Help … I’m in debt

Waking up every day to a new bill on the doormat? Worried about the future?

Debt can ruin lives, but even the biggest debts can be cleared with a solid plan. While loans and credit cards can help, beware: Sometimes missing even one payment can set back your hard work. Read on to discover the best options to get you back in the black.

Debt can take over your life if you’re not careful, making it difficult to think about much else. You may not know what to do first — especially if the phone’s ringing and you’re getting letters from the companies you owe money to. No debt problem is unsolvable. Take a breath and work through these four steps before you do anything else:

  • Assess your debt. Take a step back and figure out how much you owe, adding up the balances on your cards and any loans. Determine an amount that you’ll be able to set aside to pay down these balances. Doing this will broaden your perspective on your situation.
  • Choose your priority debts. When you have many small debts, it’s tough to know where to start. A “quick win” is paying off your smallest debts first, boosting your mood and getting the ball rolling. Then prioritize debts with high interest rates to prevent your balances from growing too fast.
  • Make a plan. With a better handle on what you owe and can pay, work out a clear path to get out of debt for good. The size of your debt will affect how you pay it back, so plan your debt management strategy wisely.
  • Seek expert advice. Consider working with a credit counseling organization. Reputable nonprofits can recommend ways to work out a budget and often offer free materials and workshops to help you manage your finances for the long term.

Choose your debt level

Dollar sign help im in debt

Debt Level $2,500 – $5,000

Dollar sign help im in debt

Debt Level $5,000 – $15,000

Dollar sign help im in debt

Debt Level $15,000 – $30,000

Dollar sign help im in debt

Debt Level $30,000 +

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Do you have $2,500 – $5,000 worth of debt?

While any debt is tough, lower amounts are easier to manage. That said, you’ll want to prevent your debt from growing. Hardly anyone starts out owing hundreds of thousands of dollars. Most unmanageable debts build over time, made up of little emergencies or unexpected bills. Given the amount of your debt, talk with your family or friends about borrowing the money.

Carefully decide on the parameters of your loan: how much you’ll borrow, how long you’ll need to repay that amount, and whether you’ll include interest. You may be surprised at how willing your loved ones will be to support you in eliminating your debt.

The Internet has opened up new ways to make a little extra cash (We’re not just talking eBay). Upwork, Taskrabbit and Fiverr are sites that match your skills or services to people needing help. Projects vary from writing and proofreading to even picking up a family’s groceries. And while it’s not an easy decision, you may have books, toys, gym equipment or other items you no longer need that you could sell online.

Legitimate ways to make money

If you’re confident that you can pay off the amount in two to three months, think about taking out a payday loan, small loan or cash advance loan. These are typically short-term unsecured loans that allow you to access the money you need quickly and easily. You must have payroll and employment records to apply, and interest rates are determined by the state in which you live — some as high as 40%!

Explore short-term loans

Simple ways to further save money could be right under your nose. Review your monthly expenses —electricity, cable, cellphone, and Internet bills — and then call each of your providers to ask about offers you be eligible for. Merely mentioning that you’re interested in switching to a competitor can result in savings. While there’s only so much you can do about groceries, consider joining a wholesale club like Costco or Sam’s Club. You’ll pay a $45 to $55 membership fee upfront, but if you have a large family or even the extra room, you could save on food, household supplies and seasonal items.
Can I get a loan if I’m receiving social assistance?

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Handling debts from $5,000 to $15,000

This amount of debt takes a little longer to clear, but it’s still worth making a game plan. If you don’t keep track of how much you owe, high interest rates could push your debt even higher. When the money you owe is split between many companies, it’s easy to become overwhelmed. Consider merging your medium-sized debts into one manageable chunk with lower monthly payments. This means you owe money to just one lender — and no more figuring out who to pay first.

Balance transfer credit cards give you the opportunity to pay your debts off quickly, provided you do so in the introductory period. Many cards offer between 6 and 21 months of no interest as an incentive to clear your debt, but beware: You could be hit with very high fees later on. Paying no interest will save you a lot of money, but be certain that you can pay off the balance within the time limit.

A sudden jump in interest rates can wreak havoc on your debt repayment plans, especially if you use your house as collateral. If you miss a payment, you could lose your home. Learn about balance transfer cards.

Rates last updated November 22nd, 2017
Name Product Product Description Intro APR for Balance Transfer APR for Purchases ( Purchase Rate ) Annual fee
Barclaycard Arrival Plus® World Elite Mastercard®
Enjoy 40000 bonus miles after you spend $3,000 on purchases in the first 90 days — that's enough to redeem for a $400 travel statement credit toward an eligible travel purchase.
0% Intro APR for 12 months (with whichever is greater: $5 or 3% balance transfer fee)
16.99%, 20.99% or 23.99% variable
$0 annual fee for the first year ($89 thereafter)

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Managing $15,000 – $30,000 worth of debt

For this level of debt, you could still qualify for a balance transfer credit card. If you don’t qualify or the offer is not appealing to you, consider a debt consolidation loan. Like a balance transfer credit card, a debt consolidation loan means merging all your debts into a more manageable monthly lump sum, payable to one lender only.

Unlike balance transfer credit cards, a consolidation loan is a long-term option. It won’t come with 0% APR intro periods, but the interest will be lower than a balance transfer credit card — and far lower than paying several interest rates to different lenders. There are two types of debt consolidation loans: unsecured and secured. Unsecured means the lender has no right to claim your financial assets if you miss a payment. However, the loan may not be big enough to cover your debts: The loan amount depends on the amount of risk the lender is willing to take. You can get a bigger loan if it’s secured.

However, a bigger loan means a bigger risk to the lender, and you’ll need to “secure” the loan by putting down collateral. With a secured loan, you agree that the lender can take your collateral — typically your house or car — if you fail to repay the loan. This is a situation you do not want to be in, so consider your options carefully. Read the details of your loan terms: You may not get a lower interest rate than you were paying before, and there may be penalties for early repayment. Compare consolidation loans to find one that’s best for you.

Learn about debt consolidation

Another option is a debt management company. Though it’s similar to debt consolidation, there’s a crucial difference: with debt management, you authorize a third party to pay your debts on your behalf. These companies — often for a fee — offer to work out lower payments and interest with your creditors and “manage” your debt by distributing a monthly payment from you among those you owe money to.

There are drawbacks to using a debt management company, including high fees and possible dings to your credit score. Confirm that any company you’re considering is reputable by reading reviews, especially those with the Better Business Bureau.

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Are you more than $30,000 in debt?

A larger debt is more difficult to pay off, but there’s good news: With pro-level organizational skills and motivation, you have options. First consider negotiating your debt with your creditors. By calling to explain your difficulties, they may be able to help by lowering your monthly repayments. They want to keep you as a customer, after all. Consider seeking the advice of a credit counseling organization. A reputable debt counselor can help you plan a budget and create habits to manage your finances beyond your debt.

If you own a home with a mortgage, explore taking out a home equity line of credit (HELOC). Also called a second mortgage, a HELOC uses your home equity as collateral. Because real estate prices generally rise with time, your house will appreciate in value while you pay of your mortgage’s principal. The difference between what your house was worth when you bought it and what it’s worth now — your equity — is an amount that you can borrow against. Lenders may be willing to allow you to borrow anywhere from 60% to 80% of your equity.

Over 62? Learn the pros and cons of a reverse mortgage loan

If you bought your house for $160,000 and it’s now worth $250,000, you have $90,000 in equity. You might be able to secure a loan from roughly $54,000 to $72,000 — money to apply toward your debt. Of course, if you’re unable to repay the HELOC, your home will be at risk. This type of loan also comes with appraisal, administration and legal fees, among other costs, so compare your options before applying.

As an absolute last resort, you might want to consider using a debt relief service to negotiate with your creditors for you — or file for bankruptcy. Debt relief can help you cut what you owe in half, but often comes with relatively high fees. It’s also important to consider that any settled debt is considered taxable income, so your savings might not be as large as you expect.

Find out if debt relief can help you
 

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Tackling debt questions

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