7 Tips to Overcome Debt Denial

Gather credit card statements, loan papers and any bills in arrears and write down in a notebook what you owe to each creditor. "You now have a realistic number in front of you in black and white. This will take you out of denial and let you know what you need to do," says Mechel Glass, director of education at CredAbility, a credit counseling service in Atlanta. People usually underestimate what they owe, Glass says. Writing it down helps them to see if late fees or other charges are being assessed. Then, they can gain control and figure out how to address the debt.

To prioritize your debt, address your most vital needs first like housing, utilities and groceries. Then list transportation and phone. After that comes IRS debt, medical bills, student loans and credit card debt, says Glass. It's important to work with hospitals, clinics or doctors' offices on your medical bills, and they should work with you if you approach them, Glass says. Some people may be behind on their mortgage loan because of job loss or a decrease in income. In that case, Glass recommends working with your lender and possibly doing a short sale or forbearance. In a short sale, you sell your home for less than the balance owed. With forbearance, your lender gives you a grace period to remain in the home without making payments, with the understanding that you'll resume your payments on a specified date. You might also qualify for a mortgage modification, which can mean reducing your interest rate or applying your delinquency to the end of your mortgage loan term. "It's very important to prioritize because those (debt) collectors, calling you every day and screaming the loudest, are not always the most important ones to pay," says Glass.

CredAbility counselors give their clients a pocket tracker to record their expenses, but a small notebook works just as well. Writing down where the dollars go for 30 days may help you find hidden areas where money can be saved.

"Most people are spending more than they think they are," says Glass. "Often, they are using credit cards and that's unseen money spent."

For those who either forget to write it down or just find the process tedious, Glass has an alternative suggestion.

Open an additional checking account for discretionary spending on expenses such as gas and dining out, and use the corresponding debit card to keep track of what you spend on wants versus needs. Keep your main checking account for rent or mortgage, utilities, insurance, groceries and transportation.

"That not only keeps your spending to a certain limit, but you can also see where the money might be leaking from your budget by looking at your statement," says Glass.

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