How To Get Out Of Debt When You Owe More Than You Make

Not Everyone Can Get Out Of Debt By Themselves

About three years ago when I was still in financial services I was asked by a new recruit of mine to see if I could help someone who has a lot of debt issues.  I agreed but didn’t make any guarantees that I could do anything.

When I arrived at the appointment and began rummaging through all of the statements, I realized that they had over 20 different credit cards with almost all of them maxed out to the limit.  This totaled almost $200,000 in debt, not counting their $250,000 mortgage debt.

These people were obviously in some serious trouble, but that’s not even the worst part.  If they would pay even just the minimum payments to all the cards they still would even break even at the end of the month.

These people defiantly needed some professional help.  What made the situation worse is that she was not willing to try anything I said.  She made plans to file for bankruptcy and was convinced that it was the only way to solve her problem.

In this post I hope to give a little more direction on what you should do when you fall into a situation like this.

What You Should Do If You Can’t Pay Off Your Debt

Minimize Your Payments. By cutting down your payments to the minimum amount owed you will be able to at least keep afloat.  However, there are other things you can do besides just paying the minimum amount on your credit cards.

Look into cutting down your interest rates as well.  You can do this by calling the credit card company and negotiating a deal with them. You can also try non-profit credit counseling if you would like to learn more about this option.

However,  this doesn’t mean you should just pay the minimum amount on your debt at all times. The point of cutting down to the minimum is being able to focus more money towards one debt then just paying a little towards all of them.  If you want to learn more about how to set up this kind of debt plan click here.

Increase Your Cash flow. Next you need to look for ways to increase your cash flow.  There are all kinds of ways to do this.  First off, you could find a part time job, in order to bring home a little extra money until you get a few more debts paid off.

Second, you could start a part time business.  This isn’t the quickest way to generate extra cash but over time it is the most effective.  In fact you may need a little extra cash to get started with a part time business so this may not be a viable option right now.

Third, you could sell things from around your house. This is an easy way to generate extra cash quickly.  Check out this article to learn more.

Bring In Professional Help. If you still can’t get a grip on the situation you have several options to think about.  I will run all them briefly here but I will also give you a link to some more info that will help you better understand each option.

First, you can look into a debt counselor.  This is a way to work out your debt issues with someone one on one.  In most cases you will have to pay back most of your debt here but with this method you have someone who will guide you through the process.

Second, look into debt negotiation.  Debt negotiation is kind of like going through a mini bankruptcy.  This kind of company will negotiate a deal with your creditors and lump all of your payments into one single payment.  This payment is usually all you need to pay because it will also include your fee for the debt negotiation company.

If you would like to learn more about this option click here. I also recommend this option over bankruptcy because the effects are not as bad a bankruptcy.  So here is a company I recommend you check out.

Third, make bankruptcy your last option.  I don’t recommend this option unless all other options have been exhausted.  That being said to even qualify for this option you have to pass a means test.

This means you will have to sit down with a debt counselor and they will decide if it is right for you.  If you  pass that you can begin filing for a chapter 13 bankruptcy.  Which means you will have to pay back a certain amount of your debt.

What happens is you will be required to pay back maybe 30 cents on the dollar for one debt, 50 cents on another, 100 cents to another, and even 10 cents to others.  The point is you will not get away without paying at least paying some of the debt back.

If you would like to learn more about this option click here. Also check out this link as well if you would like learn about other debt relief options.