Fair enough: being “knee deep in debt” does not typically include “kicking up your heels” with glee. Who can be happy with the weight of debt on their shoulders? How can you have fun on a strict budget?

It turns out that the Federal Trade Commission has a consumer report titled “Knee Deep in Debt”. It’s got a lot of great tips so you can start kicking up your heels again.

We found it thanks to blogger Mary Bell of Millennial Financial Coaching [warning: turn down the sound, cube dwellers!]. Here are some of Mary’s helpful additions to the FTC report:

1. Be Very Careful When It Comes to Debt Repayment Companies or Organizations

Mary lists three helpful agencies, below.

InCharge Institute

National Foundation for Credit Counseling – To find an NFCC counselor click here

Consumer Credit Counseling Services – To start credit counseling online click here

2. Know Which Type of Service You’re Getting

Mary breaks it down into “good”…

Debt Management Plans = These are plans where the company works to help you negotiate lower interest rates but repay the debt over a feasible time frame that works for you. The purpose of these plans is negotiate a feasible payment to pay the debt that you incurred.

…versus “bad”, or just plain evil:

Debt Settlement Plans = NEVER recommended. Let me repeat, NEVER recommended. Debt settlement companies have a very aggressive marketing campaign and continue to grow (many mortgage brokers who went bust in the housing fallout have now found a “new” career in the debt settlement arena).

How it works: A debt settlement company sounds fabulous because they promise to pay pennies on the dollar for the debt you have incurred. What they do is have you pay them instead of your creditors. They keep the money, minus their generous cut, in a bank account in your name (which is why it is “guaranteed”). After a year of two of not paying the creditors, which means your credit is wrecked, the debt settlement company “negotiates” with the creditor and tells them they will pay pennies on the dollar for the debt that is owed. Sometimes the creditors accept and the debt is repaid at a fraction of the cost. But when the creditor will not accept the terms, you are still liable and can end up in bankruptcy court. Oh and by the way, telling the judge that you hired a debt settlement company to take care of the debts doesn’t stand up in court. The debt settlement company has taken their cut of the money and fled the scene. You are left in a worse situation than before: You still owe the debt, you’ve lost the money that the company took, and your credit is even more wrecked than before.

We’d like to add that there are four legal ways to clear your credit card debt. Make sure you take Mary’s thoughts into account, too, as you work your way out of knee-deep debt so you can eventually kick up your heels.

Related articles:

• What to Do If You Can’t Pay Your Bills (geezeo.com)
• The Hidden Costs of Debt Consolidation (geezeo.com)
• Reasons Your Credit Score is More Important Than Ever (geezeo.com)
• The Family Balance Sheet (geezeo.com)

By Lisa Chamoff | MainStreet.com

Nothing can sour a relationship like a nice talk about money and debt.

Throw in some chit-chat about your beau’s credit score and soon you may be shouting “What the FICO?”

What the FICO, indeed.

But there’s hope. With the right kind of communication, couples can figure out how to support a better half with a worse credit history, or decide when it’s better to preserve financial independence, says Adam Levin, former director of New Jersey’s Division of Consumer Affairs and co-founder of Credit.com, a consumer advocacy website.

Here’s Levin’s advice for couples who clash over credit:

MainStreet.com: What’s the best way for couples to approach conversations about credit?
Adam Levin: There’s only one way and that’s straight on. Just honesty, transparency, openness and [it should take place] as early in a relationship…as possible.

MS: What do you need to tell your partner about your credit?
AL: You really need to be open if you’re having any issues, what your credit score is, if you’ve had any negative experiences on your credit that might in any way negatively impact the partnership because, let’s face it, a relationship is not only an emotional partnership, it’s a financial partnership.

MS: When is it good for couples to combine credit?
AL: I don’t know if it’s ever really good to combine credit. I think it’s a natural tendency, that couples want to do it as part of the process of bringing themselves closer together. But I think that couples must always maintain separate credit files because death, illness, or divorce requires that each member of the couple be able to stand on his or her own feet.

MS: How is it best to proceed if your partner has bad credit habits?
AL: The first step is to determine how bad. Sit down, take a look at the credit report, determine what the problem is. Is the problem that he or she doesn’t pay on time? Is the problem that they don’t have enough credit, so their file is thin? Is the problem that they’re using too much of their credit, that their balances are too high, so therefore some need to be paid down?

Step two is [to] figure out what things you might be able to do—whether you add your significant other to a credit card, whether you cosign for them, whether you perhaps have a CD and make it collateral for a small loan from the bank so that you pay it back. These are different strategies that can help people strengthen their credit. You always want to be in a position to help the partner who is the most credit-challenged strengthen their credit.

MS: On the flip side, is there a way to unravel yourself from an ex if you’ve merged finances?
AL: The most important thing is that people must always remember, regardless of whatever deal you make among yourselves, and whatever deal is actually approved by the lawyers in a court, it isn’t necessarily a deal that the creditors buy into. With creditors, the reality is that “‘til death do us part” perhaps has even more meaning to them than it does for you. You need to communicate with your creditors.

If you break up, find a way to make sure that the statements go to each of you so you know exactly what’s going on. If your partner falls behind because of a traumatic situation—a layoff, or an economic hardship—you may have to step up. Stepping up isn’t necessarily letting your partner off the hook. It’s actually protecting your position, because if it’s joint credit, and it’s not paid on time, or the other partner goes credit crazy, it will impact you.

Millions of Americans are struggling with debt.  Falling housing prices and adjusting mortgages aren’t helping the matter, making it increasingly difficult for the average debt holder to pay more than the minimum on credit card debt.    So what do you do when you find yourself over your head in debt?

Debt consolidations can provide attractive offers.  The goal is to take all outstanding debt and merge it into one easy payment.  Instead of paying 10 different creditors with 10 different interest rates you’ve only got one payment to make at one steady rate.  It may sound like a miracle fix that avoids the stigma of bankruptcy, but there are things to beware.

FEES. If you have an offer to consolidate your debt onto one credit card, be sure to read the fine print.  Most of these offers carry fees of 3% – 6% of the total balance transferred.  So if you are looking to put $10,000 from various cards onto one at a low rate, the fees alone would cost $300 – $600.    If you are looking to work with a Credit Counselor investigate exactly how they will be paid.  It might not be an “out of pocket” expense, but often the fees are rolled into the consolidation loan.  The consolidation company can also take it’s fees off the top of your new monthly payment, leaving less each month to go to the actual debt.  Know the costs before committing.

INTEREST RATES. Are you actually paying a lower rate on the consolidation?   List out the fees and interest rates on all your existing accounts to determine the total payments you now make.  Compare that amount with a potential consolidation payment and interest rate to ensure actual savings.

TAXES. The biggest hidden cost in a debt consolidation is taxes.   Most people are unaware that the difference between the amount you owe and any amount forgiven by a creditor is taxable as ordinary income.  For example, if you owe $10,000 and have that amount negotiated down to $6,000, you would be liable for taxes on the forgiven amount of $4,000.  The IRS refers to this amount as the “Discharge of Indebtedness” (DOI) and you are likely to receive a 1099 from the debtor for that difference.

Credit Counselors and debt consolidation loans can offer to lower your monthly payments for you, but it is worth your time (and bottom line) to see if you can do this yourself.  The goal is lower payments and interest rates, so call each and every one of your creditors and explain your specific income situation.  The majority will work with you to lower your payments and interest rates, as long as you ask.   Be tenacious:  if at first you don’t succeed, call every week until you get payments lowered.  Get yourself organized, know your payments and stick to a budget to pay off your debt.