Debt can mount so gradually you’ll hardly notice it doing so — until you realize you’re struggling to keep it serviced. When that happens, things get pretty gnarly. Stress mounts, your relationships suffer and you’re left wondering what to do when your debt exceeds your income.
Well, here’s where you start.
Stop Charging Immediately
While you might have thought “Well duh!” when you read that, you’d be surprised how many people keep using their credit cards until they hit their limits and issuers cut them off.
Doing this is troublesome for a couple of reasons.
First, it digs your hole deeper in a way that isn’t conducive to resolving your problem. Second, every dollar closer you get to the limit of a credit card is just that much your lower credit rating goes — and you’ll want to keep it as high as possible for one very important reason we’ll go into below.
Take Stock of Your Situation
If you have yet to do so — which is likely, given the circumstances — it’s time to list all of your debts on paper or in a spreadsheet. Include the amounts you owe as well as the monthly payment and interest rate attached to each obligation. Additionally, track all of your spending for an entire month, so you can see where else your money is going.
Next, do the same with all of your income sources. Include every penny you earn. The idea here is to find out exactly what your situation is so you can make decisions based upon facts rather than speculation.
In so doing, you might find the gap isn’t as wide as it seemed. It could be you just need to reprioritize a few things to get the situation back under control.
Find Ways to Cut Back
That five-dollar Starbucks stop on the way to work every morning is $100 a month you could be putting toward eradicating your debt. Make your coffee at home if you have to have it — or better yet, wait until you get to the office and drink the coffee the company buys.
In a similar fashion, look for other ways you can reduce your expenses. Dining out, entertainment and clothing expenditures are easily trimmed with no significant detriment to the quality of your life.
Earn More Cash
You might be surprised to discover how many of your seemingly prosperous acquaintances have side hustles. It’s past time for you to go out and get one — if you have yet to do so — when your debt is exceeding your income.
Wondering what you can do?
Look for ways to get paid to do what you’re already doing anyway. For example, if you walk your dog, let other people pay you to walk theirs at the same time.
Odds are you also have money in your closet, garage, attic, basement or storage space. Sell the idle items you’ve stashed in those places and use the cash to reduce the amount you owe. Sites like Craigslist and eBay can liquidate items and put additional cash in your hands within a few days’ time.
Consider a Consolidation Loan
If your credit score is still strong, you can qualify for a consolidation loan from your bank or credit union. This will allow you to bundle your debts into one pot, which could reduce your interest payments as well as your monthly payment, making your obligations easier to shoulder.
Yes, that means you’ll borrow to pay debt.
However, if you do it strategically, paying close attention to the numbers, you can come out ahead. Just be careful to avoid using the consolidated accounts — lest you push yourself farther into the hole.
Get a Credit Counselor
Many non-profit organizations exist to help people in your situation. A credit counselor will look over your finances with the goal of helping you establish a budget within which you can live and service your debts. A credit counselor can also help you figure out how you got into this situation in the first place, so you can avoid making it worse and/or doing so again.
If things have progressed to the point at which none of the above will turn the tide, it might be time to consider debt settlement. Companies specializing in this area can help you work out terms with your creditors to make your obligations easier to repay. Information such as these Freedom Debt Relief reviews can help you learn more about what to expect from such programs.
Knowing what to do when your debt exceeds your income will prevent making the problem worse than it already is. Taking these steps will also help you see where your problem originated and — more importantly — give you the knowledge you need to avoid repeating the mistakes that got you here in the first place.