Debtor and Creditor

I’m Drowning in Debt—What Should I Do?

By Carron Nicks, Attorney
Ways to pay down your bills and get out of debt.

If you break out in a cold sweat when it’s time to pay the monthly bills, or you’re using credit cards to pay for food, gas, and other necessities, it’s likely that you’re swimming in debt. In this article, you’ll learn about steps you can take to lessen the stress and get a handle on your affairs.

Analyze Your Financial Picture

It’s common to feel paralyzed when you don’t have a complete picture of what you owe. In that case, any budget you have won’t be as effective as it could be. The first step toward managing your financial stress is knowing the real picture. Only then can you relax knowing that you’re taking concrete steps to tame your budget.

Here are a few questions to ask yourself:

  • What debts do you owe? Start by gathering billing statements from your credit card lenders, medical creditors, personal loans, car loans, home mortgages, student loans, and utilities. You’ll also want to review your credit report for old, outstanding debts. (You can obtain a free copy at You’ll list debts by the creditor, amount, interest rate, and minimum payment.
  • How do you spend your money? Next, you’ll want to analyze your spending habits. Review your checking account and credit card statements for expenses such as food, eating out, transportation costs, entertainment, and incidentals.
  • Wants or needs? You might find it surprising how much you spend on unnecessary or luxury items. For many people, buying a $5 latte each morning may not seem like an extravagance until they realize they’re spending $100 every month at the coffee shop when they could brew it at home for a fraction of the cost.

Once you have a realistic idea of where your money goes each month, you can decide which expenses are necessary, eliminate some of the luxuries, and use the saved funds to help you gain control of debt.

Decide What to Pay First

After you’ve gathered your list of debts, and taken a hard look at your spending habits, you’ll know how much money you can devote to paying off your debt. Many personal finance experts recommend a simple formula for retiring it.

  • Commit to reducing your balances, not adding to them. Paying more than your minimum payment each month won’t help you eliminate your debt if you continue to use the account to pay for charges you’ll carry forward.
  • Choose the account with the lowest balance and pay more than the minimum monthly payment. If your account balance is $1,000, your APR is 18%, and you make the minimum 2% payment of $20 each month, it will take you 151 months (more than twelve years) to pay off the balance. If you increase your payment to just $30 each month, you’ll pay off the balance in only 47 months (less than four years).
  • After paying the first account, add the payment to the next account on the list. Suppose the payment to First National Bank is $30 per month and the minimum payment to the City Credit Union is $50 per month. When you pay off First National, add that $30 payment to the $50 minimum payment to City Credit. When City is paid off, add that $80 to the minimum payment to State Bank, and so forth until you’ve paid all accounts in full.

Speak With a Credit Counselor

If the thought of delving into your spending habits has you on edge, and you're afraid that you won’t have the discipline to put these suggestions into place, you might benefit from the guidance of a qualified credit counselor. The non-profit Consumer Credit Counseling Services offers one-on-one counseling for free. For a small fee, CCCS will help create a debt management plan to consolidate your unsecured accounts into a single payment.

(You can read about some helpful strategies at Options for Dealing With Overwhelming Debt.)

Consider Filing for Bankruptcy

If you analyze your spending habits and find that you don’t have any money to devote to paying down debt, you might want to consider filing for bankruptcy. If you qualify for a Chapter 7 bankruptcy, you’ll be able to wipe out unsecured debt, such as credit card balances, personal loans, and medical bills. Filing a Chapter 13 bankruptcy might be the right choice if you need to catch up on an overdue mortgage or car payment. A qualified bankruptcy attorney can review your options, often at no cost.

Questions for Your Attorney

  • Should I work with a credit counselor or file for bankruptcy?
  • Can you evaluate whether I qualify for a Chapter 7 bankruptcy?
  • How will filing a Chapter 13 case help me catch up on my debt?
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