Being buried in debt can feel overwhelming and even shameful. However, millions of Americans [1] find themselves in this position, often due to job losses, medical emergencies or other events beyond their control, and aren’t sure how to get out of it.
Alex and Jordan fit into this category. Together, the couple, who are in their mid-30s and rent a small two-bedroom apartment in a mid-sized city, earn approximately $110,000 per year before taxes. On paper, it’s a solid income. However, their monthly payments are swallowed up by close to $200,000 of debt.
Here’s what they’re juggling:
- $39,000 across four credit cards, most with interest rates above 20%
- $28,000 from a personal loan, mostly accumulated to consolidate old debt
- $33,000 in auto loans on two vehicles, with one still worth less than the loan balance
- $80,000 in combined student loans
- $5,000 in medical bills from an unexpected surgery
- $7,000 in back taxes
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The couple already tried debt consolidation loans, but the balances kept creeping back. That’s a common setback for many households — and it shows why a structured plan is so important.
How to get out of debt — even when it feels overwhelming
Job losses, reduced hours, medical bills and car trouble can all quickly chip away at savings. Many people turn to credit cards to bridge the gap, and before long, the balances snowball.
If you’re facing a similar situation, there is a way out. Here’s how Alex and Jordan — or anyone else in deep debt — can start moving forward.
Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement
Get clear on what you owe
Before you can tackle debt, you need to know how much you owe and to whom. Sticking your head in the sand won’t help. Start by makinge a list of all your debts, including total balances, interest rates and late fees. You can write this information on paper, on a phone or computer, or create a spreadsheet — seeing it all in “black and white” establishes a clear starting point.
Stabilize your budget
Next, take a hard look at your income and expenses. List every fixed cost, such as housing, utilities, insurance and minimum debt payments. Set realistic limits for essentials, such as food and transportation. And cut any unnecessary expenses, such as unused subscriptions, food delivery and impulse purchases.
Whatever’s left becomes your “debt attack” money. Even $500 to $1,000 extra per month toward high-interest balances can create meaningful progress over time.
Build an emergency fund
Before throwing every dollar at your debt, save up at least $1,000 to $2,000 in an emergency fund. This starter fund can help you avoid falling back on credit cards when the inevitable surprise expense pops up. Normally, the goal is to have three to six months’ worth of expenses saved. However, in these circumstances, a smaller emergency fund is permissible, at least until the debt is brought under control.
Make a plan to tackle your debt
Not all debt is equal. You’ll save the most money by focusing on high-interest and delinquent debts first. For most people, this means starting with credit cards, especially if the interest rate is 20% or more. Once those are paid down, focus on:
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IRS or other tax debt. Government debt can lead to wage garnishment, which can make getting out of debt even harder. Get on a payment plan, if possible, and pay extra when you can.
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Personal loans. These usually have lower interest rates than credit cards, but weigh heavily on your cash flow. After credit cards and government debt, personal loans should be next.
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Auto loans. If you owe more money on your vehicle than it’s currently worth or are struggling to afford payments, consider selling or refinancing. If you have a partner, consider sharing a car — you’ll save on car payments, insurance and potentially gas costs.
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Medical debt. Call and ask about discounts, grants or payment plans. Some hospitals are surprisingly flexible if you ask. It’s important to take this debt seriously, too. Medical debt still shows up on credit reports in the U.S., despite previous attempts [2] to overturn that rule.
Explore consolidation and refinancing options
If your credit is in decent shape, you might qualify for options that make getting out of debt easier, such as 0% APR balance transfer cards, debt consolidation loans or refinancing loans. While consolidation can be powerful, it is only effective if paired with a strict budget and behavioral changes. Otherwise, the freed-up credit often fills right back up.
Get to the bottom of why you’re in debt
Alex and Jordan turned to consolidation once already, but without addressing the underlying causes, they slipped back into debt. That’s why asking the hard questions about spending, lifestyle and life events is key. Did you rely on credit cards during unemployment? Help family during a crisis? Overspend due to mental health issues? Recognizing the “why” can help you to break the cycle.
A six-figure debt can feel overwhelming, but it’s not hopeless. Getting out of this situation won’t be easy, and it won’t happen overnight, but every payment is a step in the right direction. Whether you use the avalanche or snowball method, explore refinancing or, if necessary, talk with a bankruptcy attorney, you do have options. Debt doesn’t define you, and with a clear plan, you can find your way out.
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[1]. Debt.org. “The demographics of household debt In America”
[2]. NPR. “Americans’ medical debt can stay in credit reports, judge rules. What does that mean?”
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