5 Ways to Deal with Overwhelming Debt

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5 Ways to Deal with Overwhelming Debt

It can be easy to fall into debt, and it's even easier to let that debt run out of control and overwhelm you. Even when you feel like you're being swallowed up by debt and have no idea what to do, there are ways to deal with and manage your debt wisely. Reviewing your budget, considering credit counseling, looking into debt cancellation, assessing your retirement plan options and filing for bankruptcy are five options for handling your debt.

Reviewing Your Budget

If your debt payments are approaching, don't run for the hills just yet. You may still be capable of making some lifestyle changes before asking for professional assistance. Consider taking a look at your income and expenses to identify whether changes can be made to return to a sustainable path.

First, ask yourself if there are ways to increase your income. If you're in great standing at work, it may be time to consider asking for a raise or a bonus that can provide additional cash flow. Another option to think about is reducing the deductions made from your paycheck. Make sure to consult a tax professional and your HR department before taking action.

Next, consider if there are ways to decrease your expenses, like spending less on happy hour and treats picked up on grocery trips. For more set expenses like student loans, there are usually several payment plans to choose from and consolidation options. For debt obligations, inquire about whether the rate can be adjusted to a more reasonable option or look into refinancing your loans. You'll need to do more independent research before taking these steps.

The downside of reviewing your budget on your own is that you may quickly feel discouraged without support from a professional. If you still feel in over your head, it might be time to look at credit counseling.

Credit Counseling

Credit counseling can be a good alternative to a debt settlement company. There are many non-profit credit counseling services that can help you develop a debt management plan, provide financial counseling or offer free educational workshops and classes. The United States Trustee Program has a list of credit counseling agencies that is a good starting point for those seeking professional resources. These organizations were approved by the United States Trustee Program to provide counseling that individuals must take before they are eligible to file for bankruptcy protection, but many often provide a wide range of services and resources that can take you beyond managing your current debt and help set you on the right road towards future financial success.

While credit counseling organizations may have your back, you should still be careful when looking for one. Do some research to make sure that the organization is legitimate, their counselors are certified and see if they have any consumer complaints against them. Also note that while these organizations may often be non-profits, there still may be fees attached to their services. The CFPB has a list of questions you should consider during your vetting process.

If you've tried credit counseling and feel like you've exhausted all other options, you may want to explore two of the more drastic steps on the debt relief spectrum: debt settlement and bankruptcy.

Debt Settlement

Debt settlement companies can renegotiate or settle your debt by negotiating with creditors and having you pay a settlement, or a lump sum that is less than what you owe. You'll be asked to put a certain amount of money into an account every month, which will go towards your settlement.

While there is the possibility of not having to pay back your full debt, debt settlement has its risks.

Though debt settlement companies cannot collect a fee until they renegotiate, settle, reduce or otherwise change the terms of your debt, using their services can still end up being expensive. It's also possible that they won't be able to settle your debt. In fact, some creditors may not even be willing to work with these companies. Debt settlement could also leave you in even more debt than you were in originally because programs often ask you to stop making payments, possibly leading to late fees.

If you're considering settling your debt with one of these companies, be careful. When it comes to researching debt settlement, the FTC can be a helpful resource.

Don't forget that you can also attempt to negotiate with creditors yourself! While some creditors may not be willing to work with a debt settlement company, they may be willing to work something out with you.

Retirement Plan Options

For certain retirement plans, you may able to take out a loan or a financial hardship distribution. Each plan determines whether to offer each option and what the requirements may be. Check your retirement plan document and/or your human resources department to determine what your options are.

Bankruptcy

Filing for bankruptcy is an extremely serious decision to make and is usually considered a last resort. It can have a huge negative impact on your credit and could prevent you from attaining credit in the near future. Depending on which chapter you declare under, it can take seven to ten years from the filing date for a bankruptcy public record to fall off your credit report. Make sure to consult a qualified financial professional before making the decision to pursue bankruptcy.

One of the advantages of bankruptcy, though, is that it can offer a fresh start. A Chapter 7 bankruptcy could discharge your debt, and Chapter 13 could give you more time to pay back your creditors. Depending on the chapter, filing can also stop calls from collections agencies.

Although bankruptcy can negatively impact your credit for a long time, there are ways to slowly recover from it. And don't forget, if the bankruptcy doesn't fall off your credit report when it's supposed to, you may want to file a dispute with a credit bureau to ensure that your report is accurate and up-to-date.

Bottom Line

Having a huge pile of debt can be daunting. Once you're in over your head, you may feel like it's easier to ignore your debt instead of confronting it, but that's not the case. There are more options for dealing with your debt than you probably think - the ones listed here are just a few of them. If you're considering any of them, be sure to do your research to find out which option is best for you and remember that it is possible to recover from debt over time.

About the Author: Felicia Chen is a Communications Assistant at Credit Karma. When she isn't supporting the communications team, she can be found exploring and eating her way through the city, photographing her adventures and crossing things off her bucket list. Tweet her at @flcchn!

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I've seen that it's actually easier for people to get new credit cards after a bankruptcy discharge than it was before.  The sort of 'evil' reason for this is that your creditors now know that there is no way for you to file another bankruptcy and get another discharge for at least 4 years (if you file a 7 and then a 13 4 years later) and up to 8 years (if you file a chapter 7 and then another chapter 7).  They know they can collect from you for a very long period of time, so you're going to get hit with a TON of 'pre-approved' offers.  The catch is that your interest rates will be ABYSMAL.  The best bet is to always go with a secured card, even if it has a huge interest rate, and pay a normal monthly expense, like cable or utilities.  That way you're not actually spending more money than you would normally spend in a month, and your credit will build slowly but surely.

2 Contributions
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Unless it was addressed and I didn't notice, there was no mention of the tax consequences of debt restructuring. For example, you owe the credit card companies $30,000 and you (or an outside agency) negotiate the balance down to $15,000. Just remember that Uncle Sam will consider that $15,000 reduction as taxable income. This does NOT apply to bancruptcy. Something to consider when going over your options.

Reply by
crestwood1

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We learned that one the hard way. That info needs to be out there

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Helpful to 33 out of 45 people

The only debt I have is from college student loans. People need to stop acting like college debt is a terrible thing. We're not "charging our lives away" as on person remarked on this page. Stop treating college like a commidity. You simply cannot go into certain professions without a degree, or in some cases, an advanced degree from graduate school. Just a few professions that require advanced degrees include: college professor, scientist, and school principal.Yes, there needs to be more talk about how to balance a budget for college, however, college is (and always will be) quite expensive. The reality is that unless everyone becomes a doctor, you'll almost never be able to afford to pay off your student loan debt, depending on how much you borrow. Some people, like me, grew up in an orphanage and had to borrow a lot of college loans just to simply live while attending school because we had no one else to rely on. Some people are lucky and get everything paid for (i.e. scholarship), but most people are left to deal with the burden of college and will never have a family, own a house, or be able to afford to take care of themselves despite their hard work. The system is screwed up and I don't ever see it changing. It's very sad.

Reply by
Joni1955

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Im not sure why you are so negative, I got divorced when my daughter was 2 and never got any help from my ex-husband with any kind of support,  my daughter went to College, She went to UCSB in Santa Barbara got he B.A. went to Azusa Pacific University she got her Masters Graduated with Highest Honors 4.0, she worked a full time job to help me with bills she graduated with $100,000 in student loans, she is a Science a Teacher for 8th a Graders and she loves it, she is very good at what she does and was offered  the chance to also teach Oceanography and is being paid to take the class once a month at night at the university,. She already took the main part so these are the final classes, my point is she was not in an orphanage, but she still has student loans like thousands of other students, she is now happily Married with three Beautiful Daughters and a Wonderful Husband , her husband makes very good money he is a Civil Engineer, my Daughter makes very good money and they bought a home three years ago, and she is still paying on school loans.  If you want a good a Education then you go to College , you can go to Junior a College for the first four years and save a lot of money , my daughter did not do that, what a shame you seem to think your life is over it is not, my daughter did not get Married until she was 32 years old she was to busy going to College and getting her life on track so she could be ready for a family and it all came together very nicely.  Do not be so negative everyone can have a Family, your school loans do not stop you and almost everyone you meet has student loans ...........  It is time to move on and meet someone to spend your life with, you can see about making your payments lower they are pretty good about working with people, and there is no reason why you cannot buy a home millions of people who have bought homes have student loans, Enter

Reply by
SueLanco

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We just found out that you can take funds out of a 401K/IRA to pay off student loan debt without penalty. Did anyone ever hear of this?!  In our case, we had started an IRA for our kids and a 529 Plan.  The cost of college has risen so much the 529 did not cover, but now if he decides to pull funds from IRA it will definitly put him in a better place.

Top Contributor
1936 Contributions
3081 People Helped

Helpful to 31 out of 47 people

Folks that have Overwhelming Debt need to stop charging their life away.

There needs to be more education in High School and College on money management and having a budget.

Credit Karma Team
Top Contributor
2949 Contributions
4777 People Helped
Helpful to 21 out of 29 people

We agree! More financial education in school could prevent people from financial struggles and hardship later in life. 

Reply by
ju1zun

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Thanks for the advice

Reply by
jetmist38

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11 People Helped
Helpful to 11 out of 12 people

you don't know everyone's situation- sometimes it's not a choice of "charging their life away"- medical emergencies can force people to spend what they don't have to save a family member- so think before you speak- use the education you speak so highly of

1 Contribution
2 People Helped

Helpful to 2 out of 3 people

I have federal tax liens on public record...whats the best strategy to approach this

Top Contributor

Reply by
MoonWoof

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Helpful to 0 out of 1 people

Pay your taxes and if you already have then ask for the liens to be removed. Call your congressman's office.

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Helpful to 4 out of 7 people

  • I thank credit karma but iam in 20,000.00 dept .I need someone to help me get these cash dept free were i can get a new start. Not money to keep me in deeper dept some one free my dept for only payment with car payment.
  •  

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Helpful to 1 out of 1 people

According to <a href="http://www.slideshare.net/Brianlinnekens/">Brian Linnekens</a>, "If you are behind in paying your bills, you can expect to hear from a debt collector. A debt collector is someone, other than the creditor, who regularly collects debts owed to someone else. Lawyers who collect debts on a regular basis are considered debt collectors, too.

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Helpful to 1 out of 1 people

How can I find out who my creditors are on my credit report and also How can I get ahold of them to talk to them? Also at this time I am unemployed and have no way to set up payments to pay them off to get my creit back up. 

Top Contributor

Reply by
MoonWoof

12 Contributions
52 People Helped

Your creditors are on your credit report. If for some bizarre rason they aren't you need to contact the reporting agency and ask why.

1 Contribution
0 People Helped

I know that wydom was so pose to not make  REPORT I was not to go to any timeshares for 5 years that time should be about up

2 Contributions
0 People Helped

also if you apply for anything credit cards etc you knock the score down to what ever you want that is bull as far as i'm concerned how do expect anyone to have a decent credit score i would love to know.

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