Ask Stacy: I’m Drowning in Debt. What Can I 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?”That’s like sending an email to a neurologist saying, “I have a headache. Do you think it’s a brain tumor?”

While it’s likely bankruptcy may be a viable option for Hariette, I can’t answer her question without first asking many more. Is she paying just the minimum on her debts? How high are the interest rates? Does she have savings? Has she already cut her expenses to the bone? Is there any potential to increase her income?

Choosing the correct prescription requires looking at lots of stuff and asking lots of questions. That’s why practically everyone in Hariette’s situation should seek the services of a professional, providing — and this is a biggie — the pro is trained, experienced and willing to holistically examine their situation and explore all options.

Visit an emergency room, and the doctor you meet may have graduated at the top of her class at Harvard, or barely scraped by at a state school. But while one may be smarter, both are probably competent.

Unfortunately, that’s not the case when dealing with debt professionals. There’s no standardized licensing, and the field is teeming with the self-serving, idiots and crooks.

In a post called “Where Can I Go for Help With Debt?” I explain in detail what to look for in a credit counseling agency. There’s too much to repeat here, but if I had to give a one-line answer, I’d say look for an agency that’s accredited by the Council on Accreditation and affiliated with the National Foundation for Credit Counseling. You can find one by visiting this page of the NFCC website. You can also go to our partner, Debt.com, who will set you up with a counselor meeting these criteria.

If you want to learn more about bankruptcy, check out “Ask Stacy: When Should You File Bankruptcy?”

There’s no law against talking to both a credit counseling agency and bankruptcy lawyer. In fact, talk to two or three of each. You won’t pay for initial consultations, and within hours you’re going to feel a whole lot better.

Do it now

Ever been sick but unwilling to go to the doctor? Maybe you’re hoping the problem goes away by itself; maybe you’re afraid you’re dying and don’t want it confirmed. But after you finally go and discover the problem can be easily fixed, you feel like an idiot because you stressed yourself out for nothing.

Same with money issues. You stare at the ceiling at night, hide it from friends and family. You’re afraid. You feel like a loser. You’re depressed, anxious, maybe even suicidal.

Well, in the time it’s taken to read this article, you could have started to turn things around. Right now, at the other end of a phone line is someone who understands you and your situation. They won’t judge you or charge you.

If you end up filing bankruptcy, every credit card payment you’re now struggling to make will have been wasted, because you may not finish paying those bills anyway. And no matter what you end up doing, if it’s ultimately going to involve outside help, every stress-filled minute you delay asking for it is like hitting yourself on the head with a hammer.

Got issues? Make a call or two. Not soon. Not today. Right now.

Got a question you’d like answered?

A great way to get answers to just about any money-related question is to head to our Forums. It’s the place where you can speak your mind, explore topics in-depth and, most important, post questions and get answers. It’s also where I often look for questions to answer in this weekly column. You can also ask questions by replying to our daily emails. If you’re not getting them, fix that right now by subscribing here.

About me

I founded Money Talks News in 1991. I’ve earned a CPA (currently inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.

Got more money questions? Browse lots more Ask Stacy answers here.