly fees? How are they calculated?
• What training do your counselors have? Are they certified or accredited?
• Who oversees or regulates your agency? Is your agency audited annually?

If this seems like a lot of work, remember that you're trusting your credit record and your personal information to the credit counseling agency. You want to be sure that you're in good hands.

Should You Use a Credit Counselor or Do It Yourself?

After you've spoken to a representative of the credit counseling agency, you'll have to decide whether to use the agency's services or go it alone. Credit counseling agencies really can't do anything for you that you couldn't do for yourself, theoretically at least. You could attempt to negotiate with your creditors to lower interest rates, extend loan terms (to catch up on late payments or make your payments more manageable), or remove late fees. In reality, the average person will probably not be as effective at doing this as a credit counselor, but it may be worth a shot before you enter into a debt repayment plan.

Be honest with yourself: if a lack of spending discipline is what got you into the pickle you're in, you may not have the discipline to pay down your debt without the help of a credit counselor. If you decide to go this route, make sure not to enter into a debt repayment plan that requires a higher monthly payment than you can realistically handle.

It may surprise you to learn that most credit counseling agencies are funded primarily by credit card companies. They are therefore motivated to encourage you to pay as much as possible on your credit card debt, even if it's more than you can afford.