Ask Stacy: I’m Drowning in Debt. What Can I Do?

When you’re paying out more than you’re taking in, you’re in trouble. If this is happening to you, or someone you know, here’s a step-by-step guide for what to do.

What can you do when your outgo exceeds your income? If the situation is temporary, you borrow. But if it isn’t, borrowing is just going to make the situation worse.

Here’s this week’s question:

I am on Social Security and my husband is on disability. We are paying out more than we take in. Our house payment is over $700 and we have over $25,000 in credit card debt plus a car payment and utility bills, groceries and gas. I have been thinking of filing bankruptcy. I cannot pay any more on my credit cards than I already pay. Do you think this would be the best way for me to go? I am 67 and my husband is 64. — Hariette

While Hariette’s plight may be depressing, based on the number of similar questions I’ve received, it’s certainly not unique.

Here’s my step-by-step advice for dealing with debt:

Step 1: Make a list of everything coming in and everything going out

If you go to the emergency room, the first thing the nurse or doctor will do is assess your situation. Only after doing this will they be able to isolate the problem and decide the best course of action.

If you’re in a cash-flow emergency, same drill. Assess your situation by listing every monthly expense you have, then comparing that total with your monthly income. Do this honestly and you’re going to see — very likely for the first time — the magnitude of the problem, as well as potential solutions.

When adding up your expenses, don’t guess. Use bank and credit card statements to see exactly where your money has been going. If you use cash for a lot of your expenses, account for that as well. Down to the penny.

Step 2: Do what you can yourself

When you go to an emergency room, you’ve admitted you have a problem you can’t solve alone. While the same may be true of a cash crunch, it’s still worth taking a look yourself to see if you can stem the bleeding.

There are only three ways to address negative cash flow: reduce your expenses, increase your income, or both.

Depending on what you’re spending on, there are countless ways to spend less. This website alone has published thousands of ideas, from “25 Ways to Spend Less on Food” to “19 Ways to Save on Entertainment.”

There are fewer ways to find more income, but there are still plenty. See stories like “20 Odd Ways to Make Extra Money” and “50 Ways to Make a Fast $50.”

You can also look at big expenses. For example, Hariette says her mortgage payment is more than $700, and she has a car payment. Maybe it’s time for her to dump her car for something cheaper, or downsize her house. Granted, these strategies may not work, but the point is, when you’re in trouble, everything’s on the table.

Whether you can solve the problem on your own or not, it still doesn’t hurt to get some outside advice.

Step 3: Get professional help

Hariette’s question to me was: “I have been thinking of filing bankruptcy. I cannot pay any more on my credit cards than I already pay. Do you think this would be the best way for me to go?”

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