How to Organize Your Debt: A Thorough, Step-by-Step Guide

I admit it: I owe a lot of money to a lot of people. I'm not proud of that, but I hear that admitting something is the first sign of making a change. At some times in my life it has just been easier to throw all the collection notices and bills in a box and hope they go away. Take it from me, they don't. In fact they just make the bill collectors even more angry.

About nine months ago my husband started listening to The Dave Ramsey Show on his XM radio on his way to work. Fascinated by Mr. Ramsey my husband told me about him and made me start listening. I have to admit that from that very first broadcast that I listened to I was hooked. People can actually live without debt? You don't have to sell your soul to the devil to pay the bills each month? People really do live on a budget? To me this just seemed like a foreign concept given that I grew up in a house were sometimes if you didn't use the credit card you had cereal for dinner. I'm not complaining, my mom did a great job keeping it all together but there were times it was rough.

Anyway, back to my story. I started listening to Dave Ramsey and knew that we had to make a change in our lives. There was no reason we should be barely surviving. I knew we had to start working through "The Baby Steps," but I had no idea where to start, especially when it came to step two "the debt snowball". For several months if not longer I had been throwing all the things we couldn't pay in a box just hoping that magically they would disappear.

As we started building our emergency fund I started trying to get a grip on just how much money we owed everyone. The task was not simple but it was well worth it because now I know exactly who I owe and exactly what I owe them. Here is what I did to get everything in order:

PART A:

1. Sit down, whether it be at the kitchen table or in the middle of the floor. Sit down somewhere where you will have a lot of room to make stacks of papers. Start by opening all the the bills and notices you have been avoiding for months, if not years. Don't include the things like you are current on. You should only use this if you have a truckload of collections.

2. Throw all the extra things inside the envelopes away. There is no need to keep the envelopes to send the payments back in and there is no need to keep all that extra stuff they stuff in envelopes.

3. Make stacks of the bills. If you have three collection notices about that cell phone you used to have put them together.

4. Once you have opened and sorted everything it's time to get to work doing the tedious part. You will need to get a three ring binder and some of those plastic sheet protectors. You can get a big pack at Wal-Mart for about $5. You don't need anything fancy.

5. Place the bills for each company you owe money to in one sheet protector. Start from the one you owe the least. Even if it's a $12 medical bill you never got around to paying. Continue this until you have all the bills in the plastic sheet protectors inside the three ring binder. The bill with the least owed should be in the front and the one with the most owed should be in the back.

Now you will have all the notices you receive in one place and you won't have to chase them down when you are ready to pay the bills off. Each time you receive a new statement slide it into the protective sheet with the past statements from that same company. This will also help you keep track of who you actually owe the money to. Companies are notorious for selling your debt to collection agencies and these collection agencies are also notorious for selling your debt to another agency. If it takes some time for you to pay off your debt it might have gone through half a dozen agencies. If you keep it all together in a binder you can know who to write the check to when you are ready to pay. Also you can keep notes from anyone you spoke to on the phone regarding your debt in these sleeves with the notices that way you have something to reference if you get in a bind later down the line. In addition keep copies of any cancelled checks or the money order stubs in the sleeves. Keep this stuff forever. A creditor might come back ten years down the line and say you never paid them. Now you will have proof.

PART B:
With your new three ring binder in hand go to the computer and open a spreadsheet program like Microsoft Excel. The idea of this part is to have all your debt quickly accessible. Once you have completed this part you will be able to look at the overall picture in one glance.

1. In you spreadsheet document you are going to need several columns they should be labeled as such:

Collection Company
- Record the name of the company that you currently owe the money to

Original Creditor
- Record who you originally owed the money to.

Account Number -
Chances are if your debt has been sold to a collection agency they are going to assign a new account number to it. You will need this account number anytime you speak with someone from the agency regarding your account.

Original Account Number - This would be the account number you had with the company you originally owed the money to. You may need this if you find a discrepancy in what they say you owe and what you think you owe.

Amount - How much is the total bill. If they have offered you a settlement DO NOT record it here.

Settlement Amount - Collection agencies will often offer to settle the amount for a percentage of the original debt. Anytime you receive a settlement make sure to get it in writing saying that the debt will be PAID IN FULL if you pay the settlement amount. Keep this letter in your binder with that companies correspondence. Remember to keep it forever. Record any settlement amount offered in this column.

Collection Company Phone Number - Chances are you are going to have to call the collection company at some point to make arrangements for making the payment. Keep their number recorded so you can find it easily.

Account Holder - Some collections might be in your name with other might be in your spouses name. Knowing whose name the account is listed under is helpful if you have to call either the original creditor or the collection company. This will also be helpful in trying to determine who's credit report the collection will be listed under.

Collection Address - At some point you are going to need to mail the money order or check to the company. Under no circumstances give them your banking information over the phone for a check draft or credit card payment. Once they have that information they can take your money. When you need to mail that payment you will have their address easily accessible.

Date of Last Notice - Record the date of the most recent notice you received in this column.

Notes - Keep track of any miscellaneous information like whether or not the company accepts payments with third party vendors like Western Union or MoneyGram.

2. For each company in your binder (that you set up in Part A) complete the information in each column. Most of it you will be able to find in your most recent notices.

3. Keep this spreadsheet current. Any time you add a new notice to your binder update it in the spreadsheet. Anytime your debt is sold to another company update the spreadsheet

I started using this about six months ago and I love it. It keeps me on top of my debt and I always know who I owe what. The initial set up can take quite a while depending on how many different creditors you have but after that it gets much easier. I wait until the end of the week to make any changes. As the bills/notices come I file them in the binder and put one of those flags on the edge of the page(or stick a post-it on the edge) so I can find them and update them in the spreadsheet. On Saturday afternoons I spend maybe 10-20 minutes updating my spreadsheet. I no longer have a box full of unpaid bills. The are all packed away neatly in a binder that I keep where I do all my budgeting and bill paying. And I have the copy on my computer where I can keep track of how much progress I have made and how much I have left in one glance.

I hope you find this useful.

Sources:
Personal Experience
The Dave Ramsey Show: Talk Radio
The Total Money Makeover by Dave Ramsey
Financial Peace by Dave Ramsey