Drowning in debt là gì

Debt can be a wonderful instrument if used properly. It’s a delicate balance that a lot of people struggle with achieving. Hence they end up being buried under a mountain of debt. It then becomes even more difficult to make your way out from under it.

The feeling of drowning in debt isn’t a good one, particularly if no way forward can be seen to settle those debts. This can also cause considerable disruption and unpleasantness in one’s life. Bills can go unpaid, essential expenses may not be met and in the absolute worst-case scenario, homes can be lost. 

Once someone is already drowning in debt, they might find it difficult to get back on track. Often they end up with more debt and that just exacerbates the problem even further. Millions of people across the country are already saddled with excessive debt with no way to get rid of it. 

Excessive debt can quite literally ruin lives. Once a person’s credit score has been decimated by certain bad decisions, it can be extremely hard for them to get access to credit. Or at the very least, the credit that they can secure will be at significantly higher rates and stricter terms. 

Rebuilding credit is easier said than done. It’s a grueling process that not many can complete to their satisfaction. That’s not to say it doesn’t work but that timely interventions need to be made to get out of debt first.

What to do to get out of debt

Get in the right mindset first

Just having the realization that you’re drowning in debt isn’t enough. You need to approach this challenge with clarity of purpose and thought. It’s imperative to get in the right mindset first because the steps you need to take will call for some difficult decisions. 

It may require you to make certain adjustments to your lifestyle that you just don’t want to. You may have to trade in your car for public transport or downsize to a smaller house, for example. It’s important to set goals for yourself in this journey and try as much as possible to meet them.

Avoid taking on more debt

This is a no-brainer when trying to climb out from under the mountain of debt. Don’t keep digging a deeper hole for yourself when you’re already unable to meet debt obligations. 

Trying to keep up appearances or maintain a certain level of lifestyle is often what causes people to accrue more debt when they’re already facing difficulties in settling their liabilities. This must be avoided at all costs.

Talk to a non-profit credit counselor

You’re at that stage now where you need help to stop drowning in debt. A non-profit credit counselor can prove to be very helpful in this situation. The trained counselor is going to develop an understanding of your financial situation and provide you with a roadmap to follow to get out of debt. 

It’s often beneficial to get an outsider’s view on the situation since it’s normal to get emotionally attached to the situation. This can cloud your judgment and possibly prevent you from taking the most appropriate course of action. 

Ask creditors about a lower rate

Creditors are primarily interested in getting their money back. Most would appreciate receiving at least some amount back instead of nothing at all. So it doesn’t hurt to ask creditors for a lower rate if you’re struggling to meet repayments at the current terms. 

Not all creditors are going to be receptive to the idea but it doesn’t hurt to ask. Even if a couple of creditors agree to renegotiate the terms, it can provide you with sufficient breathing space to get your affairs in order.

Don’t borrow from one creditor to pay off another

The quickest way to take your debt situation from bad to worse is to start borrowing from new creditors to pay off existing ones. It’s a recipe for disaster, particularly when relying on extortionately high pay-day loans, for example.

If the underlying reasons that caused the debt crisis in the first place aren’t addressed, then this would be nothing more than an exercise in futility. 

Try to increase your income

The primary reason why most people find themselves drowning in debt is that they have less money coming in compared to what they’re supposed to pay out. This means that they have to borrow to fill the deficit and this vicious cycle can then continue without an end in sight. 

Increasing your income will enable you better meet the debt obligations. Whether that be through a second job or a side gig, the more you can increase the amount of money coming in every month the faster you’ll be able to settle your debts.

Use the debt snowball method

This is a popular method that a lot of people use to pay down their debts. It requires that you must focus on paying off the smallest debt first. Once that’s settled, focus all energies on paying off the next largest debt. 

The idea here is to free up at least the minimum payment from the previous debt and utilize that to meet obligations on the larger debt. As you continue to eliminate debts the snowball will grow bigger and eventually help you climb out from under this mountain.

What not to do when drowning in debt

Don’t delay payments

Whenever possible, try to make payments on time. Don’t delay or put off payments if you feel that the interest accrued over the debt won’t trouble you down the line. A disciplined approach needs to be taken when trying to get debt-free. 

Even if you weren’t aware of the concept of compound interest, missing payments would quickly bring you up to speed, as you’ll eventually end up paying back significantly more in interest than you had originally borrowed.

Don’t cash an unsolicited check

The unsolicited check is another way that lending companies trap those who find themselves in a difficult situation. They often send out checks in amounts north of $1,000 to people who can simply go to a bank or financial institution to cash it. 

However, the interest rate is almost always very high so instead of being a short-term debt relief, this ends up being a much bigger problem on its own.

Don’t push for bankruptcy when there’s a way out

A common misconception people have is that if they just file for bankruptcy all of their debt is going to disappear. That couldn’t be further from the truth. Not all debts can be discharged, meaning that they can’t just disappear into thin air. 

The bankruptcy process may then result in your assets being sold off to settle claims with creditors. Keep bankruptcy as a last resort if no feasible plan can be created to get you out of debt.

How a cash management account can help

Life needs to go on even when you’re sticking to a strict plan to get out of debt. You still need to put some money away for a rainy day and meet your daily needs. A great way to handle all of this is by giving up all debt-creating financial tools and using a cash management account. 

A cash management account, like the one offered by Aspiration, combines the benefits of both a checking and a savings account into one product. You can earn up to 1.00% APY on deposits while having 24/7 access to liquid funds. 

By shifting to a cash management account, you can streamline these matters for your future, and establish a base to work off of once you’re ultimately free of debt.

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If you’ve found yourself in a less-than-ideal financial situation, it can feel like an endless cycle of trying to play catch-up. And even still, catching up can be nearly impossible when you’re barely able to make ends meet—that’s probably how you ended up here in the first place.

Many Americans find themselves with growing debt year after year. In fact, the average household debt is about $137,063 including credit cards, mortgages, auto loans, student loans, and more—but that doesn’t mean it has to stay that way.

No matter how hopeless your debt situation may seem, taking the right steps can help you work toward financial freedom, even if it’s still a long way off. Here are 5 financial changes you can make today to help you work toward getting out of debt.

1. Try to Get a Lower Interest Rate

One of the first things you should do is look into whether you can qualify for a lower interest rate. You may be able to transfer your credit card debt balance to one that has a lower interest rate. Or, you may be able to qualify for a loan with a lower interest rate than your current cards, allowing you to pay off several sources of debt. According to NerdWallet, the average APR for credit cards in the last quarter of 2019 was 16.97%—that’s pretty high. However, you might be able to stop paying this high-interest rate if you can qualify for a card with a 0% introductory APR*. Usually, these rates only last for 12 to 18 months, but that’s a lot of time to allocate that money you’re saving on paying interest toward paying off your balance instead.

Even though you’re not automatically reducing the amount of debt you currently owe, you will be able to slow down how much more you accumulate.

*EDITOR’S NOTE: Money Fit rarely recommends taking out new loans or lines of credit to pay off other debts. We recommend debt elimination rather than debt transfer. With proper commitment and discipline, transfers typically lead to twice the debt within a year or so.

2. Rethink Your Spending Habits

Developing healthier money habits is essential to making real progress toward a debt-free lifestyle.

If the reason you’re in debt is due to your spending habits, it’s time to nip it in the bud. While this might seem easier said than done, there are ways to at least reduce some of your spending on non-necessities.

Tracking your spending is the first step in moving toward better money habits. You need to understand what you’re spending, why you’re spending, and how much you’re spending on each category. Over the course of a month or two, track everything you spend. This will give you a good idea of your regular purchases and help rule out one-offs (like paying your car registration) that might make one month much more expensive than another. Once you identify areas where you’re excessively spending and you don’t need to be, it will be a good basis for creating a realistic budget that you can stick to.

3. Create a Budget (And Stick to It)

Making a budget might seem complicated, but it doesn’t have to be. Creating a budget is actually fairly easy if you keep it simple by using a spreadsheet that just lays out which expenses you have and how much they cost. Otherwise, you can even use a handy app to make your budget for you.

Create a budget that lays out all your recurring monthly expenses.

This will give you a good overview of what expenses you actually need to use the income for while eliminating those you don’t. Of course, you’re not expected to cut out all your fun expenses. However, you will likely have to make some pretty significant changes if you truly want to make a dent in the debt you owe.

Once you’ve developed a more practical approach to how you spend your money each month, you have to put your plan into action.

Stick to your budget.