Published On: Sun, Nov 18th, 2018

What to Do When You’re Drowning in Deep Debt

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Unfortunately, debt has become a standard part of American life for millions of citizens. Whether self-inflicted by a lack of self-discipline or piled on as the result of a medical emergency, debt can feel suffocating. However, there’s always a way out. Understanding your options is the first step towards freedom.

6 Tips and Options for Your Situation

“Consumer debt in America is rising at an alarming pace. The average household has thousands in credit card debt alone, followed by thousands in student loan debt and thousands more in auto loans,” Nasdaq reports. “Add a mortgage on top of that, and the sum seems insurmountable to many households.”

According to Nasdaq, collective consumer debt has surpassed $1.3 trillion. The average household has credit card debt of $5,000, while the median is more than $16,000. Add in an average mortgage debt of $173,000 and average auto loan of $30,000, and the picture look even more bleak.

While there’s some comfort in knowing you aren’t alone, it doesn’t make your debt any less problematic. Finding a way out is your only option. Here’s some advice: 

  1. Stop Creating More Debt

The first step is to stop creating more debt. You can’t spend your way out of this problem. By stopping the bleeding, you can give yourself a chance at tackling this issue.

  1. Systematically Organize Your Debts 

Secondly, you must organize all of your debts so that you have a clear, concrete picture of the situation at hand.

You can use whatever method you please, but a good old-fashioned spreadsheet will suffice. List the creditor, the amount, the interest rate, minimum payments, and any other pertinent information. 

  1. Develop a Detailed Budget 

Once you’ve correctly identified how much debt you have and what the minimum payments are, you should create a very detailed and comprehensive budget. This will provide you with a clear idea of how much money you have coming in and going out. You may be surprised to learn that you have more cash than you realize and can easily pay down some of your existing debts. On the contrary, you may discover that you aren’t making nearly enough money and need to find a second job to supplement your existing income.

  1. Consolidate Your Debts 

You probably won’t save a ton of money through debt consolidation, but there’s some peace of mind that comes with reducing the number of payments you owe. It allows you to focus on fewer numbers and spend less time dealing with individual creditors. Look into it, but don’t use it as an excuse to stop making payments.

  1. Consider Bankruptcy

The U.S. Bankruptcy Code provides ways for individuals and businesses to reduce or eliminate their debts through several different types of bankruptcy,” attorney Michael H. Schwartz explains. “Chapter 13 bankruptcy (also known as the wage earner’s plan) allows you to propose a plan to restructure your debt and repay creditors, either in part or fully.”

Chapter 13 might seem like a scary idea, but it’s actually a viable solution if you find yourself in a situation where you’re at risk of having your home foreclosed, have a consistent income that allows you to pay off some debts within the next three to five years, and own non-exempt property that you want to protect (like a second house, rental property, or extra land).

  1. Tap Your Retirement and/or Insurance 

Withdrawing from a retirement account before retirement age is rarely a good idea. You’ll get hit with some pretty substantial penalties and taxes, which will significantly reduce the amount of money you have in your account. However, if you have a bunch of money sitting in a 401(k) or IRA, it may be your chance to get out of debt. Talk with a financial advisor or tax specialist about what this would look like in your situation.

You may also consider cashing out a whole life insurance policy if there’s a considerable cash value. (Just make sure you have term life insurance already in place before canceling.)

Get Expert Advice

Before doing anything, you’d be wise to speak with a credit counselor or financial advisor to develop a plan of attack that’s tailored to your situation and future goals. Don’t wait any longer!