Help, I’m Drowning in Debt! What Can I Do?

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Updated on Monday, December 23, 2019

When debts start piling up and income runs short each month, it can feel like you’re suffocating under the weight of financial responsibility. But you have options to make it through the financial squeeze. Below are tips and strategies you can use to take on overwhelming debt.

1. Take stock of your debts

To start, list all your debts, including their current balances, minimum payments and interest rates, on a single piece of paper or spreadsheet. Additional details, such as whether the debt is unsecured or secured and its remaining repayment term, can also be useful as you begin your research.

2. Prioritize your debts

When you’re struggling to keep your head above water, it’s important to make a detailed plan for how you’ll use your money. That includes prioritizing expenses and debt payments so you can minimize the likelihood of default.

Consider prioritizing your expenses in this order:

  1. Basic living expenses: Before making payments on debt, use your income to cover basic expenses such as rent, utilities, groceries, transit to work, and medical costs.
  2. Car and home loans: Most car loans (including vehicle title loans) are secured by your car, which means you could lose your car if you don’t pay your loan — and you’ll probably need your car to get to work to earn an income. Likewise, your mortgage is secured by your house; if you stop paying your mortgage, you could lose your house. Paying these loans should take priority over other forms of debt.
  3. High interest debt: Credit cards and other forms of high-interest lines of credit make it difficult to get out of debt. But these kinds of debt are commonly unsecured, meaning that if you fall into default, you won’t lose your home or other property; the lender would have to go through a collections agency or the courts to collect.
  4. Federal student loans: Federal student loans can rarely be discharged through the bankruptcy process, so you’ll have to pay these at some point. But you may decide to deprioritize paying off your federal student loans until you can take care of more expensive forms of debt. You may also qualify to cut your payment and work toward loan forgiveness by enrolling in an income-driven repayment plan. Payments can be as low as $0 per month, since they are based on your income.
  5. Debt in collections: If you’ve already defaulted on some debts, it may be best to wait on repaying them until you get a handle on your current or delinquent accounts. That’s because with defaulted debt the damage has already been done.

No matter what, you want to avoid defaulting on debt, no matter the type. Loan delinquency and default can massively hurt your credit score and make it difficult for you to pursue some of the debt repayment strategies below, as well as access other forms of credit.

If you’re unable to make the minimum payments on each of your debts, it’s time to call up your creditors.

3. Call your creditors and ask these 7 questions

Once you have a clear understanding of the debts you owe, there are steps you can take to cut your monthly payment and stay current on your bills. These are a few questions that can help you find ways to cut your bills with creditors or get help when you’re drowning in debt:

The U.S. Department of Education allows borrowers to go on income-driven repayment plans where monthly payments are as low as $0 per month depending on your income. Mortgage lenders may also have some room to help you cut your monthly payment. Cell phone companies, utility providers, and other companies may have lower cost plans available, as well.

Call your utility and phone providers to ask if you qualify for discounts for low and moderate income earners. Some companies can connect you to local governments that help low income people pay for basic utilities. Internet or phone providers offer discounts to low income people. If you don’t qualify for low-income programs, you may be able to lower your bill by asking for new customer rates.

If you have medical bills in collections, your provider may be willing to lower your bill. You can negotiate the bill or ask about charity care. When speaking with your provider’s billing department, be frank about your financial situation so they have a good understanding of your struggles.

Some credit card companies will be willing to cut your interest rate if you show financial need. Lower interest rates can help you gain traction on paying off debt.

Lenders may be willing to extend your repayment term, which means you’ll have a longer amount of time to pay off the same amount of debt. You’ll pay more in interest over the long-haul, but the immediate monthly payment will be more manageable.

If your debt load puts your home in jeopardy, you may qualify for a mortgage modification program. Mortgage modification programs are designed to cut your loan payment and bring you current on your loan. Call your lender to ask about your options.

Mortgage, student loan or credit card lenders may offer to pause loan payments through forbearance. Loan forbearance, or hardship forbearance, happens when a bank reduces or stops your payments for a limited period of time. During forbearance, interest continues to accrue on your loan. You will have to repay the missed payments and the added interest later on; however, despite the added costs, this option can make a lot of sense if you think your income situation will improve soon.

If you’re returning to school or entering active duty military service, your federal student loans may also be eligible for deferment. Deferment allows you to pause loan payments during specific times. If you have a subsidized student loan, interest won’t accrue during deferment.

4. Consider ignoring debt in collections for now

Creditors may be hounding you about debts in default, but those debts may need to wait. When you initially defaulted on the loan, the default damaged your credit score. Recovering from a defaulted loan takes time, but repaying the loan won’t help you build credit. These tips can help you if you have debts in collections. Plan to deal with defaulted debts when you’ve dealt with higher priority debts.

Above all, know that you have rights when it comes to dealing with debt collectors. For example, collectors can only call between 8 a.m. and 9 p.m., and you can request that they not contact you at work. If you want collectors to stop contacting you, send a letter via certified mail that explains you don’t want to be contacted. Once the collections agent receives it, they can only contact you to let you know they have seen the letter, or if they intend to sue you.

5. Explore your debt relief options

While there are many ways to handle overwhelming debt, these are some of the most popular options. Consider all your options before committing to one.

4 ways to handle bills when you’re drowning in debt

What it is



Make monthly payments to a credit counseling agency that will negotiate interest rates, fees and repayment schedules with creditors and make payments on your behalf.

  • Single payment each month
  • May lower fees and interest rates
  • May pay a monthly maintenance fee
  • Debt load doesn’t shrink

Combine several debts with a new loan. Many people consolidate using a debt consolidation loan.

  • Only one payment per month
  • May lower your interest rate
  • Can extend your repayment term to lower your monthly dues

  • Total balance of debt remains the same
  • Best for borrowers with strong credit
  • A longer term means higher overall interest charges

Negotiate a lump sum payment for less than the amount you owe. In exchange for taking the lump sum, the creditor resolves your debt.

  • May pay less than you owe
  • May help you avoid bankruptcy

  • Can severely damage your credit score
  • Lenders have no obligation to negotiate with you

Work with the courts to help you dispose of debt to create a viable repayment plan for your debts.

  • With Chapter 7 bankruptcy, 99% of filers have debts wiped out
  • Allows you to deal with most debts through a single process

  • Bankruptcy stays on your credit report for 10 years
  • Average bankruptcy cases cost $1,000 or more (depending on complexity)

Debt management plans

A debt management plan is a debt repayment option where borrowers work with a credit counseling agency to repay debt. On the plan, the borrower pays the agency, and the agency repays creditors on an agreed upon schedule. The agency will negotiate with your creditors to lower interest rates, waive late fees, and arrange a repayment schedule that works for you.

In general, you’ll need to make monthly payments for 48 months or longer to pay off all the debt on the debt management plan. To make your success more likely, the credit counseling agency will ask you not to open any new credit cards while you’re on the plan. You’ll also have to close the credit cards that are on the plan.

Debt management fees vary by agency, your state and the amount of debt. One agency, GreenPath Financial Wellness, charges a $0 to $50 setup fee. On top of that, you’ll pay $0 to $75 monthly fee for the company to manage your debt payments. To find a reputable nonprofit counseling agency, use the National Foundation for Credit Counseling’s member database.

Debt consolidation

When you consolidate debt, you refinance all your debts into a single new loan, to be paid once a month. To keep interest costs low, some borrowers choose to consolidate debt with a home equity line of credit (HELOC), a credit card with an introductory 0% APR or a debt consolidation loan.

When you consolidate your debt, you may lower your monthly payments by extending the term of your loan (for example from five years to 10 years) and/or by finding a lower interest rate. If you choose a longer repayment term, you will generally pay more interest over the life of the loan. However, if you’re struggling with monthly dues, you may be comfortable with this tradeoff.

To qualify for the best refinancing options, you’ll generally need a strong credit score.

Debt settlement

Settling your debt means you resolve debts by paying your creditors an agreed-upon lump sum. The settlement amount is usually less than the full amount you owe. Debt settlement sounds great, but it can be risky and expensive, especially if you work with a debt settlement company.

If you work with a debt settlement company, the company will generally charge you around 20% of the original value of the debt you owed — that means when the company settles $40,000 of debt, you should expect to pay $8,000 for the service. According to the Federal Trade Commission, it is illegal for a debt settlement company to charge its fee before you pay your creditor, so this fee will be paid after your debt is paid.

Aside from the high costs, working with a debt settlement company poses these other risks:

  • Debt settlement companies may ask you to stop paying debts, which erodes your credit score.
  • Some debt settlement companies are scams and fail to deliver on their promises.
  • Debt settlement can take three years or more, so many people drop out of the program before their debts are resolved.
  • There’s no guarantee creditors will work with you, which means you may spend time and money for nothing.

If debt settlement still seems like your best option, the Consumer Financial Protection Bureau recommends that you should consider working with creditors on your own. Call your lender’s customer service department, and work on negotiating a settlement. Be sure to get any changes to the payment in writing.


Bankruptcy is a process where an individual or a married couple has their debts discharged or modified through the courts. To start the bankruptcy, you’ll usually file Chapter 7 (liquidation) or Chapter 13 (payment plan) bankruptcy.

With Chapter 7 bankruptcy, most of your loans will be discharged once the process is complete. However, you may have to sell certain assets (including a home or a car in some cases) to pay off existing debts.

With Chapter 13 bankruptcy, you’ll go on a payment plan that lasts three to five years. At the end of the payment plan, most debts are discharged, and you’ll still own all your assets.

However, bankruptcy stays on your credit report for as many as 10 years, and makes it very hard to get new credit to buy a home or car, so you should only pursue bankruptcy as a last resort.

Bottom line

Whether you’re facing bills in collections, struggling to make minimum payments, or overwhelmed by the amount you owe, you have options. Take stock of your choices, so you can move towards financial health.