What to Do When Debt Becomes Overwhelming

People seem to love throwing superlatives around when they represent something of an exaggeration. But when it comes to debt, overwhelming can be precisely the right word. If you have so many credit card bills, overdraft statements and the like flooding in through the door, you can feel helpless, paralyzed and, in other words, overwhelmed. That’ when debt becomes overwhelming.

It?s not at all uncommon to go into what is almost a state of denial and shut down. Those with overwhelming debt often dread or even ignore the mail. They refuse to answer phone calls and essentially, disappear into their shells. They hope the problem and the whole world will just go away and leave them alone.

What to Do When Debt Becomes Overwhelming
What to Do When Debt Becomes Overwhelming

Put that way, it is easy to see that debt problems don?t just damage your financial health. They impact your mental and physical health. And even your ability to sleep, your relationships, everything.

Asking for help is the first step to a solution

The crazy thing is that there is no reason on earth to go through this pain and suffering. If you can?t afford to pay your debts, nobody is going to hang you upside down to try and shake out some spare quarters. There are solutions available that will help you get rid of the debt problem forever. You can then get on with living your life.

Like any financial topic, however, debt management is a specialist area and needs specialist advice. If you are contemplating a retirement fund, an investment portfolio or a new mortgage deal, you will speak to an appropriate financial advisor. When it comes to dealing with debt, you need to do exactly the same thing.

Striking a deal with your creditors

One option that a debt management consultant will present is a repayment plan. You’ll you pay what you can afford to pay and no more. This will mean the creditors will be required to show some flexibility in terms of what they get and when they get it. In some cases, they might even be asked to write off a proportion of the debt.

Companies that specialize in negotiating these sorts of agreements deal with the banks and lending institutions every day and will be in the best position to cut a deal. The creditor will usually agree, on the basis that something is better than nothing, and if you are paying as much as you are able, it will be fruitless for them to waste time and money of their own trying to squeeze you for more.

What if you just can?t pay?

Even if your financial situation is so dire that you are completely unable to pay, there is always a solution. Bankruptcy is the obvious one, but in the UK, there is an innovative solution called a debt relief order. This is applicable for those with significant debts and no valuable assets. The way it works is that your debts are frozen for a 12 month period. No interest, no letters, no phone calls. If your financial situation has not changed after the 12 months have elapsed, the debt is written off.

Of course, this is not for everyone, but for those who do not own houses, cars, etc, it is a great way of drawing a line and starting afresh.

( Photo by mikecohen1872 )

25 Responses to What to Do When Debt Becomes Overwhelming

  1. #1 Rule, at least in the United States — don’t run up student loan debt. I would consider up to $20,000 in loans a normal amount to help pay off a public college. (The bulk of payments should be your own and parents’ savings, along with scholarships, grants, and student work arrangements.) Then, after graduation and getting a job, you can arrange reasonable monthly payments over 5 – 10 years. Just don’t run it too high — you cannot have it forgiven through bankruptcy, plus the debt grows with interest.

  2. Hi Irene – I think your limit of $20,000 is an excellent standard. It’s a reasonable amount to borrow to pay for higher education, and is about the size of a modest car loan. That should be fairly easy to repay after graduation, though it would certainly limit the type of car you would buy. That said, in my years in the mortgage business I saw more than a few people default on student loan amounts that are MUCH smaller. But agreed, it should be an amount that can reasonably be repaid within a few years, so you can get on with your life.

    What I often wonder is where are the parents when these kids are taking on $50,000, $100,000 or more in debt? Do they think a college education is so priceless, it’s worth borrowing any amount???

  3. When a creditor writes off your debt in the US, you will be issued a W-2 and be required to pay taxes on the amount forgiven.

    A friend recently negotiated to have one of his friends purchase the note from a creditor, avoiding a taxable event. He got legal advice but it cost a lot less than the taxes. Of course, he also has to trust his ?friend?.

  4. Hi Ian – I’m very familiar with that process. It’s actually a 1099 that gets issued for debt forgiveness. After 2008-09 I saw a lot of this with mortgage debts. Short sales. We had people come into the office (tax accounting) who had 100,000+ in mortgage forgiveness. One was over $300k (it was on a McMansion). These people were shocked at the taxes they had to pay. They thought they were done after the short sales, but got stung on taxes. The one with $300k had to pay something like $120k in combined federal and state taxes. Needless to say, people in that situation don’t typically have that kind of money, so they trade a mortgage debt for a tax debt. Very messy!

  5. I’m sorry but I can’t say this without sounding like an idiot.
    Unless you have a sickness or some tragic event in your life their is no excuse not to pay back your debts.

    After a year it will be forgiven? Come on. Then why should anybody pay their bills? I know people who sold their homes, cars got two jobs, whatever they had to do to pay back debt.

    What happened to personal responsibility? You ran it up you pay it back. It’s too easy to bail on things now a days. How do you learn to change if you don’t go through massive pain to pay it back.
    Cutting deals? Again, no deal. You made your choices, now live with it.

    I’m sorry but this whole article is exactly what’s wrong with this country.

  6. Hi Tim – You don’t sound like an idiot. The article was written by a UK based writer, and the rules are different there. That said, the situation you describe is all too common. See my response to Ian Bond on this thread for another example. These things never end well.

  7. Yeah I understand. I seen a lot of people do the sane nonsense over here also just in different way.
    I knew a guy who ran up seven credit cards on cash advances and filed bankruptcy. He did it on purpose. Walked away with 50000 in cash got to keep his massive retirement fund an walked away.
    It’s unfair to the people who work their butts off to pay their debts back.
    The only Justice is in 08 he lost half his worth because his retirement fund went belly up with the crash. Lol

    Sorry I don’t have any tolerence for nonsense of this nature.
    Again if their are reasons like a real sickness or some kind of family tragity, i can an undertand.
    The people described above got what they deserved. They thought they were gonna walk away clean after living and buying above their heads.
    Same with all those people just walking away from their homes after the 08 crash. Oh I was taken advantage of. Oh I didn’t understand what I was signing.
    Give me a break. Too bad, you signed it now you pay.

  8. One of the most shocking things I ever heard in the mortgage business was on the first and only 100% mortgage I’d ever done. At the closing table, the attorney started explaining foreclosure law in Georgia, which they’re required to do. The buyer didn’t care. He said “I have no money in the house. If I can’t make the payment I’ll walk away and let the bank worry about it.” Bad enough he was putting no money down, but worse that he didn’t care what would happen if he couldn’t pay the loan.

    The truly shocking part: he was a cop.

  9. That’s not surprising. Most of the stories I tell imvolve people I knew in that field.
    My father would have beat my you know what if I ever tried any of that nonsense.
    I don’t understand how people can look themselves in the mirror.
    It’s disrespectful to yourself and it shows your lack of any character at all.

    It’s too easy now to pass off your stupid living and blame it on everyone else.

  10. Even the title of this tells it all. When debt becomes overwhelming? It should be overwhemlming. Feeling like that is good. Maybe it would spur you on to pay it back. Not look for a deal or some angle to get out of it.

  11. I am sitting reading the comments while hearing in the TV that the Stop& Shop that sold the winning lottery ticket is spreading the wealth by donating the money to the local soup kitchen..
    I have long been an advocate for teaching from childhood how to handle money properly which I didn?t learn enough myself until I had to go through a bankruptcy back in 2009 and had to take a consumer finance course which involved a one on one weekly consultation analyzing my spending habits versus my income. I learned to make a money diary which means you literally post everything you spend money on. Doing this, you see why the outgoing spending is more than your earnings and learn where to make changes.
    The attitude of a debt society is to ignore these warnings signs of overspending and figure that a bankruptcy and foreclosure will erase all debts. A good lawyer will tell you upfront that besides creating a massive hit on your credit score, you will also lose financially. I still remember sitting in the bankruptcy court listening to the judge (courtroom is very small only 20 people allowed in room) and hearing the judge tell another person that you can?t pass large assets to someone else to avoid liability. Unfortunately like student loan debts most aren?t thinking ahead as they work under the illusion that a college degree ?guarantees? a high paying job of their dreams with all the bells and whistles.
    Debt has to be a controlled amount to insure that you don?t overspend your income. Impulse purchases need to controlled ( Those daily coffees add up unless you plan that expense into your budget.) Count the pennies along with the big dollar spending and think before you buy anything. Ask the question?do I really need this or do I feel like I have to have it now? Delay the buy until you answer those questions.

  12. The other problem Maria Rose is that our culture encourages debt. Cars, vacation, college, mortgages. “It’s all good”, right? No it’s not. But it’s become “normal”. These cycles will keep happening to people until they learn that borrowing isn’t magic money.

  13. Did you learn? Then it’s good. Sometimes we learn things the hard way but the important thing is you learned and didn’t repeat the sane mistakes.
    It makes you ahead of the game.
    I’m glad you carry that feeling. Use it for fuel to never go back.

  14. I was lucky to have financial teaching early on in life.
    Lessons I’ve carried through my whole life.
    Alot of people aren’t so lucky.
    Maria, none of us has some magic formula. I just got lucky early on. It wasn’t cause I was smart. I just had to mentorimg.

  15. Well that?s what I got from the credit counciling but it was something that should be engaged with from childhood. Remember hearing the saying money doesn?t grow on trees. If more of an understanding was given, handling finances would be easier to stay out of debt.
    Again impulse purchases has no place in handling finances.
    Going back to the main topic of this article, once you realize that you have a problem meeting your basic needs financially, you really need to ask for help from somewhere. Trick is finding a way to do that without creating more debt. Don?t get involved with a debt re-conciliation program that promises to lower debt because those programs don?t erase anything except to add more debt. Getting out of debt is like going into an Alcoholic Anonymous program?you need to acknowledge the debt, you created it, and you have to resolve it. It may need a complete change in money handling. That?s why I mentioned the money diary, which can be done with an app in today?s technology but I am old school and prefer to write it down because doing so makes one really think about what you spend. The technology just makes the posting easier.

  16. “Money doesn’t grow on trees” – a good saying but long gone and forgotten along with so much other human wisdom that’s been deemed irrelevant our new and exciting day and time. The fundamental problem is that money isn’t even money anymore. Credit is money. That’s actually a fact – there’s nothing backing up money except endless promises to pay – there’s no gold, silver or anything else of value. It’s literally printed and borrowed into existence. It has no intrinsic value, and I think people sense that. It’s like a game of hot potato, where everyone just wants to get rid of it (spend it) or borrow more of it to get rid of even more of it, knowing it has no real value other than what it will buy. We can also blame plastic. Credit and debit cards remove the physical quality of money. We’re just exchanging digital numbers. It’s not the same as holding something real in your hand. When it’s real you’re less likely to part with it so easy.

    I know that all sounds a bit spacey, but perception and emotion play strong roles in money and value. We’ve lost that perception of money as being real. So people borrow under the misguided notion that credit is money. And in today’s world, it has the same use, so basically it is money. That’s why “no money down” is such a dangerous concept. It reduces buyers and sellers to transacting 100% in IOUs, which is quite normal today.

  17. I certainly don’t want to preach or sound like a know it all. Normally impulse buys are not about money at all. It usually is about people who are trying to fill some kind of void. I liken it to somebody who drinks or uses drugs. They do it to dull or mask some other kind of issue or pain.
    I look at money as a tool. Its function in my eyes is to help you navigate through life. Feed yourself, provide some kind of shelter. It can also help in a small way in the form of protection from unforeseen circumstances. Similar to insurance. Of course, it does not provide health, it cannot provide happiness it cannot prolong your life.
    It is important to pay off all debt or better yet never get into it in the first place but if we don’t change our mindset or way of thinking on the whole topic then we are set up to repeat the same mistakes. Debt is not a tool. We can’t borrow our way to prosperity no matter what the popular culture of today say’s.
    Credit counseling is fine as long as while working on the debt it provides tools to help people change there mindset and the way they think about money and use it.
    When I see someone who goes and buys a new car when they had a year or two old one already or buys a bigger house when they have enough room in their current one. It tells me that there is some kind of void or issue in their lives that they are trying to fill.

    Of course, this never works. The drug wears off and you need more and more things or bigger or newer things until it eventually consumes your life.

    Sorry, I’m not speaking to you specifically just in general.

  18. Of course the problem is that debt makes all that you describe easier to get. I think it was Doug Casey, who back in the early 1980s said “the middle class pretends to be rich”. It’s really gone full circle in that now there’s barely a middle class left, due in some part to the mountains of debt taken on in the course of pretending to be rich. These problems are so much deeper than any of us suspect.

  19. The bigger question I have Kevin is why does the middle class pretend to be rich? Why do they feel that they want to do that?
    You know as well as I that you are either rich or your not. If that is your desire to be rich then set that to be your goal. Pretending to be rich tells me that you’re bankrupt in life inside and looks are more important than actually being rich.
    That to me is the bigger issue. That is why I’m so big on examining your heart and motives in everything we do. If we are honest with ourselves then no amount of available credit, no marketing gimmick should ever affect us.
    If it does then we have bigger issues then just dealing with money.

  20. It’s the media and marketing complex Tim. They sell the good life. Debt’s the way to get there. I think most buy into it at least partially. It’s very attractive, and can only be resisted if you have strong counter orientations toward money, and tune it out. Also, we’ve become a much more conformist society than we were 50 years ago. Everyone just goes with the flow, even if it leads straight off a cliff.

  21. Very true words? why do we need to follow the crowd thinking to feel happy about our situation in life. I have been through many phases in my life and now (in my golden years) just want to enjoy life without a pressure to achieve material objects. When I went to college I was in a major subject area few women choose in fact I was the sole woman for many classes. I wanted to go into research but was pressured into teaching because of the time. But I gained employment as a teacher and kept my part time job that I had for extra money. My college costs including my Masters were paid for and I could support myself even though I still lived at home so I paid my parents a form of rent and brought all the groceries for the household. If I kept my independence going instead of giving into the inner pressure to have a relationship, I probably would have done well financially.
    I learned the hard way to get myself back to the point where I can say, I have enough to live on and don?t need to have things. But again, finance is not discussed enough in a family unit for people to understand how to handle money. You don?t use the borrow from Peter to pay Paul method to balance your budget.
    One thing about technology and banking apps is that you don?t have to use a calculator to see the running balance. The only thing you have to do is know the expenses are less than your income. I am not saying to deny yourself from a purchase but to plan for it. I still remember when I brought my first car with my own money?a1965 Barracuda hatchback?and paid for it in cash. That was a planned for purchase. I had that car for close to 10 years until a rare hurricane hit New York and caused a tree to fall on it.
    That attitude is missing today.

  22. Again, it’s that going with the flow thing Maria Rose. Young people are especially prone to it. They don’t want to be “left out”, or behind the times, so they go along. I think it’s only when we get older that we begin to appreciate the nobility of being different (which is very much what it is). I’m perfectly happy being “out of sync” with the culture. But I see a lot of people over 50 who are still trying to “keep up”, as if they’re still in high school. Maybe I have an advantage in that I’m a Bible believing Christian, and the Bible clearly teaches the merits of being different. It also takes a certain amount of self-esteem to go against the cultural tide. So give yourself credit for having the courage to do it, even if it came at a steep price.

  23. I think debt is a bit like body fat; it builds ever so slowly. One day you wake and you’re obese, or you’re in over your head financially. And it is easy to stick your head in the sand. Facing up to your challenges takes the kind of courage that many people simply don’t possess.

    Another aspect is that, without debt-driven consumer spending, our respective economies are screwed. We’ve gone far enough down this road that recovery without extraordinary disruption is unlikely.

    Finally, the good old boys like their citizens stupid. The system is the way it is by design. It’s really not much different than 700 or 800 years ago. The rich exploit the poor for their own gains.

    In my 20s I had loans up the whazoo. I don’t really know what changed for me. But one day I found myself working hard to get out of debt and stay out of debt. My ex-wife and I focused hard on our mortgage, and I remember paying the mortgage off the same month that she lost her job. What a relief to realize that it didn’t matter that she had lost her income. We had no debt and could easily cover our monthly expenses on my income. Living within your means is wonderful.

  24. Hi Neil – There’s nothing in your comment I disagree with even a little. The last paragraph is the key though, at least for me. It’s something I discovered in my own life. You and your ex-wife were moving forward, paying off debt and your mortgage. When she lost her job you were well positioned. It may not have been “the plan”, but if you simply commit to improving your situation as a habit/pattern, you’re ready when disaster strikes. We can’t know what will happen in life, but by steadily moving forward you’re in a better position come what may.

    Tony Robbins referred to it as “CANI” – Constant And Never-ending Improvement”. It covers a multitude of sins. The opposite is the gradual descent into debt you described at the outset. That’s what has to be reversed. “The System” is never going to be anything by capricious, so we have to do our best to not take the proscribed bait, and run our own games. It’s a revelation we all have to come to at some point.

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