Debt relief options: What to do when you can’t pay your debts

Struggling with a heavy debt load? There are a number of debt relief options to consider when you can’t pay your debts.

by Belle Wong, J.D.
updated March 02, 2023 ·  4min read

Do you feel nervous just picking up your mail or answering your phone, because it might be the bank or the credit card company calling about your debt? You’re not alone. Obtaining relief from their debt is something many people struggle with. The problem is, when your debt load spirals out of your control, digging yourself out can be a major challenge.

So what options do you have if you’re struggling with your debt? First, take a deep breath. Being in debt that you don’t feel you can pay off can be extremely stressful, but there are options out there. Some of them, like bankruptcy, aren’t particularly pleasant options, but at least you do have options.

Don’t avoid: Stay aware

The first step in tackling your debt problem is not to avoid it. If you’ve made it a habit to chuck your unopened bills in a pile, now is the time to open them up. All of them. Make a list of the debt that you owe, and the minimum payments that are required. Look at the amount of income you have coming in, the expenses that you have, and get a good, clear picture of exactly where you stand. Until you know exactly how big a debt burden you have, and how far short you fall in terms of your means of paying off your debt, you won’t be able to make the decisions necessary to begin grappling with your debt.

Your debt relief options

  • Talk to your credit card companies. While it’s not the ideal situation for a credit card company, in some cases it may be better for them to come to a payment arrangement with you rather than have you not pay the debt at all. If you’re dealing with a mound of credit card debt, it could be well worth your time to pick up the phone and try to obtain credit card debt relief by negotiating with your credit card company. While you may or may not be able to work out an arrangement with them, whether it’s to negotiate a lower interest rate, a repayment schedule that fits your budget or some kind of debt settlement which lets you pay less than the balance you owe, sometimes a credit card company may be more flexible than you expected.

  • Dealing with your mortgage. If interest rates are low, you may want to consider refinancing your mortgage, whether with your current lender or with a new one. If you decide to refinance, make sure to check out all the options available to you. You should also check to see if you have any options to either reduce your current monthly mortgage payments or to temporarily suspend them under government modification programs.

  • Get credit counseling. Working with a certified counselor from a credit counseling service can help you get a clear view of the options available to you, including any debt relief programs that may be available, and teach you to make and maintain a budget. Many credit counseling services are offered by nonprofit organizations and you may be able to receive counseling sessions for no fee.

  • Get a debt consolidation loan. A debt consolidation loan can enable you to pay off your debt, leaving you with only one monthly payment to deal with. Whether you opt for a debt consolidation loan that consolidates all your debt, or a credit card consolidation that lets you pay off all your credit card debt, debt consolidation loans should be at a lower rate of interest than the interest on the debt you’re paying off. You’ll still have to make monthly payments, but the payments should be lower than you were required to make on all your credit cards and/or debt in total.

  • Dealing with student loans. If student loans are causing you problems, talk to your lender to see what options you may have. You may, for example, be able to arrange for a better payment plan that works within your budget. The options available to you will depend on the type of loan you have. You can find more information on student loan forgiveness online.

  • Bankruptcy. In some cases, bankruptcy may be your only real option. When filing for bankruptcy, you can choose between a Chapter 7 bankruptcy, which will have the effect of eliminating your debt, or a Chapter 13 bankruptcy, where you arrange to pay back some or all of your debt over a fixed period of time. There are a lot of pros and cons when it comes to deciding whether filing bankruptcy is a good option for your circumstances, and you may want to consult with a lawyer to get a bankruptcy evaluation.

What about my credit score?

When considering your debt relief options, you should research the impact of each option on your credit score. If you opt for a debt consolidation loan, for example, there may be a small impact on your score, depending on a number of factors. Filing for bankruptcy, on the other hand, will have a far more severe effect on your credit score.

However, whatever the impact on your credit score, your main goal when considering debt relief options is to pay off your debt. While your credit score may be severely affected by the option you choose, if once you’ve paid off your debt you continue to maintain good credit habits, you’ll be able to recover and rebuild your credit score.

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Belle Wong, J.D.

About the Author

Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She spends h… Read more

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