What To Do When Debt Seems Insurmountable

Almost every day, I get a very sad tale of woe. It comes from someone who is carrying a debt load that seems to be beyond what they can handle. They list out their litany of debts to me and ask me how they can make it, believing that I can wave a magic wand and make it better – after all, I got out of some pretty desperate debt.

Most of the problems that these people face are solvable if they’re willing to put their nose to the grindstone and work on it, but the chunk of debt is often so large that they can’t see this and it sinks them further into a state of sadness.

Does this sound like you? Do you have a debt load that seems too large for you to handle and you wake up every day depressed about it? Here are seven things that you should do immediately to get this ship turned around.

Do something. Don’t sit around and wonder if you should follow Plan A, Plan B, or Plan C while you keep slipping further into debt. Most of the time, you’re focusing on what amounts to a trivial difference – a few hundred dollars over a very long period. Most people accrue much more than that in interest in a month on their debts. Pick a plan and get started with it – the only criteria you should worry about is understanding the plan in detail.

Talk to someone. Confide in a family member. Confide in an old friend. Some people even choose to confide in me. The point is to find someone that can provide some emotional support to your right now. Your immediate future is going to be filled with some hard choices – it always helps to have someone to talk to about it.

Get the full story. Get out every single debt you have and make a list of them. Find out the exact interest rate on each individual debt, how much you owe, and how much the minimum payment currently is. No matter what debt elimination philosophy you follow, this is an essential first step.

Find options for reducing each debt. Again, before you decide on a debt repayment plan, try to lower the interest rate on all outstanding debts. For credit cards, call the number on the back of the card, ask to speak to a supervisor, and request a rate reduction. For installment plan loans and student loans, research online and find out if there’s a rate reduction if you automatically pay the debt by direct deposit – or any similar reduction.

Get rid of some small assets. Got any DVDs you don’t watch? Sell them. Got some savings bonds in the closet? Sell them. Old video game consoles? Sell them. Valuable collectibles? Sell them. Any item that you have in your home that has value but doesn’t contribute in any significant way to your daily life should go. Don’t spend a bunch of time maximizing every cent out of the DVDs or video games, either – the hassle of eBay is usually not worth the small fraction more that you can get there. Then, take this lump sum of cash and use it to start the debt repayment process, whichever way you decide to go. Having that cash in hand to make the first dent into the debt monster is huge – and this is a great way to do it.

Hide your credit cards. Put them in a box up in the closet, out of sight, out of mind. Leave them there for a while. Learn to live without them. If you can’t afford something without the plastic, then you can’t afford it, period.

Dip your toes into frugality. I found frugality to really be empowering when first recovering from debt. Try eating a lot of simple meals at home, even if you don’t know how to cook well. The realization that you just had a simple supper that cost you about $0.60 versus a $10 take-out meal is usually an epiphany, and when you start doing it, you want to keep doing it. Put a moratorium on buying new clothes. Avoid places where you’re tempted to spend money. Look at all of your monthly bills and trim or eliminate some of them. If you’re already doing this stuff, check out The Complete Tightwad Gazette at the library and start reading up.

No matter what your debt situation is, there are immediate actions you can take that make you feel like you’re making progress – or at least alleviate some of the pressure of the situation. The real key, above everything else, is to take some action now, not later – right now is the best time to get started.

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20 thoughts on “What To Do When Debt Seems Insurmountable

  1. dave lamport says:

    trent, i like these sort of posts. people need to grow up and take responsibility for their own financial situation. then they need to do something about it. living frugally IS quite fun. i certainly haven’t missed out on anything since the S*** hit the fan. in fact life is far more enjoyable.

  2. Randy says:

    If these are all consumer debts (i.e. credit cards), list them in ascending order. Determine how much above the minimum you can pay on each card, and apply this difference to the smallest outstanding balance. When this balance is retired, go to the next account. This generates a sense of accomplishment while reducing your debt.

  3. Ryan says:

    When I graduated college, I had about $30K in student loans and $15K in credit card debt. With an entry level salary, I basically lived frugally and paid off the credit card debt in 2 years. I still have the student loans, but did the 10 year plan. I have 4 years to go at $300/month. I actually could afford to pay them off now, but the interest is still low. The key is that I have more than enough money sitting in interest bearing accounts available to pay off that debt.

  4. Angel says:

    My dh and I are currently paying down some debt that we accrued. At first it felt overwhelming and every bill that came in the mail sent my stress level soaring. Sitting down and making a plan helped so much. When you really take a look at what you owe and start doing something you are now in control not the debt. Make a plan and stick to it. Of course once the debt is paid don’t ever do it again. Learn from your mistakes and do not repeat them.

  5. Cindy says:

    Wow, this is excellent advice! It’s really a large hurdle to finally face up to debt when you’ve been ignoring it for so long. Your list gives people a lot of useful ways to start to attack the problem.

    It reminds me a lot of Larry Winget’s approach (minus his biting sarcasm).

    I also love your previous advice as a start: Try to have one “no-spend” day, or weekend, or a week. It’s really amazing that it’s possible!

  6. Debora says:

    A good book for dealing with the stresses of living with overwhelming debt is “How to get out of debt, stay out of debt and live prosperously” by Jerrold Mundis.

    In addition to helping the reader create a plan for prosperity, the book deals with the social and psychological implementations of living with debt. It’s based on the writer’s personal experience.

  7. limeade says:

    I like the “Get rid of some small things” part. It’s easier than you think to list things on Ebay or Craigslist and you’d be surprised at the results.

  8. Adam says:

    I agree with Limeade.

    My wife and I had trouble starting to get out of debt, but we decided to have a yard sale and also put CDs and other things on eBay. While we didn’t make a “killing,” we did make enough to get us really excited.

    Sometimes getting the ball rolling is more about getting our MENTAL side going than the actual money.

    We now pay off around $1100/month (besides our mortgage), plus anything we can think of to sell.

  9. I think that most debt problems are solvable.

    I owed £45,000, 150% of my salary. It’s taken sheer determination, living frugally and selling as much as I could. I’m down to less than £27K now and the relief is amazing.

  10. david says:

    I want to echo Trent’s advice to read The Tightwad Gazette. When my wife and I hit our financial low it was the only thing that I read (besides the Bible) that gave me hope. It showed me that there was a *practical* way out of the mess I had created for myself. My problems stemmed from my poor choices and this book gave me the practical, everyday tools to take charge of my financial life and start making *radical* choices that would help! I say radical because everyone (including my wife) laughed at my choices. But, several years later, I’m the one laughing!

  11. Lazy Man says:

    I disagree with Trent and Limeade about the selling back of small items. Sure if you have a pile of DVDs (like 100+) it might be a great plan to offload them. However, if you have a Nintendo 64 with two games that you love and play, you aren’t going to get much for it on Ebay or Craigslist. The $10-15 dollars is not going to make a tremendous difference in the end. I know every little bit helps, but if it means that you get extremely bored and end up catching a movie at $10 in a moment of weakness, you are just going to feel worse for selling it.

  12. glblguy says:

    Great list and I agree with selling stuff and using the proceeds to pay off debt. It de-clutters your house and makes a dent in your debt, a win-win.

    Two things I advocate 1) Paying on your debt whenever you can – basically commit to putting ANY additionally money you receive against your debt. Get an unexpected refund check, deposit it then immediately use online banking to pay on you credit card. 2) Instead of hiding your cards, just cut them up. If you are in so much debt that you are overwhelmed, than you don’t need them at all, just cut them up. Remove the temptation.

  13. Rob in Madrid says:

    Yes I can relate, I did the same thing, sent this long meandering email about why did we make all these dumb choices. There’s something about his blog that when you first stumble across it that says “I can relate to how your feeling” that makes you want to fire off an email detailing all your woes.

    Best thing you can do is to tell them to spend time here reading the older posts. I went back and read everyone right from the beginning (might take a bit longer now than it did me). Good news is spending time here will give you the tools you need to climb out of, and stay out of debt

  14. Rob in Madrid says:

    I wanted to add that I think that what sets this apart from other books/blogs about PF is the practical advice. While I don’t make my own laundry detergent I do follow a lot of his advice.

  15. boggeddownnblue says:

    Great post. Not a day goes by that I have not beat myself up to a pulp about the money crisis I alone put myself in from being asleep at the wheel and using credit instead of an emergency fund. I don’t even have lots of pretty things to show for my debt. Anyway, I don’t need the Wignet slap in the face ’cause I already know no one is to blame but me. And that does not help, because in addition to the real fears and perplexities toward dissolving the debt and solving the ensuing problems, I have no relief from the self-hatred I have. But I’ll deal with that, too. Anyway, I’m just saying that constantly being told in books or elsewhere that you’ve created your own problems may help those who are in denial–but it doesn’t help me because I am not in denial as to cause.

    I do get paralyzed sometimes by things — not by the sacrifices I have to make to dump the debt. I’ve been hard at work on that since September 1 and in that short amount of time I have found that penny pinching penny by penny has had a cumulative effect that outshines the pennies I’m saving: It has created habits–literal ones and ones of the mind. I think it’s called mindfulness in some pop psychology realms…. But my fears are these:

    (1) That my poor credit score will haunt me forever and will impede certain avenues toward getting my fiscal act together.

    I keep reading about potential employers not hiring people because of their score or, shudder, because they look at credit reports. The idea that someone I know or could know is looking at my balances, especially compared with my income, freaks me out 1,000 percent. Okay, you say, get over it. Okay okay, I will. But that doesn’t help if this means I can’t get hired.

    Do you just keep on applying for jobs, anyway, and pray they aren’t looking at your report?

    The other bit of paralysis comes from a ditty I read somewhere by a financial guru (can’t recall which one) that said even if you pay off your debts and get your score back up to speed … creditors can still see your past sins if they look deep enough into your credit history. In other words, you can’t ever fix your score if you have ever ruined it.

    Anyone know anything concrete about these two fears of mine? (Scold me if you must as to why I got here. But if you don’t have the need to, that’s okay, too, because believe me, I get it. I get it. I’m just now frantically spending my time trying to fix things and am looking for concrete solutions. The scolding kind of eats up some of my energy and I desperately need all the energy I can rustle up.)

    Sorry if I sound crabby. I’m working on that too. Some days the fears and worries just take a toll on my otherwise merry sunshine-ness.

    Thanks in advance, everyone!

  16. Trent, some excellent advice here, thanks for the post. I would also add:

    Communicate

    a) Once you have accepted that there is a problem with debt talk to your spouse or partner or trusted friend/family member and explain the gravity of the situation This can often be a very daunting experience due to the fear of what others will think of you and the stereotypes that exist in society about individuals with debt problems. However, talking through the problem is essential.

    b) If you feel that your debt problems will can be resolved within one to two months and that this is just a temporary blip, perhaps because of a pending pay rise, then you could consider two short term solutions.

    Create a Budget

    Most debt consolidation companies or debt counsellors should help you to produce a monthly budget based on your income. Take time to think about this thoroughly and list every piece of income and expenditure in any given month, but be realistic.

    Even if your debt problem is minor it is a good idea to create a budget to help manage finances better in the future.

    The following site has a good budget template to help get you started ; Click Here

    Once you have created your budget, stick to it.

  17. Great article. Sound practical advice. What I see a lot of is where writers advocate a wide standard approach of “Consolidation”. Little do they realize that not everyone who is in debt can simply click their fingers and consolidate their debts. That’s what I like about your article. People can do this stuff straightaway for minimal cost but maximum impact.

    For boggeddownnblue if you read this:

    I hope by now your situation is a little better and that those penny by penny steps are beginning to pay off. Stay focused – that light at the end of the tunnel is NOT a train coming at you.

  18. Kathryn says:

    Several years ago, I was in a severe debt situation, and it was something I could have prevented, i.e., I used way too much credit. It was the most oppressive feeling. Well, I wasn’t going to declare bankruptcy, because it just wouldn’t have been right. Instead, I raided an IRA with all the associated penalties and taxes and even then, the debt wasn’t completely gone. Due to a windfall a few years later, I was able to get out of debt. Although I regret losing a chunk of retirement funds, it was a valuable lesson. And now, even though I’m not exactly frugal, I’m more careful about accumulating debt and I have an emergency savings account. Even when the light at the end of the tunnel is only a pinprick, if you keep your eye on it, you can accomplish almost anything.

  19. gino77 says:

    There are alot of techniques for getting rid of debt and in many cases they have to be a personal plan. But this article is a great start on where to go when you are drowning. But companies such as this one can help come up with a personalized plan for erasing debts.

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