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4 Strategies for Dealing with Significant Debt

Living in a wealthy nation carries several benefits, but temptation to live beyond average means might be a common relative weakness.

Approximately 80 percent of Americans carry some form of debt among student loans, mortgages, vehicle loans, medical bills and credit cards. However, it’s the last category that’s by far the most dangerous. So perilous in fact that a recent consumer survey revealed that two out of three U.S. consumers don’t know when they’ll be debt free. One quarter of respondents expect to be in debt for life.

Any balance is solvable. It all depends on finding—and committing— to a solution with which you’re comfortable.

Let’s discuss four strategies for dealing with significant debt.

Ask Loved Ones for Help

Debt isn’t a negative experience solely for financial reasons. Depending on the person, owing money might be more difficult than managing the cocktail of nerves that come with it. From fleeting bouts of sadness, anger, resentment and embarrassment to longer-term afflictions like depression and anxiety, dealing with massive debt puts us through the ringer emotionally. Unsurprisingly, some debtors experience increased strife in their personal relationships. In other cases, they cut off their lines of contact completely.

Nobody feels good about themselves when they have a lot of debt, but isolating or turning against the people who care most isn’t the answer. This is especially true because it’s these same people who would offer to help if they could.

If you have people in your life with the financial means to assist, don’t let your pride outweigh what could be a fresh start in your life. Be transparent about your situation, your motivation to get out of your situation, and then ask for a specific amount while disclosing a repayment plan.

Caveats: Potentially awkward conversation/rejection. Personal relationships might be ruined if you don’t stick to the repayment plan.

Settle Your Debt

From payment grace periods to lower interest rates on credit cards and loans, few consumers realize that financial terms aren’t set in stone. People with a lot of debt are less likely to get their way when asking for a payment grace period, a lower interest rate, or different payment terms altogether.

However, when it comes to negotiating actual debt, the longer a balance has lapsed the better. What can you do to improve your odds of lowering a debt? Know your expenses and income, have a consistent story about your financial difficulties, keep your composure, and always ask questions — especially if the creditor tries to strong arm you by saying they’ll sue.

People have success negotiating debt on their own, but doing so is not simple. Debtors that want to get out of debt but are too overwhelmed to spearhead negotiations often turn to debt settlement companies. Despite debt settlement firms having a negative reputation, plenty of legitimate organizations exist. One settlement provider, Freedom Debt Relief, reviews the red flags of a debt settlement scam on their website.

Caveats: Because every creditor is different, there’s no guarantee that debt settlement will work. The process, successful or not, takes anywhere from 2–4 years. The IRS will also likely tax you on any debt you settle.

Declare Personal Bankruptcy

Continuing to go on buried in debt is no way to live. Thankfully, all’s well that ends well, even in court. If you don’t have people that can part with a chunk of cash for a period of time and you don’t want to go through the settlement process, filing personal bankruptcy could get you out of this mess.

If you have minimal assets to your name, filing chapter 7 bankruptcy could absolve you of your debt in as short as 3–6 months. If you have personal assets that you don’t want the court to liquidate, then chapter 13 bankruptcy could discharge your debt as long as you make court-ordered payments for 3–5 years.

Caveats: Chapter 7 bankruptcy stays on credit reports for as long as 10 years. Chapter 13 stays on reports for up to 7 years. Both options carry lawyer fees, court costs and other mandatory fees, like financial management courses.

Alternative Methods

None of these options seem appealing. You don’t know anyone with money they can spare. The uncertainties around debt settlement don’t appeal to you. You hate the thought of dressing up, going to court, and casting your debt aside.

If you have equity in your home, you could tap into some of it via a home equity loan. Perhaps you’ve wanted to cleanse your life of possessions and start fresh. You could sell everything you own to pay off debt. Or maybe something truly outside the box is more up your alley, like creating a compelling crowdfunding campaign. These are merely a few of the many possible catalysts to financial freedom.

Caveats: Non-traditional solutions require research and experimentation. Success rates are much lower than the rest of the options on this list. 

When we’re inundated with debt, it’s hard to think clearly about anything let alone how we can rise from rock-bottom. Before you decide on any course of action, breathe deeply and understand that you’re not the only person who’s experienced such a situation.

Debt is nasty, but it can be beat—especially with a positive attitude. Adjust your attitude toward optimism as you plan which of these routes will give you back your life.