Between what is portrayed on TV and movies, along with the misguided advice of well-meaning friends, bankruptcy is a process that is surrounded by a lot of misconceptions.

Around 2014 I had amassed what I considered a small fortune in debt, and it was really stressing me out. After hearing my tale of financial woe, my friend Taylor blurted out “Why don’t you just declare bankruptcy?”.

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He said it in a tone that made it seem like it was the most obvious thing in the world. Was I missing something? Was declaring bankruptcy as painless as this guy is making it sound?

“Won’t that like...ruin my credit?” I said.

He shook his head. “Nope, my cousin did it. He said there were almost no consequences.”

I have no doubt that Taylor meant well with this advice, but it certainly was not coming from a place of experience. The statement that there are “almost no consequences” is completely false.

If your debt has gotten to a point where you feel like it’s truly insurmountable, it might be time to consider filing for bankruptcy, but it’s crucial that you understand the impact that it will have on your financial situation for years to come. Read on to learn more about your different options, as well as the pros and cons of filing for bankruptcy.

What is bankruptcy?

Bankruptcy is a legal process where a person or business seeks relief from outstanding debts that they are unable to pay. In most cases, the legal proceeding starts with a petition filed by the debtor (person who owes the money), and then a court evaluates the debtor’s finances to determine how much of the outstanding debt can be paid off with their existing assets.

There are various types of bankruptcy, often referred to by their respective chapters within the U.S. Bankruptcy code.

While bankruptcy does offer people freedom from crushing debt, it’s important to note that this filing stays on your credit report for between 7-10 years, and comes with some significant drawbacks which we go over in detail below.

For the purposes of this article, we’re going to focus on the bankruptcy process for private citizens as opposed to business entities.

What are the benefits of bankruptcy?

Debt relief

Most importantly, filing for bankruptcy will provide significant debt relief for those who are in over their heads. The relief will depend on the filing type you choose, but the main advantage is that you’ll put a stop to the “bleeding” of money that your debt is causing.

A lot of people tend to lose hope the further into debt they go, but bankruptcy is a beacon of light that can make a disastrous situation manageable again.

Delay foreclosure

Filing for bankruptcy triggers what’s referred to as an “automatic stay”, which temporarily freezes all repossession actions.

This temporary hold can give you an opportunity to catch up financially and sort things out before your home or other property is repossessed.

Depending on your specific case, your bankruptcy filing may be able to protect some of your assets. For instance, if you file for Chapter 7, your home and vehicle may be exempt from liquidation.

Silence the debt collectors

Part of an automatic stay also prevents debt collectors from contacting you further while you’re in the filing process. Once you file, you won’t have to worry anymore about the endless barrage of phone calls and letters from your creditors.

Learn more about the fair debt collection practices act here.

What are the drawbacks of bankruptcy?

For as many benefits as bankruptcy has, there are also significant disadvantages that you should consider ahead of time.

It can lead to the loss of property

It’s likely that as part of your bankruptcy proceedings, you may be required to sell some of your possessions in order to repay your debts. This doesn't mean that you’ll lose everything you’ve ever worked for and will be forced to sell the shirt off your back, but if you’re filing for chapter 7, you should prepare yourself to part with some non-necessities.

Asset liquidation varies greatly from case to case and will depend on the type of bankruptcy you file for. While in some cases you may be able to keep your home and your vehicle, you shouldn’t bank on being able to keep anything that a court might view as excessive or living beyond your means.

It will damage your credit report for years

Depending on which chapter you choose, you can expect a bankruptcy filing to stay on your credit report for between 7-10 years. You should also expect your credit score to drop at least 200 points as a result of your filing.

As you can imagine, this impact to your credit report will make it more difficult to borrow money in the short term. Since financiers will view you as a higher risk, you should expect difficulty obtaining lines of credit and an increase in your interest rates while you begin to rebuild your credit score.

It can make it harder to rent a home

It’s common knowledge that filing for bankruptcy can impact your ability to obtain a mortgage in the short term, but what if you’re a renter?

If you are searching for a new apartment or home to rent, it’s likely that your landlord will check your credit history as part of the application process. A recent bankruptcy filing could result in a higher security deposit, increased monthly rent, or denial of your application.

It could make it more difficult to get a job

Some employers have incorporated an assessment of a candidate’s credit history into their background checks.

While there are varying schools of thought regarding whether a credit score is an accurate representation of an applicant’s trustworthiness, it is something that a growing number of employers are looking at.

The types of bankruptcy

Now that we’ve covered some of the pros and cons, let’s take a look at the two main types of bankruptcy that people file for.

Chapter 7

Chapter 7 is commonly referred to as “straight bankruptcy” and is generally considered to be the quickest and easiest way out of debt according to author, and debt expert, Steve Rhode.

With this type of bankruptcy, you’ll be required to work with a representative from federal bankruptcy court to sell any assets that aren’t exempt. Exempt items can include things like your vehicle, work tools, and basic necessities. The proceeds from your asset liquidation goes toward paying off your debts, and the balance of what you owe will be wiped clean after your bankruptcy is discharged.

Chapter 7 bankruptcy will stay on your credit report for a period of 10 years from your filing date, and you won’t be able to file for chapter 7 again for a minimum of 8 years.

Chapter 13

Chapter 13 is different from chapter 7 in that you are able to keep your property in exchange for paying back your debt partially or completely.

With this type of bankruptcy you’ll agree to a repayment plan with your creditor(s) spanning 3-5 years. During the negotiation phase of the filing process, you may be able to get your outstanding balance reduced so that you only have to pay back a portion of your debt. Once you’ve finished making payments toward your payment plan your debt will be discharged.

Chapter 13 is often seen as a more palatable option for filing for bankruptcy. This filing method is sometimes referred to as a “pause button” so that you can stop your debts from accruing more interest as you work toward paying them back on an extended timeline. Additionally, you generally have more freedom to keep your assets with this type of filing if you can find other ways to fulfill the terms of your repayment plan.

Chapter 13 bankruptcy falls off your credit report after 7 years and you can file again for this chapter just 2 years after your original filing date.

Do I need an attorney to file for bankruptcy?

No. You can file for bankruptcy on your own, which is referred to as “pro se”.

While it’s not required to hire a bankruptcy attorney, they can be quite helpful in navigating the process, and letting you know ahead of time what kind of results you might expect. They’ll also advise you on which chapter you should file for, whether or not your debts are eligible to be discharged, and what the potential consequences of your filing will be.

Can I discharge student loans with bankruptcy?

It was once thought to be impossible to discharge student loans through a bankruptcy petition, but that tide could be shifting following a major 2020 decision that saw a Navy veteran relieved of $221,385.49 in student loans under chapter 7 bankruptcy.

However, bankruptcy is not the only strategy available to help with student loan debt. Check out our article on student loan forgiveness for more options.

What types of debt can’t be discharged by bankruptcy?

There are a few different types of debt that are not discharged by a bankruptcy petition.

• Debts you failed to list on your bankruptcy filing
• Child support & alimony
• Instances of fraud
• Debt arising from deliberate injury of another person or property
• Debt stemming from death or personal injury caused by DUI
• Certain unpaid taxes and tax liens

A final word on bankruptcy

Filing for bankruptcy can provide much needed relief and is not something to be ashamed of. Plenty of people, including our Zero Debt founder have filed for bankruptcy and then bounced back stronger than ever. That being said, this decision should be considered as a last resort and the benefits should be closely weighted against the consequences.

If you’re considering filing for bankruptcy but aren’t sure if you’ve exhausted all other options, the following articles may be able to help.

• How to get out of debt with low income
• What is debt consolidation?
• How to negotiate debt settlement on your own

If you’re currently struggling with debt, you’ve probably learned the hard way that debt collectors can be absolutely relentless. It’s literally their job to pester you into cutting them a check regardless of your circumstances.

The endless stream of phone calls, nasty letters, and threats can really put a damper on your daily life, but it’s important to know that there are laws that protect you, and you do have legal recourse if debt collectors are treating you inappropriately.

To understand the FDCPA, you’ll need to know who the regulations apply to, how the policies apply to debt collector communication, and what the law specifically prohibits.

What is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act (FDCPA) is a law that protects consumers from abusive debt collection practices. The law established clear regulations as it relates to how and when debt collectors can communicate with consumers, and also prohibits harassment or misleading practices.

Who does the FDCPA apply to?

The FDCPA specifically applies to third-party debt collectors only.

A third-party debt collector is an entity whose primary business purpose is to collect debts owed to another party. Oftentimes when a consumer defaults on a loan, the lender will contract an agency that specializes in debt collection to recover the funds. The debt collection agency is then paid a percentage of the amount they recoup.

For example, if you were to visit the emergency room with a broken arm and a month later you receive an astronomical bill that you didn’t make any payments on for several months, it’s not unusual for the hospital to contract with a debt collection agency to go after you for the outstanding balance, rather than the hospital using their time and resources to try to collect on their own.

This is an important distinction because FDCPA does not apply to the internal collection department of the agency who originally loaned the money or provided the service. That is to say that in the above scenario, if employees from the hospital’s internal billing department try to collect on the debt for your broken arm, they would not be subject to the regulations of the FDCPA.

How does FDCPA protect me?

The law focuses heavily on regulations as it relates to how and when debt collectors contact you or other parties regarding your debt.

Under the FDCPA debt collectors are not allowed to:

• Contact you before 8 A.M. or after 9 P.M.
• Disclose your debt to a third party like your employer, coworkers, neighbors, etc.
• Call repeatedly to harass you.
• Call you at work if you’ve informed them that you are not allowed to receive personal phone calls at your place of employment.
• Send you a postcard or any parcel in the mail that openly displays the debt collector’s logo, or any language that pertains to debt collection.
• Misrepresent their identity or claim to be law enforcement.

Additionally, you are able to stop collectors from calling you at all by writing a cease-and-desist letter. It’s advisable to send your letter via certified mail with a confirmation of receipt for your records in case they continue to call you.

You should also be on the lookout for these common debt collector scams that (frighteningly enough) aren’t all necessarily illegal, but definitely worth safeguarding against.

What if my identity was stolen?

With the popularity of online shopping, this is a situation that’s becoming more common every day. If your debt is a result of identity theft, you’ll need to send the collector a letter disputing their claim along with a copy of the police report regarding the fraudulent charges.

It’s important to act quickly, because if you fail to respond within the 30 day validation period, the agency will assume that the debt is valid.

What can I do if a debt collector violates FDCPA?

If you believe that a debt collector has violated the law, you are able to take legal action within 12 months of the alleged infraction. You may file a lawsuit on your own behalf, however it should also be noted that if you win your case you may be eligible to recover any attorney’s fees you’ve incurred as part of your lawsuit.

Judgments for FDCPA violations are generally up to $1,000 but if you can prove further damages at trial, you may be entitled to more.

If you aren’t looking to file a full blown lawsuit but would still like to hold the debt collector accountable for their violation you can also file a complaint with the Consumer Financial Protection Bureau.

A final word on FDCPA

Being in debt is difficult enough without having to deal with harassment. FDCPA is here to protect you and we encourage you to know your rights and stand up against any debt collector who infringes upon them!

You can also find more resources for dealing with debt collectors in our piece about how to negotiate debt settlement on your own.

Being deep in debt can be more than just financially damaging. It can also cause damage to your mental health.

I remember the sensations of being in debt vividly. The seemingly permanent pit in my stomach. Not being able to sleep as my mind raced trying to come up with ways to pay my bills. The burst of adrenaline every time the phone rang or a new bill showed up.  

I was a junior in college with a razor thin budget and although things were very tight, I was in a relatively good spot. I had a job that paid pretty well for a college kid, and I felt like I was being pretty responsible with my spending.

When out of nowhere, I chipped a tooth.

This was particularly troublesome because I did not have dental insurance at the time. After my dentist did a full exam and explained that I’d need two root canals and two matching crowns, I got the cost breakdown from the receptionist, and it felt like my heart dropped into my lower intestine.

All said and done, about $4,500 of work needed to be done. I didn’t know any better, so I didn’t inquire about financing options and I just charged the whole amount to my credit card.

The following week I was coming home from school after a late night study session. I was in the middle lane of a busy L.A. freeway going over 70 MPH when my car lost all power. The engine completely died and the dashboard lights started flickering like an airplane getting ready to make a crash landing.

It turned out that my timing belt had snapped and my engine had seized, rendering it completely worthless. I would need to purchase a used car, and quickly if I was going to make it to work and school the following week.

In the span of 7 days I had amassed over $8,000 in debt. And since I barely had enough money to pay my rent before these unexpected expenses, that debt would continue to grow rapidly due to the unfortunate power of compound interest.

I fell into debt WITH a budget. I was already living a barebones lifestyle with multiple roommates. I was already eating a steady diet of peanut butter sandwiches and toaster pizzas.

To say that I was depressed would be an understatement, but luckily I was able to dig myself out of the debt and the depression.

What is debt depression?

Debt depression is a colloquialism for when the mental stress of debt is negatively impacting a person’s mood to the point where it is impeding their daily life.

Although debt depression isn’t a clinical term, research studies have concluded that the negative mental impact of debt can actually mirror the stages of grief.

If this sounds familiar, you should check out the following tips in an effort to relieve the symptoms.

Visit a counselor

If you think you’re suffering from debt depression (or any depression for that matter), seeking out a counselor can truly be life saving.

After seeing a mental health professional, a credit counseling service can help you to mitigate your debt and repair your credit.

Psychological Counseling

High levels of stress can have adverse consequences on the body including suppressed immune function, increased chance of heart disease, insomnia, and weight gain.

A mental health professional will be able to work with you to manage your stress and negative feelings. Additionally, a mental health professional can work with you regarding any behavioral issues that might make you prone to impulsive spending or other types of detrimental financial behavior.

Credit Counseling

Credit counseling services are typically non-profit agencies that help people to manage large amounts of debt.

Depending on your circumstances, a credit counselor can reach out to your creditors to negotiate your balance and work out new terms for you to pay back your balance on a monthly basis.

Make sure to do your research on any credit counseling service. Most are non-profit and will not charge you for their services.

Take the shame out of your game

Rule #1 for people suffering from debt depression is to stop shaming yourself.

Regardless of whether or not you find yourself in this situation due to circumstances you could control, the fact of the matter is that negative self-talk will only hurt your cause.

Getting through debt depression will require compassion for yourself. Take note of the way you are talking to yourself internally. Are these the types of things you’d say to your best friend if they were in this situation? What do you think your best friend would say to you about this?

It’s important to learn from your mistakes so that you don’t repeat them, but beating yourself up over debt is simply counterproductive.

Separate net worth from self worth

When I was deep in debt, it consumed my thoughts. It was the last thing I thought of when I went to sleep, and it was the first thing I thought about when I woke up in the morning. Then I continued to worry about it throughout the day. It was hard not to think about it because the debt was influencing so many of my decisions. It felt like a piano that was constantly hanging over my head.

Until one night my friends noticed I was a little off. The stress had been weighing me down, and over a few drinks my friend Eric inquired as to why I had been so quiet. The rest of my friends went silent waiting for me to respond. They had noticed it too.

I hadn’t been myself, because as the debt continued to compound, I felt like I had to punish myself. Why should I be able to have fun with my friends when I should be trying to get this albatross off my back? I felt like debt was for the irresponsible and reckless and that’s exactly how I felt even though the circumstances were beyond my control.

I didn’t want to admit to them what was going on with me. I didn’t want to shine a spotlight on something that was already bugging me so much, and I certainly didn’t want anyone’s pity. But they pressed me.

As I finished reluctantly telling them my tale of woe, I could see the sides of Eric’s mouth turn up with a knowing smile.

“I’m pretty sure everyone sitting on this patio right now is in debt. Whata’ya got? Under 10 grand? Those are rookie numbers.”

The rest of the group laughed in unison and then started calling out their debts trying to one-up each other.

“I owe the IRS 15 grand!”

“I will be paying back student loans until I die.”

“My credit card company is literally suing me!”

It was as if I had stumbled into a support group for people with debt. Here were all these people I knew and respected that were able to keep living their lives in spite of their substantial debt. It was at that moment that the tension from my shoulders released, and I was able to go back to enjoying my free time, instead of constantly worrying about my finances.

Make a plan

Some people say that the antidote to anxiety is action. Learning to manage the stress of being in debt is great and all, but now it’s time to roll your sleeves up and address the issue at hand.

Check out our ultimate guide to getting out of debt with low income for a step by step road map to achieving zero debt! Our guide covers topics like how to budget, debt mitigation strategies, debt consolidation, debt forgiveness, bankruptcy and more!

A final note on debt depression

It’s important to take action quickly whenever your mental health is suffering. Your finances are undoubtedly very important, but your mental health is paramount!

Have you battled with debt depression? How did you cope with it? Let us know in the comments!

Falling into debt is disturbingly easy.

Off the top of my head I can easily name a half dozen people that I know and respect who have fallen into substantial debt due to a series of avoidable missteps. Myself included.

Many Americans are living paycheck to paycheck and something as routine as a chipped tooth, broken arm, or blown transmission could potentially lead to a debt spiral.

Handling finances can sometimes feel like trying to navigate a minefield. You could do everything to the best of your knowledge and ability, but just one slight misstep could potentially lead to disaster.

That’s precisely why I wanted to put together a resource to illuminate some of the most common ways people get trapped in debt.

Credit Cards

When used properly, credit cards are a fantastic tool to build your credit. If you pay your balance in full each month, putting your purchases on plastic can also be a great way to rack up rewards points.

The trouble obviously comes into play when spending gets out of hand and you can’t pay your balance off.

Managing your balance

I’m sure that you’re already painfully aware that ideally you should be paying off your balance in full every month so that you don’t have to pay any interest. But we both also know all too well that sometimes it’s just not that simple.

When my friend Renee moved out of her parents house and rented her first apartment she was really jazzed to furnish her new place. In the span of a weekend she bought a brand new refrigerator, couch, rug and flat-screen.

Renee is a close enough friend that I felt comfortable asking her how she could afford all this new gear. We had the same job at the time, and I knew that I could barely afford a snow cone.

Without missing a beat she boldly exclaimed “I put it on my card, but I’ll have it paid off in a few months!”. She sounded so confident and I didn’t even have a credit card at the time so who was I to question her further?  

Spoiler alert: she didn’t have it paid off in a few months. Renee would end up paying over triple the original value of all the items she purchased over the course of 4 years.

What could she have done differently?

Renee had every intention of paying off her credit card in a “few months”, but the real issue was financing things she didn’t need. Renee could’ve opted to piece together some used items from yard sales, Craigslist, or OfferUp to furnish her apartment. She also could’ve held off on some of the items entirely.

When deciding when to use your credit card, you have to be real with yourself about whether you’re purchasing something you want or something you need.

Years later Reene is able to laugh while remembering the mess she got herself into. When I asked her what she wished she had known when she was signing up for that credit card all those years ago, she responded “I wish someone would’ve explained the concept of compound interest to me verbally instead of burying it in a cardholder agreement that I’d need a microscope to read.”

Compound interest

You’re probably familiar with the concept of “simple interest”, where you borrow an amount of money and then you’re charged interest on the principal balance. Compound interest is different.

Put simply, compound interest means that your credit card provider is charging you interest on interest. You’re not just paying back the original amount that you borrowed. Your lender is calculating a new balance daily to account for the interest your loan is accruing.

With this in mind, it’s easy to see how so many people lose control of their debt. As the interest continues to compound, you could find yourself struggling to pay off just the interest charges each month.

Emergencies

To be fair, there are some instances where putting an emergency expense on your credit card might be the only option. I have been there.

If you have an unavoidable expense that you have no choice but to put on your credit card, there is some hope. In a lot of cases, credit card companies will be willing to work with you in the case of an emergency.

This is dependent on the circumstances and lender, but some companies have been known to temporarily lower or completely suspend interest rates for several months.

Our guide to paying off debt with low income is a great resource for digging yourself out of a mess.

Auto Loans

In an ideal world you would be able to purchase a car with cash, but that’s completely unrealistic for most people. To be clear, auto loans aren’t inherently bad, but you should know about the different options and pitfalls before you sign up for one.

New isn't necessarily better

I’m sure by this point you’ve heard that a new car depreciates substantially immediately when you drive it off the lot– and continues to depreciate further with every mile you travel and every ding you put in the bumper.

Used cars come at a major discount, and can be just as reliable as a new vehicle.

In 2016, I purchased a certified pre-owned Kia Optima that only had 30,000 miles on it for $7,000 under the asking price of a brand new model. I owned the car for over 3 years before I had a problem with it, and that problem was covered under warranty! My monthly payments were low enough that I could afford to pay extra each month, and I ended up paying the car off a year early.

Negotiating the term of your loan

A typical car loan is for a duration of 5 years, but let’s say you’re at the dealership and the final price is just outside your budget.

A common tactic that salesmen use when a person is trying to buy a car out of their budget is to “help” by extending the time frame of the loan. So a 60 month loan gets extended to 72 or 84 months, and your monthly payment amount drops a considerable amount.

The purchaser is happy because now they have the perception that they can afford a vehicle that’s out of their budget, and the dealership is happy because not only did they sell a car, but they’ve also locked the purchaser into paying more interest.

If you need 84 months to pay off a car, it’s time to assess whether or not you truly need that particular car.

Breaking the monthly mindset

Another common auto sales tactic is to try and upsell you on unnecessary upgrades and add-ons by framing the conversation in terms of your monthly payment.

“You’ll want to make sure your vehicle is protected with our state of the art anti-theft alarm. For just an extra $18 per month you can rest assured that your car is safe! Isn’t peace of mind worth $18 to you?”

In the grand scheme of things $18 a month sounds pretty reasonable, right? That’s just barely more expensive than a Netflix subscription. But if you take a closer look, $18 a month will come out to $1,080 over the course of a 60 month loan.

You can expect an aftermarket car alarm to cost anywhere from $200 - $500 for materials and labor, which would mean you’d be paying over double the actual value of the alarm if you took the salesman’s offer at face value.

It’s important that you don’t look at decisions in terms of the monthly breakdown. Look at the total price of the item.

If you still have questions about how to get the best deal on a car, our friends at Think Save Retire put together this insider’s guide to car buying.

Medical Expenses

One of the quickest ways to fall into debt is medical expenses. Since our medical professionals very literally hold our lives in their hands, it’s natural that we want to trust them implicitly.

A lot of people have anxiety about going to the doctor in the first place and if you’re having health struggles, monetary worries might be a distant afterthought.

Let me be clear when I say that I’m not suggesting that you should forego necessary medical procedures to save a few bucks. I am however saying that you should perform thorough due diligence on any recommended procedure to ensure that you don’t receive a surprise bill for thousands of dollars.

Out-of-network surprises

Before you make an appointment with a doctor, you’ll need to check your insurance policy to make sure that practitioner is within your insurance company’s pre approved network.

If you visit a provider that’s out of network, your insurance company could potentially deny your entire claim.

Policy restrictions

Let’s say you tweaked your knee and are having pain when you walk. You make an appointment with an orthopedist that’s in your network to get your knee checked out and she performs a series of x-rays.

She determines that surgery isn’t necessary, but she prescribes physical therapy twice a week for 8 weeks.

You’re so excited that you don’t need surgery, that you make your physical therapy appointment right away and carry through with all 16 sessions until your knee feels better and everything's right with the world again.

Until you get a bill in the mail out of the clear blue from the physical therapist’s office for $3,900.

You call the office and they inform you that your insurance company denied your claim for some of your sessions and you’ll need to pay the rest out of pocket. So you call your insurance company outraged and tell them that you had a prescription for 16 sessions!

But as it turns out, your policy only covers you for 3 physical therapy sessions regardless of what a doctor prescribed.

The reality of the situation is that when it comes to medical expenses, you are your only line of defense.

Your doctor’s office doesn’t know the details of your policy, and your insurance provider isn’t going to go out of their way to prevent you from missteps either. You’ll need to study your policy, and then call your insurance provider to confirm what is or isn’t covered for each procedure. If you can get it in writing or via email, that’s even better.

Before having a procedure, ask your doctor for the specific billing code(s) used for that treatment so that you can clear it ahead of time with your insurance provider.

Billing codes

When you receive treatment from a medical provider they make notes in your medical record and then a professional medical coder analyzes the documentation and assigns billing codes based on the treatment you received.

You might be surprised how often things get lost in translation when it comes to medical billing. A coder might not entirely understand a provider’s notes and charge you for a procedure you didn’t have. They may also mistakenly apply a wrong code to a procedure which could potentially lead to your claim being denied by your insurance provider.

If you’ve received an unexpected bill, you should look up the billing codes of each line item yourself and make sure that the information is correct. Call your medical provider and insurance company with any discrepancies.

Dental procedures

I should be careful how I word this since I have a cleaning appointment coming up...but some dentist’s business practices are reflective of the car sales tactics I mentioned above.

When I was in my mid twenties, I didn’t have dental insurance and hadn’t seen a dentist in quite some time. I didn’t have any pain in my mouth, but I found a groupon for an exam and cleaning for $100 so I thought I’d give it a shot.

After taking an X-ray, the dentist had a series of concerns and painted a scary picture that could only be solved by a series of treatments I had never even heard of. I stumbled into the waiting room disoriented with the taste of blood still in my mouth when I was presented with a “treatment plan” with a price tag of over $4,000.

What I didn’t realize until I told them that there was absolutely no way I could afford all this is that every line item on that treatment plan was negotiable. Since I didn’t have insurance, they offered a “cash price”– which is an often unadvertised discount for people who are uninsured.

It turned out that I would need a root canal and a crown, but they declined to tell me that there were different (less expensive) materials they could use for the crown. Naturally they defaulted to the most expensive material.

Additionally it turned out that the procedures they were recommending were nice to have, but not medically necessary.

The bottom line is that for as much as we would love to trust our medical providers– medicine is a business and you need to treat your interactions with medical professionals as such.

Being your own advocate

Looking out for your own best interest can be uncomfortable.

Since most people tend to just go with the flow and accept things at face value, you might get some strange looks, eye rolls, or sighs when you ask pertinent questions. You may be met with faux outrage, or seemingly hurt feelings.

You may even be referred to as a “Karen”. Don’t be shaken by this.

It’s up to you to be your own advocate and after having read this guide, I hope you have the ammo you need to stand up for yourself and stay out of common debt traps.

If you've ever been deep in debt, you know exactly how awful it feels. Being deep in debt feels like you’re trying to outrun a cheetah. You’ve got slim-to-no-chances of getting out of danger, but it’s fight-or-flight and so you need to at least try.

There’s something about the internet that just makes you want to be brutally honest. I don’t know if it’s the fact that I don’t have to look anyone in the eye while I share something embarrassing, or if it’s because I feel like sharing my mistakes finally means I’ve learned my lessons, but here I am, ready to share one of my biggest moments of financial “shame”.

Now, before I get into the nitty-gritty, I want to share that everyone makes mistakes financially, and shame does not need to be permanent! As long as you’re sorting out your past, you’re doing your best, and you don’t deserve to feel ashamed. Now, on with my story of negotiating my way out of credit card debt.

When I was 22, I really didn’t understand that credit cards are not free money… I know that sounds silly but I was broke and I really wanted to keep up with my friends. I figured as long as I could pay the minimum ($70) on my credit card every month, I could afford to live it up in luxury.

Turns out, I couldn’t even afford that $70 a month… Not to worry though! I decided to ignore the whole deal and just spend until the card didn’t work anymore. A true moment of brilliance on my end.

My next period of brilliance came in the form of just ignoring the bills, delinquency notices, and collections notices for roughly four years. This was a bad plan. My credit score plummeted, and I still couldn’t afford the bills. (Like I said, learn from my mistakes here.) Getting anxious when an unknown number calls you because you assume it’s a collection agency is no way to live. I felt like I was drowning and I knew in order to move forward I would have to clear my debts.

Eight steps to negotiate a debt settlement

1. Acknowledge the debt. I know this seems obvious on some level, but it’s easier than you think to get caught in the cycle of debt by running and spending and running and spending. Once I owned up to my mistake, I started to see a path forward.
   
2. Figure out where your debt is and who you need to pay. My debt had transferred from the original financial institution that issued the credit card, to a debt buyer (or a company that buys debts). So, instead of owing my bank roughly $7,000, I now owed a completely different company.
   
3. Actually find out how much you owe. Since I had been ignoring my bills for so long, I genuinely didn’t know how much I owed. Once I realized I owed over $7,000, I actually felt surprisingly relieved. It was at least a solid number that I had to work with.
   
4. Weigh your options when it comes to debt relief or debt settlement. If you owe multiple debts or a huge amount of money, you may want to consider looking into a debt relief or settlement option. I was fortunate enough to afford one lump sum payment to get me out of trouble, but of course there are other options if you need to space payments out.

5. Get in contact with your creditors. Once I got everything sorted, decided on a lump sum repayment, and determined to whom I owed money, it was time to reach out.

6. Don’t just get on the phone and pay right away. Before I handed any money over to the debt collectors, I asked if they had any deals they could offer me. This is the “settlement” piece of this equation. I know it seems like a choosing beggar kind of move, but I just wanted to know if I could save any money. And it turns out that they were willing to settle the debt for 50% of what I owed! I went from owing $7,000 to $3,500 with one simple phone call.

7. Get your settlement in writing. Again, before I paid the company I asked them to please mail me a letter with the final settlement amount in writing for my records. This is so important. You need proof of your negotiation in writing in order to be absolutely sure that you don’t underpay or misunderstand what you owe.

8. Pay that bad boy off as you are able. Like I said before, I was able to pay in a lump sum, so once I got my confirmation letter, I called, paid with a debit card, and was able to wash my hands of the whole thing. If you have to pay in monthly installments, make sure you keep on top of it! This is your chance to get a restart, and you do not want to mess it up.

Debt settlement process tips

Just because you’ve paid your debts, they don’t magically disappear from your credit report. Your paid debts will stay on your credit report for 7 years. It’s tough to feel like you’ve done your due diligence, paid your debts, and you still might have trouble renting a home or getting an ideal APR on a car, BUT when it comes to wiping out debt, there’s no time like the present! Seven years will pass quicker than you think, so you might as well live debt-free.

Your credit score will not immediately change massively. Similar to the fact that your debt stays on your report, your score will also not skyrocket back up. Still, it’s better to be debt-free and work on rebuilding your credit, than it is to be in debt.

Debt settlements can actually be worse for your credit than a full-price payment plan. It’s usually worth it to save the money if your debt has already gone into collections, but your best bet is probably to never get in that spot. Learn from my mistakes!

Final thoughts

When it comes to settling credit card debt, you have to weigh which actions are most worth it to you in the long term. Some choices will impact your credit score negatively, but will ultimately impact your overall life pretty positively (mostly because the relief of being out of debt is possibly one of the best feelings out there). Whatever you do, don’t stay still!

With more than 44 million Americans filing for unemployment benefits since March, you may be wondering how to deal with the bills that are piling up.

Credit card debt was a significant concern for many Americans well before the COVID-19 pandemic, and the situation has only been amplified over the past few months. Reduced income often leads to increased debt as credit cards serve as a way to pay living expenses that can’t be covered otherwise.

If you’re in a difficult situation and find yourself unable to pay your bills, there are some options that may be available to you. Many lenders, including credit card issuers, are attempting to work with borrowers to provide some flexibility and assistance due to the circumstances.

Help from Government Agencies

The government has already taken several steps to help Americans that have been financially impacted by the coronavirus. These programs are not directly related to credit card debt, but the benefits may be able to help you with your bills, including monthly credit card payments.

• COVID-19 stimulus checks. As part of the CARES Act, $1,200 stimulus checks were sent to most adults (based on income qualifications), with additional money for children.
• Expanded unemployment benefits. The federal government has tacked on $600 per week in addition to the regular unemployment benefits paid by states. The extra $600 will expire at the end of July.
• Paycheck Protection Program. Small businesses impacted by the coronavirus were able to apply for forgivable loans in order to continue paying salaries and wages to workers that otherwise may have lost their jobs.
• 401(k) early withdrawal penalties waived. The 10% penalty for early withdrawal of 401(k) money was temporarily waived, allowing up to $100,000 to be withdrawn without penalty.

Coronavirus Credit Card Relief Programs

In addition to the government programs offering help, many credit card issuers (as well as other lenders) have developed programs of their own for consumers in need of assistance.

The exact details of the relief available to you will depend on the lender, as well as your own personal situation, but some of the common programs involve the types of relief listed below. It’s always worth giving your lender a call to discuss your options. A lot of times credit card companies are willing to work with people who call and explain their situation. You might be surprised at the accommodations they are willing to make.

Waiving Late Fees

On top of increasing balances and interest charges, late fees can make it even harder for you to get out from under your debt. While the intent of a late fee is to encourage people to pay on time, many issuers are waiving late fees right now because so many borrowers are already stretched thin and paying on time may not be possible.

Lowering Your Interest Rate

Your interest rate will directly impact how quickly your balance increases. Due to the circumstances, some issuers are willing to reduce interest rates in order to help borrowers who are facing difficulty.

Skipping or Deferring Payments

In some situations, credit card issuers may be willing to allow you to skip or defer a monthly payment. However, there are other factors that need to be considered as well. If this is an option that the issuer is offering, check to see if they’re also waiving the interest charges accruing during this time.

Setting Up a Payment Plan

Credit card issuers may be willing to work with you on developing a repayment plan that will allow you to pay off your debt in a way that is more favorable than your existing plan.

Increasing Credit Limit

Increasing your credit limit may be the last resort that could help you to get through a difficult time. Due to the unusual circumstances and the difficulty that you may be facing with covering your living expenses, increasing your credit limit may be an option that you want to consider, although any other options should be prioritized.

Getting Help

If you’re in need of assistance, here are some simple steps to follow.

Step 1: Assess Your Situation

Take a step back and look at your overall financial situation. How has your income been impacted by the events of 2020? Are you able to pay all of your bills on time, and what bills and payments will be coming due in the near future?

Credit card issuers may ask you to provide evidence of hardship or documentation before working with you on some sort of relief. It’s best to prepare ahead of time and be ready to provide documentation to show a drop in income or expenses that you may have faced as a result of the pandemic.

Step 2: Prioritize Your Payments

Not all bills are equal. If you find that you’re unlikely to be able to pay all of your bills, take some time to prioritize so the most important bills are paid first. Things like mortgage/rent, car payment, food, and utilities should be at or near the top of the list. Necessities should be prioritized, while other discretionary expenses or bills would be lower on the list of priorities.

Bills that aren’t collecting interest are ones you should consider the lowest priority. Look into what the minimum monthly payment would be on those to maintain zero interest and avoid any penalties.

Step 3: Work with Your Creditors

If you’re having trouble paying your bills or if you anticipate that you might not be able to pay upcoming bills, make the effort to reach out to your credit card issuer as soon as possible. Many creditors will be willing to work with you, but the situation can be harder if you wait until you’ve fallen way behind.

Due to current events, most creditors, lenders, and banks are experiencing very high call volume and you may be on hold for a long time. You may have an option to send a message or a request through the company’s website or app, which may help you to avoid long holds. However, talking to a human is often the best way to get some help, so you may want to make a call at a time when you’ll be able to wait if you get placed on a long hold.

Check the website of your credit card issuer as they may have specific resources related to the pandemic, or specific ways for you to request relief. Here are links to relevant information from some of the leading issuers:

• American Express
• Bank of America
• Capital One
• Chase
• Citi
• Discover

Step 4: Make Your Minimum Payments

If possible, continue to make your minimum payments, or more if you’re able, each month. Making the minimum payment will help you to keep your credit report clean and at least you’ll be paying down some of that debt, even if it leads to slow progress.

Step 5: Keep an Eye on Your Credit Report

Monitoring your credit report is always a good practice, but it’s even more important right now. Typically, you’re entitled to a free copy of your credit report from each major bureau (Experian, Equifax, and TransUnion) once every twelve months. However, you can now get a free copy of your credit report every week, which makes it much easier to identify any inaccuracies and get them fixed as soon as possible.

If you’re facing challenges paying your credit card bills, know that you’re not alone. With millions of people being impacted, there is nothing to be ashamed of. Take advantage of any relief options that are available to you and put yourself in the position to recover as quickly as possible.

If you’re receiving phone calls from debt collectors, you need to be sure the people you’re talking to are legit. Unfortunately, there are many debt collection scams out there and it’s easy to fall victim to these scammers if you’re not careful.

Debt collection scams usually prey on people who are in a difficult situation. The scammers know that most consumers with debt in collection are going to be nervous about the situation, and they try to use this as leverage to take advantage of people.

Some scammers use fear to get people to pay debt that they don’t owe, and others coax consumers into giving out personal information that can be used for identity theft.

Fortunately, the scammers are usually easy to identify if you know what to look for, and you can avoid becoming a victim by taking a few specific steps.

Common Debt Collector Scams

Most debt collection scams will follow the patterns of other known scams. When you’re trying to determine if a caller is a legit debt collector or a scammer, keep your eyes open for these common scams.

Asking for Sensitive Information

The debt collector should already have all of your personal information. If you’re asked to provide personal or sensitive details like your date of birth, social security number, or bank account number, it should be a warning sign that you are not speaking to a legit debt collector. The caller may ask you to provide these details to verify your identity, but be sure that you don’t give out this information.

Trying to Collect for a Debt that You Don’t Recognize

Do you recognize the debt that the caller is trying to collect? Never make payment to a collector for a debt that you don’t recognize.

There are two issues to be concerned about here. First, you want to be sure that a debt was not mistakenly assigned to you when it’s not your own debt. Second, you want to be sure that the caller is not a scammer trying to scare you into paying a debt that doesn’t exist.

Scammers know that some people will be more likely to pay when they’re pressured, even if the debt doesn’t really exist. If you don’t recognize the account that the collector is referring to, it should be a red flag.

Withholding Information

Debt collectors are required by law to provide you with the name of the creditor and the amount owed. Legit debt collectors will be aware of the laws and they’ll be willing to provide this information to you in order to stay in compliance. However, scammers often try to withhold information to get you to pay a debt you don’t owe.

If the debt isn’t legit, they can’t provide you with real details, so they try to withhold as much information as possible.

Demanding Immediate Payment

A debt collector’s job is to get you to pay, so of course, all debt collectors will try to generate a sense of urgency so that you’ll make the payment. However, scammers will usually put excessive pressure on you to make a payment immediately.

When you get extreme or intense pressure from a debt collector to pay immediately, it’s a warning sign of a scam. Legit debt collectors will not usually threaten you with a lawsuit or some other action if you don’t make immediate payment.

Asking for Payment by Wire Transfer or Pre-Paid Card

Debt collectors should offer you multiple ways to make a payment, like paying by check or credit card. Scammers often ask for payment by wire transfer or pre-paid card because these methods of payment are harder to track, making it easier for them to get away with breaking the law. Legit debt collectors will not ask you to pay with these methods, so this is a sure sign of a scam.

Threatening to Have You Arrested

Scammers use threats as scare tactics to get people to make payments. They may threaten to have you arrested and thrown in jail. While it is possible that failure to pay your debts may eventually lead to legal issues, that would be in the hands of law enforcement officials, not a decision made by a debt collector. It’s illegal for debt collectors to threaten an action that they aren’t authorized to take.

They may also threaten to tell your friends and family or your employer if you don’t pay. Debt collectors are generally not allowed to disclose information about your debts to other people, so this is another warning sign of a scam. The scammers know that people want to avoid an embarrassing situation, so they try to take advantage of those emotions.

How to Protect Yourself

If you’ve experienced some of these common debt collector scams or you have reason to believe that a debt collection call may not be legit, there are some specific (and very effective) things that you can do to protect yourself.

Ask for the Collector’s Contact Information

Ask the caller for the name and mailing address of their company, as well as a callback number. Do a Google search to see if you can find information on the company, and be sure that you can trace the phone number to the company. Don’t deal with any debt collectors if the number provided does not match with the company records that you find.

Scammers are usually hesitant to provide full contact information. On the other hand, legit debt collectors have nothing to hide, so they won’t have any problem providing this information to you.

Contact the Original Creditor

Ask the collector for the name and contact information of the original creditor. Reach out to the creditor and ask for the name and contact information of any debt collector or collection agency that has been assigned to your debt. This will help you to know if the debt collector actually has the authority to contact you and work on a resolution for the debt.

If you’re getting calls from someone other than the collector or agency named by the creditor, don’t speak to them.

Send a Letter Asking Them to Stop Calling

By law, you have the right to instruct debt collectors to stop calling you, if you contact them in writing. Send them a letter and keep a copy for your own records. Legit debt collectors will stop calling you in order to avoid breaking the law.

Ask for Proof of the Debt

Ask the collector to provide proof of the debt so you can verify it before making any payment. A scammer won’t be able to provide proof of the debt, so this can be a very effective way to separate legit collectors from scammers.

Check Your Credit Report

You have a right to a free copy of your credit report from each of the three major credit bureaus (TransUnion, Experian, Equifax) once every twelve months. Go to AnnualCreditReport.com to get a copy of your own credit report.

Most likely, the collection account will show up on your credit report if it is legit. It’s possible that some accounts may not be reported to the credit bureau, so you can’t use this as a 100% accurate test to know if a caller is trying to scam you, but it can be helpful if used along with the other tips mentioned. Plus, it’s a good habit, in general, to periodically check your credit report for accuracy and report any errors to the credit bureaus.

It’s important to note that you can get your credit report from one, two, or all three of the bureaus at a time. If you request them one-at-a-time, you can spread them out throughout the course of the year. The majority of details will be the same on your credit report from each bureau, but some tradelines may not appear on all three, or there may be discrepancies between the bureaus related to the details.

Submit a Complaint to the FTC

If you believe that a debt collection call is a scam, file a complaint with the Federal Trade Commission (FTC). Not only can this help you to deal with your own situation, but the information you provide to the FTC can help them to identify scammers and the methods they are using, and prevent it from happening to more people. You could also report it to your state Attorney General’s office.

By being aware of the common debt collector scams and taking the right steps to protect yourself, you can easily identify most of the people who are trying to take advantage of you and prevent them from getting what they want. The most important part of protecting yourself is simply being aware and alert. If you follow the steps covered in this article, you should be able to avoid becoming a victim.

Getting out of debt is a difficult hurdle for anyone– especially those with low income.

There is no shortage of experts or advice on this topic. If you spend a few minutes on Google you’ll be able to find articles encouraging you to “spend less” and “save more”, as if those concepts had never occurred to you. Sometimes your circumstances aren’t in your control, and it isn’t always as easy as cutting back on luxuries and getting a second job.

If you’ve made it here, I’m going to assume you’re not looking for generic advice. As someone who was formerly in debt while making less than half of the U.S. median household income, I know firsthand that packing my own lunch, and brewing my own coffee at home were important first steps for digging my way out of debt—but it really didn't feel like it was moving the needle.

If you’re going to claw your way out of debt, you need more than conventional wisdom and catchphrases. You need a full-scale battle plan.

Budgeting 101

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Putting a budget together isn’t exactly rocket-surgery, but it’s something I had to teach myself. There's a lot of people out there who don't have a budget, simply because no one ever showed them how to make one, what it looks like, or what they should be tracking. If you're one of those people, this blog is for you.

My budget template isn’t fancy, but it’s effective. Here’s how I put it together:

Step 1

You’ll want to record any monthly recurring financial obligations like rent, mortgage, insurance, etc. Don’t forget to also include the smaller stuff like gym memberships, cable bills, streaming services and apps. Do your best to estimate what you're spending on gas and groceries. Add all this up:

Step 2

Then add up all of your income sources.

Step 3

Subtract your total income from your total fixed expenses.

Once you’ve subtracted your total income from your total fixed expenses, you’ll have a rough idea of how much you have leftover each month to put toward your debt and any other incidental expenses you might have.

Now that you have a clear picture of your monthly expenses, can you identify anything that you can live without? I’m not suggesting cutting everything that you enjoy. In fact, I’m suggesting the opposite. I wholeheartedly believe that my gym membership is a necessity for my mental and physical health, and in the long run saves me money on medical bills.

I also think that by spending a few bucks a month for the entertainment that Netflix provides, I’m less likely to go out and spend money at a restaurant or nightclub. You don’t necessarily have to scale back to a bare bones budget, but you should definitely be honest with yourself and know the difference between what you want and what you need.

Determine your total amount of debt

Determining exactly how much you owe is a crucial first step to getting out of debt with low income. It might be intimidating to sit down and have to face the reality of the situation, but you need the exact figure in order to create a realistic plan to get control of your finances. Set aside a specific time where you’ll be free of distractions and collect all of your outstanding bills and statements.

List the name of each organization you owe money to and next to that, write down the amount you owe them.  

The snowball method

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Our method for getting out of debt with low income is to identify the creditor that you owe the least to, and tackle that debt first. Put as much of your income as you can toward the smallest debt, while also continuing to make the minimum payments on your other debts. This strategy is commonly known as Dave Ramsey’s snowball method.

In the budget example above, you can see that after all monthly expenses are paid, this person has $640.02 left after their fixed expenses have been taken care of. You can also see that if that entire amount was applied toward this person’s Visa bill, that they would have that debt paid off in full after just two months!

Granted, it’s unlikely that you’ll be able to apply your entire leftover income toward debt, but hopefully as you begin to crunch these numbers you’ll see that while the obstacles in front of you are challenging, they are not impossible to overcome if you continue to diligently chip away at them.

Part of the idea behind the snowball method is that as you continue to make payments and knock out your debts, you’ll continue to build confidence and follow through with your plan. It’s very common for people who are in deep debt to either be in denial, or just simply give up on trying to repay because the amount seems insurmountable.

Consider extra income options

For some people, getting a second gig just isn’t in the cards. Maybe you already work multiple jobs, or you can’t find childcare, or you’re still in school.  

If you do have the time to devote to making a few extra bucks, there’s more options to choose from than you might realize. A part-time job as a barista or driving for Uber is what comes to mind for a lot of people when they think about extra income, but there are a variety of options that don’t even require leaving the house.

Think about what skills you have that might be valuable to other people, and then brainstorm where to find people looking for that skill set. Websites like Fiverr, UpWork, and Freelancer are great for picking up side jobs for all skill levels and flexible hours. Starting with a $5 flat fee for data entry projects, all the way up to $150 an hour for event photography.

Our friends at Think Save Retire created this expert’s guide to side hustling that provides an in-depth look at all of the different ways you can be making extra cash to pay down your debt and achieving financial freedom.

Look into debt consolidation

If you have multiple creditors, and your total debt does not exceed half your income, consolidation might be the right option for you. Put simply, debt consolidation is a personal loan that allows you to roll all of your credit card bills and high-interest loans, into one consolidated amount that has a lower interest rate.

It might seem counterintuitive to get another loan when you’re trying to dig your way out of debt, but debt consolidation can provide real hope since you’ll be paying a lower interest rate on one lump sum, instead of accruing interest charges at a high rate on multiple accounts.

Make sure to carefully screen your debt consolidation company and do your due diligence online before entering into a written agreement.

If you have more questions, check out our in-depth guide on debt consolidation.

Credit Counseling Services

If none of the above strategies worked out, credit counseling services are the next logical step. Most credit counseling services are non-profit agencies that assist consumers who need help managing their financial burden.

Depending on your particular situation, your credit counselor might suggest a debt management plan, which would allow them to contact your creditors on your behalf in order to negotiate new terms that will allow you to pay back your balance sooner. Once the new terms are set, your counselor would then set up a payment plan based on your financial situation, and you would make payments directly to the counseling service, which they would then use to pay your creditors.

As always, do extensive research on any financial service you’re planning on doing business with, especially if they are charging for their services. A lot of credit counselors are non-profit, so try to seek those out if possible.

Debt Forgiveness

This one is definitely not as easy or effective as it sounds.

Debt relief or debt forgiveness, consists of a third party negotiating on your behalf with your creditors to attempt to persuade them to lower the total amount of money owed. However, this should be a last resort, as it can negatively impact your credit rating.

There are also some risks involved with debt forgiveness of which you should be aware. Both the Federal Trade Commission and the CFPB warn consumers to proceed with caution before allowing a company to negotiate your debt, as they may charge inflated fees or take additional payments for themselves..

Bankruptcy

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If you are in a situation where you know you cannot reasonably hope to pay off your debt even if you implement the suggestions mentioned above, you may need to consider declaring bankruptcy.

Chapter 7 bankruptcy and Chapter 13 bankruptcy are your two primary options. With the former, your assets are sold and the money is distributed to your creditors, and any leftover debt is discharged. With the latter, you are given a plan to repay part or all of your debt, but keep your assets in the process. If you are seriously considering one of these options, make sure you speak to a knowledgeable personal bankruptcy attorney who is familiar with your state’s bankruptcy laws.

If you’ve exhausted all your resources and it’s time to throw in the towel– don’t feel bad. There are plenty of people who have bounced back from bankruptcy.

It’s one thing to get out of debt

Once you’ve figured out your strategy for getting out of debt, it’s important to figure out a way to stay out. Debt can be a vicious cycle, but taking control of your finances now and avoiding the pitfalls that got you into debt in the first place are the best ways to prevent a similar situation in the future.

How is your battle with debt going? Do you have more questions? Let us know in the comments!

Every year, hundreds of thousands of Americans diligently search for ways to dig themselves out of debt. The sheer volume of information available online about debt relief can be overwhelming and hard to decipher. There are myriad experts and analysts who will dole out advice on the topic without knowing your unique circumstances; which is why we've put together a no-nonsense guide to debt consolidation that will help you to choose whether or not it is right for you.

Understanding Debt Consolidation

Debt consolidation is a way to roll credit card bills and other high-interest loans into one payment with a lower interest rate. It reorganizes and reduces your total debt, thus enabling you to pay it off at a faster rate. Debt consolidation is a sensible way to handle your bills, provided the total amount of your debt is manageable. Consumers who find themselves overwhelmed with multiple payments have the option of applying for a consolidation loan to funnel those debts into one single liability that can be paid off over time. This option essentially allows you to reorganize multiple balances with different due dates, payment amounts, and interest rates.

The majority of consumers seek this type of loan from a credit union, bank or credit card company. This is a good initial step, particularly if you have a strong payment history and a positive relationship with your institution.

It is essential to understand that debt consolidation loans do not eliminate debt, but rather roll it into a different type of loan (or place it with a different lender). If a person needs debt relief and does not qualify for a loan, the most practical course of action is to explore debt settlement options, or a debt consolidation loan in conjunction with a debt settlement plan.

Debt settlement refers to various plans for which the objective is to reduce the consumer’s debt liability, rather than the number of lenders he or she owes. Taking this option, the consumer works with credit counseling services or debt relief organizations. Debt relief organizations do not lend money, but rather negotiate with creditors on behalf of the consumer to eliminate or restructure as much debt as possible.

When to Start Thinking About Debt Consolidation

If your total debt is not more than half of your total income and your credit score is favorable enough to allow you to qualify for a credit card with 0% interest, debt consolidation may be exactly what you need. You should also consider reaching out to organizations that offer debt management plans to help you in the future.

Not surprisingly, you must also make sure you have adequate income to comfortably make your payments on a monthly basis, as well as an emergency plan if your financial situation changes or you somehow incur additional debt.

Virtually all debt consolidation programs work best when an underlying plan is in place to realistically lower the total amount of debt without placing your other assets in future peril, such as your home or car.

It is always wise to compare your gross yearly income with the total amount of your debt to determine whether or not the debt can be paid off over the next few years. A loan calculator is a helpful tool you can use to get a general estimate of your monthly payment amount.

Consolidating debt gives a ray of hope to many people, because it has definite terms. For example, if you take a three-year debt consolidation loan, you know that you have the possibility of being debt-free in that length of time, provided you manage your spending and make timely payments. In contrast, making only minimum payments on multiple loans–including credit cards–could mean years of interest, which may eventually exceed the initial principal.

When to Avoid Debt Consolidation

Consolidation does not address the issues that may have led to the debt in the first place, such as excessive spending habits. It is also not a good option if your debt has reached an amount that you know you cannot realistically expect to pay off, even with lowered payments.

On the flip side, if your debt is minimal and consists of balances that you know you can pay down in less than a year without changing anything, it doesn’t make much sense to consolidate, as you would only save a negligible amount. In this case, you would be better off trying another repayment method, such as debt avalanche, debt snowball or some other do-it-yourself payoff plan.

Finally, if your debt exceeds 50% of your income and it is determined that debt consolidation will not help, you should pursue debt relief options rather than spin your wheels trying to consolidate.

Additional Considerations

Financial circumstances vary significantly from one person to another, but in many cases, bill consolidation means you will be in debt for a longer length of time. This is because you are not eliminating debt, you are simply restructuring it to create lower payments by prolonging the loans and extending the terms.

It’s important to change your behavior and establish good money habits in addition to debt consolidation. This is because many people re-accrue debt after consolidating, as they have no solid plan to spend less and not put so much on credit.

If you haven’t established good money habits are not established, it's possible that you could find yourself in debt again in the future.

Types of Debt Consolidation

You have two major options with debt consolidation loans:

Secured loans backed by assets to use as collateral, such as a car or house.

Unsecured loans which do not require collateral backing.

Unsecured loans are a bit more difficult to obtain, as no collateral is needed. Lower qualifying amounts and higher interest rates are also characteristics of such loans. Nevertheless, whether the loan is secured or unsecured, the interest rate will likely be lower than that charged by most credit card companies. Additionally, debt consolidation loans typically offer fixed interest rates.

There are several ways to consolidate bills into a single payment, the following are the most common:

Debt consolidation loans designed specifically for individuals who have many high interest accounts that can be difficult to manage. Numerous creditors, including peer-to-peer lenders and banks offer consolidation plans for such consumers.

You may also wish to consider consolidating all your credit card payments with one, new credit card. If the new card has an introductory period during which you pay little or no interest, this may be an ideal option. Many cards offer this type of reduced interest specifically to customers who want to transfer balances.

A home equity line of credit–HELOC–or traditional home equity loan is an option if you have equity in your house.

If you have student loans, you should also look into consolidation programs offered by the federal government, in which the new interest rate is an average of the various rates of your previous loans. This type of consolidation is available through the Federal Direct Loan Program. However, it should be noted that this program is not for consolidating private loans.

Debt Consolidation Requirements

If you are approaching a new lender for a consolidation loan, you must be creditworthy and have the appropriate income for the loan you are seeking. In most cases, in addition to your credit report, you will have to provide proof of employment, several months worth of statements from the various loans you wish to consolidate, and letters from creditors.

Once you have qualified for a debt consolidation loan, consider whom to pay off first. Often, the lender makes this decision, but if it is up to you, make your first payments to your highest interest creditors first.

The Final Verdict

Consolidating debt can be an effective way to get your finances back on track, but only you can decide if a consolidation loan is right for you and your unique circumstances.

In the past few years, I’ve met many guys and gals who wanted to be successful, and they’ve sought me out for advice. What I noticed is that most of them were looking for an easy money-making solution—some hack or secret. Many of them were looking to become millionaires overnight.

And therein lies the problem. Success, by my definition, can’t possibly happen overnight.

Perhaps overnight success happens sometimes. You can win the lottery, for example; but is that really ”success” by anyone’s standards? The stats behind scenarios such as lottery winners should be a cautionary tale about those who fall into overnight successes. These folks often end up in a worse situation than before.

Like anything in life—companies, families, bones—If you grow too fast, you get growing pains.  And, when it comes to financial growth, it only gets tougher to keep up and continuously improve your money management skills at the same speed.

Today, I want to share my story about failures and experiences that led to my successes. Because it’s what I went through in the past 15 years that brought me to my current project here: building ZeroDebt. My goal with ZeroDebt is to help people to get out of anything that holds them back, like debt, in order to build a successful future.

Immigration and early success

Back in 2008, I was a very successful immigrant who moved to Canada in 2001 from Baku, Azerbaijan. I was born in the USSR and had no education (think 7th-grade drop-out). When I immigrated to Canada with my parents at the age of 19, I started working with my dad as a kitchen cabinet installer.

As soon as I saved my first $10K (it took me around nine months), I left him and started my first business – Toronto Renovation. Why renovations? I had no clue how to renovate homes. But I had the conviction that this was the business I wanted to run.

I spoke zero English, so I decided to use the Russian community in Toronto. I posted my first ad in a Russian newspaper, and in a few days, I received my very first call. I closed that deal – $17,500 for the whole project. I barely broke even. I had no idea how to estimate. Again, I didn't know how to renovate. Scary, huh?

Back in 2001, there was no YouTube or any other online learning that I could use to teach myself through videos. I had no experience whatsoever but I was determined to learn. So, I went to Home Depot where I got my first set of tools and all the necessary books. I couldn't understand the text, but the pictures in the instructions provided enough context for me to learn.

I grew a renovation company to seven people and switched to flipping homes and condos for a while before building new homes again. In 2008, seven years after I immigrated, I was doing very well (considering the lack of English and experience). I had over $1,000,000 equity in multiple properties, was living in a $1.3M house, and driving BMW X5.

Huge debts and no light at the end of the tunnel

Then, as most of you can remember, something unexpected happened that took many of us by surprise... The market froze. I couldn't sell the majority of my homes except one (where I lost all the money I put in).

I prepared myself to lose the money I had invested and cut my losses to escape with zero. At the time, I thought that was my best option, but alas, that’s not what happened.

Months went by, and I got myself into a bigger and darker financial hole. I borrowed money from family and friends and sold almost everything I had to continue making payments. I didn't want to go bankrupt. It was my nightmare. All the money I had in my bank account went toward payments and other expenses like office rent and insurance.

Time flew, and in a few short months, I had no money left. All credit cards were maxed out. Possessions were sold. Over $100K personal debt was borrowed.

That’s when I lost hope. The situation was miserable. I did everything I could to save myself from having to file bankruptcy. I was ready to lose all the money I earned in the past years. I felt ashamed. I was scared. I had no idea what was going to happen next and worst of all, I had no control over the situation.

The failure—what's going to happen to my family? The shame—what would other people say?

I had many questions, but no answers. I felt like there is no life after bankruptcy. It is going to be worse than starting from scratch; I was telling myself. First, I'm going to owe my family. Second, I would have a bankruptcy on my credit, and I won't be able to get any loans and mortgages in the next seven years.

I daydreamed that maybe I would fall asleep and wake up in a world without these problems. But that didn’t happen either.

Bankruptcy – scarcity, and reality

It was my worst nightmare. I was forced by this situation to file for bankruptcy—corporate and personal. It took me a couple of days to find a firm, then a few weeks to collect all the documents and processes. During these weeks, I stopped paying my credit cards, mortgages, and loans. Debt collectors started calling me day and night. Some of them were polite, some very aggressive. I wanted a way out and couldn't wait until everything ended. Finally, it did.

The day finally came when my attorney told me to pass the message to all collectors that I filed for bankruptcy, and I did. They stopped calling me. It was my first relief.

At that time, I had no business, no money, no cars, no home, no nothing. Everything was sold and used for payments. And the situation was even worse than being at zero because I still had personal debts, to my dad and friends. I couldn't include them in my bankruptcy for moral reasons.

Then my life turned into a dark tunnel.

My wife and I had two little children at that time. We had to move to an old and tiny house that smelled terrible. We switched from BMW X5 to an old minivan. And I changed from being a successful businessman to a depressed, unemployed man who was spending days at home and thinking about what I should do next.

In order to survive, we had to use my wife's credit cards and in a few months, almost maxed them out. I got multiple job offers but was too stubborn to accept them. “How can a businessman go and do stucco?” I said to myself.

Is there a life after bankruptcy?

It took me a few months to recover, rethink, and start something else.

My first idea was e-commerce. I did it for one year, had semi-success, and during this year, I figured out how affiliate marketing works where I quickly started making some progress. In less than a year, I had a stable income that was enough to provide for my family. Soon I was able to scale to a much higher income and started investing in building my startup that soon failed.

But unlike last time, my affiliate income helped me to find something that was working finally, and I built a company that is my most significant and successful company to date. Many other things happened during those years. I almost went bankrupt once – but survived and quickly recovered. I've made lots of investments and started multiple companies. Many failed, some survived and became successful. From 2011 to 2019, I started more than 15 companies and invested in more than one dozen as an angel and seed investor.

How do you measure success?

Many times I get asked—what is success to you, or, what do you think success is? Are you successful?

Yes, I believe I am successful. And many of you might be.

Success, to me, is not a big number on my bank account. It's not passive income. And it's not successful companies that I've built.

Success, to me, is something else. You don't have to agree with me. This is my personal view on success.

To me, in order to be successful, you have to enjoy your current stage of life. You have to be happy with people that are around you. You have to enjoy the things you have.

And this is very important; you have to do things you love.

One person said, – a successful life is when you want to go to work in the morning and want to come back to your family in the evening.

It's when all things in your life are in its right order.

You don't need to be a millionaire or billionaire in order to be successful. But you have to have peace and joy – this is so much more important than money. And, one more thing.

Success is satisfaction.

If your goal is money or money is your motivator, most likely, you won't ever be “successful” in your life. Simply put, there is never enough money. You are never going to be happy. Never going to enjoy things you have.

Money is one of the worst motivators

What is the best motivator? Love. Love is the best reason to do things. If you do things you love – you will do them no matter what and how wealthy you are.

You will enjoy the process.

Meta Description:

Filing for bankruptcy may feel like a major hit to your self esteem. Here is one man's story about bouncing back from bankruptcy.

If you’re one of the 43 million Americans who are saddled with student loan debt, you should know that there are a variety of student loan forgiveness programs available.

Although the general consensus among Americans seems to be that student loan forgiveness is completely unattainable, however, the tide seems to be turning among a new generation of judges and lawmakers.

However, you should also note that when it comes to student loan debt forgiveness, the process is not typically quick or easy.

Read on to learn about the different types of student loan forgiveness plans available, and take our assessment to see how difficult it may be for you to qualify.

Bankruptcy

Until very recently, student loans were one type of debt that bankruptcy couldn’t pause or block from collectors. But  on January 7th, 2020 the United States bankruptcy court of the southern district of New York made a watershed decision that could potentially change the way courts view student loan debt in bankruptcy court moving forward.

The ruling stated that U.S. Navy Veteran Kevin Rosenberg’s $221,385.49 in student loan debt is in fact dischargeable under chapter 7 bankruptcy.

This single court decision is giving thousands of student-debt sufferers hope, and unquestionably changed the life of one man. “I have a chance now to have a life,” Rosenberg declared in an interview with Yahoo Finance.

Adversary Proceeding

Rosenberg’s road to student loan forgiveness was somewhat unorthodox. After filing for bankruptcy, he also filed what’s referred to as an “adversary proceeding”, which is basically a civil lawsuit against his creditor, New York State Higher Education Services Corporation.

This hearing gave Rosenberg the opportunity to have a judge look closer at his case in order to make a determination, and is considered the “X factor” for his success story.

If the adversary proceeding is so effective, why don’t people use it more often? Simply put, it’s expensive. Attorney’s fees add up in a hurry, and just filing this type of proceeding can cost $5,000 - $10,000 upfront. As you can imagine, most people filing for bankruptcy don’t have that kind of cash laying around.

However, if you can afford to go this route, you’ll want to make sure you meet the requirements set forth by the Brunner test.

What is the Brunner Test?

How do you know whether or not you’re eligible to have your student loans erased in a bankruptcy case? Take the Brunner test. This test is used in bankruptcy court to determine if you are eligible to get your student loans discharged.

Answer the following 3 questions to determine your bankruptcy eligibility under the Brunner Test:

• If you are forced to repay your loans, can you maintain a minimal standard of living for yourself and your dependents based upon your current income and expenses?
• Is your current financial status likely to continue for a substantial part of the repayment period?
• Have you made a good faith effort to repay your loan debt?

In recent history, experts have strongly advised against attempting to discharge student loans through bankruptcy, but we may see a huge change in that regard following the decision in the case of Kevin Jared Rosenberg v. N.Y. State Higher Education Services Corp.

Income Driven Repayment Programs

Income based repayment programs–IBRs–and Income Driven Repayment Plans–IDRPs--are plans featuring payments totaling about 10-15% of your discretionary income, divided into monthly installments throughout the year. Requirements vary significantly from one program to another; however, many borrowers qualify for these plans. It is not necessary to be employed in a specific field, and in some cases, making timely payments for 20-25 years is all you must do to have the rest of the loan balance cancelled. Below are the three main programs in these categories:

1. PAYE

The Pay As You Earn Repayment Plan–PAYE Program–qualifies you for loan forgiveness after you’ve made payments on time for 20 years. This plan is typically associated with a very low monthly payment–usually 10-15% of your discretionary income–but you must demonstrate financial hardship to qualify.

2. REPAYE

There is also a revised version of the PAYE plan, called Revised Pay as You Earn–REPAYE. This program is very similar to PAYE, but demonstrating financial hardship is not one of the requirements. In addition, the monthly payment amount is based on more than just one factor, and these qualifications include family size, gross income, and the total loan balance owed. With REPAYE, the payment never exceeds 10% of your income.

3. Income Contingent Repayment

Income contingent repayment plans–ICRs–are based on monthly payments that are no more than 20% of your discretionary income divided by 12 or the lesser of what would be owed on a fixed monthly repayment plan over 12 years. This program is the sole income driven repayment alternative for Parent PLUS loan enrollees.

Public Service Loan Forgiveness

Public Service Loan Forgiveness is available to qualified nonprofit employees and government workers with federal student loans. If you are eligible, you may have your loans forgiven after successfully making 120 timely payments. However, to benefit from Public Service Loan Forgiveness, payments must be made while you’re enrolled in an IDRP/IBR (see above). Additionally, you must be employed in a public service job for at least 30 hours per week. Qualifying jobs for such programs include the following:

• Full-time Peace Corps and AmeriCorps volunteers
• Any type of government employment at the federal, state, local or tribal level
• Designated tax-exempt nonprofit organization’s under Section 501(c)(3)
• Non-profit foundations that are not tax-exempt but offer a specific service to the public

Common qualifying civil service careers include public law, health, law enforcement, education, and veterinary medicine.

Military Student Loan Forgiveness and Assistance

Military members of the Army, Air Force, Navy, Coast Guard, and National Guard may qualify for specific loan forgiveness programs. For instance, if you are in the National Guard, you may be eligible for up to $50,000 to offset student loans through the Federal Student Loan Repayment Program. Each military branch has programs to assist qualified members to pay off student loans, but requirements vary significantly from one plan to the next. More detailed information can be found at https://studentaid.gov/.

Perkins Loan Cancellation

You may also have the option of the Perkins Loan Cancellation program, which is based on eligible employment or eligible volunteer service. In some cases, for instance, if you work in a public service job for five years, you can qualify for cancellation of up to 100% of your loan under this program. You may also be eligible to have it broken down over a five-year period. Some qualifying jobs for the Perkins Loan Forgiveness Program include the following:

• Staff member for educational component of a Head Start program
• Attorney employed by a community defender organization or public defender
• Speech pathologists with a Masters degree
• Special education teacher
• Faculty member at a tribal university or college
• VISTA or Peace Corps Volunteer
• Librarian with a Masters degree
• Medical technician or nurse
• Firefighter
• Teacher at a low-income public school or educator who teaches a qualifying subject
• Professional provider of early intervention services for the disabled
• Soldier in an imminent danger or hostile fire pay area

You can visit this website for a full list of qualifying occupations: https://studentaid.gov/manage-loans/forgiveness-cancellation/perkins

Forgiveness Programs Based on Occupation

In addition to the programs outlined above, there are some specific niche plans available through state or federal programs. Eligibility usually depends on where you work and your profession:

Loan Forgiveness for Teachers

Created in 1998, the Teacher Loan Forgiveness Program was designed to inspire educators to seek employment at secondary schools, elementary schools, and educational service agencies that provide assistance to low income families. To be eligible to receive $5000-$17,500 in loan forgiveness, you must teach full time for five full, consecutive years at a qualifying school and fill out the appropriate application.

Notably, TeachForAmerica Corps members pursue student loan forgiveness after completing their 2 years service.

Loan Forgiveness for Health Care Professionals

Loan forgiveness programs are available for doctors, nurses, pharmacists, and other jobs in the healthcare field. Some examples include The National Institutes of Health and the Nurse Corps Loan Repayment Program–NCLRP. The National Institutes of Health offers $35,000 in debt assistance on a yearly basis if they hire you to conduct research, and the NCLRP may absorb up to 60% of your student loan if you are practicing nursing in an underserved area.

Attorney Loan Forgiveness Programs

Similar to other professions, financial incentives are provided for attorneys who are willing to spend several years practicing in government offices or as public servants. For instance, according to the Department of Justice, attorneys who work there for at least three years may qualify for as much as $60,000 in loan forgiveness.

However, if you are an attorney, the best place to begin searching for loan forgiveness may be the school you attended. Some schools forgive all or part of loans for students earning less than $60,000 annually.

Additional Student Debt Relief Programs

State Programs

Individual state-sponsored student loan repayment programs are available as well, particularly for lawyers, doctors, nurses and teachers. Requirements vary, but as of 2020, 13 states offer some kind of teacher loan forgiveness and the American Bar Association has provided a list of state loan forgiveness programs for attorneys.

An extended list of state loan repayment assistance programs can be found here: https://studentloanhero.com/student-loan-repayment-assistance-programs/

Loan Discharge Due to Special Circumstance

Loan discharge is somewhat of a long shot, but may be granted if you cannot repay your loan for a specific reason. In addition to student loan discharge for veterans, or in very rare circumstances, those who claim bankruptcy, other circumstances, such as identity theft, disability, or fraud, may be grounds for alleviating student debt partially or altogether.

A Word About Scams

There are various businesses that refer to themselves as “debt relief companies” and claim they can help clients eliminate student debt; a promise they can rarely, if ever, keep. Rather, they typically charge high upfront fees to borrowers who are already underwater financially. Also beware of any company referring to “Obama Loan Forgiveness.” This phrase is simply a catchall term for numerous legitimate government programs, and there is no fee associated with these plans. A third-party asking you for money to complete such forms is a big red flag.

Summing it Up

The concept of student loan forgiveness is no longer a myth. We’ve established that it is not quick, and it’s not easy, but we recommend exhausting all resources for student loan forgiveness as part of your zero debt journey.

Do you have a student loan forgiveness method that we missed? Do you have a story about student loan forgiveness that you’d like to share with the zero debt community? Drop us a line at admin@zerodebt.com!

“Why do you need another company?” This is something my friends asked when I decided to start ZeroDebt.com “Are you not making enough money?” “Do you have too much free time?”

It might sound cheesy but I am an entrepreneur, inside and out. And when a good idea comes to me, why let it go? But, to be honest, as an entrepreneur, I get ideas daily. I write them down in my apple notes. Then I come back to them and think about some of them. Some ideas stop making sense sooner. And then there are some that stick around and only get more and more prevalent in my mind until they can no longer be ignored.

The idea for this project/startup outlived and eclipsed all other ideas. I was researching and thinking about this for over 1.5 years now, and I can no longer deny the fact that this idea was worth my time and investments.

ZeroDebt.com – Your gateway to Zero Debt

I have some blogging experience, but not much. In the past ten years, I’ve written approximately 30 articles in two languages. Even after more than a few posts under my belt, I still have never spent so much time thinking about what I was going to write until this one.

And no, it’s not your normal writer’s block.

For many reasons, I take this blog more seriously than what I've done in the past. Plus, at this point, my experience tells me to do more research than I've done before.

I have started many companies—some on my own, more with co-founders—and I’ve invested in more than ten in the past couple of years.

ZeroDebt is a new company. You can call it a startup. The name is kind of revealing of its mission: To help Americans solve their debt situations and build their futures.

Total consumer debt totaled $3.898 trillion in 2018, a 7.6% increase from last year. The average consumer debt per capita is approximately $11,880 (total consumer debt/total U.S. population as of July 4, 2018).

This is definitely a massive problem to solve. $11,880 per person, including children.

How will ZeroDebt help solve the United States debt crisis?

At this time, the thought of solving the debt crisis sounds almost over-the-top ridiculous. But that’s exactly what we’re here to change and why we’re starting to blog today.

Let me be clear that this is as much about the journey as it is about the answer.

Right now, we are just starting the development, and before anything else, I decided to start this blog. In this blog, my team and I are going to share everything that's going on. What we are working on, the idea, and eventually the solution. We are going to try our best to be transparent and share everything we are going through.

If this resonates with you – subscribe to our weekly newsletter.

If you know someone who might be interested – please send them a link.

Follow ZeroDebt on Twitter, Facebook and Instagram where we are going to post the most recent content from the blog along with unique content you won’t find here OR anywhere else.

Thank you!

P.S. Stay tuned to the blog, because in the near future I'm going to share my personal story about my debt, bankruptcy, and depression I went through during the housing crisis. I worked my way out of it and believe deep down that, with the right mentality and ability to learn, anyone else can too.

You can find my articles at TheNextWeb, Bloom.io, Medium, VC.ru, and StartupLabs