If you are overwhelmed with debt, you may sometimes feel like Atlas, with the weight of the world on your shoulders. Only sleep delivers you from worry over your ever-increasing burden, and this form of escape may only be getting more elusive.
USA Today, quoting a Federal Reserve Bank report, says the average American household has a debt of $137,063. The lion’s share of this debt is for mortgages, which is good news, since real estate usually appreciates in value.
But the next-largest chunk of this debt comes from student loans — $50,000. While education is generally considered a good investment, a new idea is taking hold: that a diploma from prestigious university A is not worth 10 times as much as a diploma from ordinary university B. But even selecting the cheaper option is not, to many families, “cheap.”
Debt.org says the average student loan debt accrued in 2017 is $37,172, and the total student debt in the U.S. is $1.4 trillion. Credit card debt tops out at almost $17,000.
Let’s look at some examples of individuals who made choices that resulted in their amassing an unmanageable level of debt and what they can do to rescue themselves from their dire situations.
Debt Relief for Student Loans
James was a great student in high school — a standout, graduating first in his class. He is good with people, outgoing, gregarious, patient and insatiably curious. He loves learning and seeks out educational experiences the way some people crave hot fudge sundaes.
James was accepted to every college he applied to. He had a 4.5 GPA, stellar SAT scores, he was an Eagle scout, held a part-time job, was a star running back on the football team and volunteered at the local hospital. When James was a child, he underwent brain surgery when doctors discovered a cancerous tumor after James had undergone an MRI for a sports injury. It took months of physical therapy, but James recovered and thrived, and no cancer cells have been found in his body since.
When he was accepted at an Ivy League school, his family was thrilled, and he eschewed offers from less-prestigious colleges to attend one of the most well-respected universities in the country.
Although James’ parents were both well-educated, the family didn’t have much money. He was one of five children, and both his parents worked in public education — a foundation they both believed in strongly. He sought to emulate them and followed their lead, eventually earning a master’s degree in elementary education and landing a job at an inner-city school in Philadelphia.
Even though he chose a 20-year repayment plan for his $250,000 student loan debt, James’ monthly payments are $1,791. Right out of college, he is making $48,000 a year and has no hope of ever making a high salary as a teacher. He rents a room from a family in a poor part of town and relies on public transportation to get around because he can’t afford a car. Still, he has been unable to keep up with the student loan payments and is in danger of default, which can lead to credit nightmares, including an inability to ever finance a home or car or get a credit card.
Get Out of Debt with Credit Cards
It’s a credit card that got Olivia into trouble. When she and her husband first got married, money was tight, and their first baby arrived quickly and unexpectedly. They couldn’t seem to pay for basic necessities, so the couple began using credit cards to buy food, diapers, and gas.
It was easy enough to make the minimum payments, but they weren’t keeping track of how the astronomical interest rates were causing their debt to balloon.
Once they sat down to figure out how to tackle their problem and they realized it was almost impossible, Olivia lost hope. She didn’t think she could scrimp and save for as many years as it was going to take to get out of debt, so she gave up. She began buying anything and everything she wanted. Her recklessness infuriated her husband, who eventually filed for divorce in order to be able to see an end to the suffering.
Their debt now includes almost $60,000 more for divorce lawyers.
Pay Off Debt for Medical Bills
Isaiah and Sofia were happily married and had almost no debt when they got into a car accident. The doctors thought Isaiah wouldn’t make it, but he pulled through, and after a number of surgeries, recovered and recently was ruled well enough to return to work.
The job he held is long gone, however, since he was out of work for almost a year, so he is looking for another one. Sofia’s injuries were less severe, and she was out of work for only a couple of weeks. Her job pays well, but she has been just barely able to cover expenses without Isaiah’s salary.
Isaiah and Sofia’s medical insurance thankfully paid a large portion of the hospital expenses and some of Isaiah’s stay in a rehabilitation facility, but the portion they are responsible for is nearly $40,000 — to them, an astronomical amount that dashes their dreams of saving for a down payment for a house.
Debt Relief, Stress Relief
These situations are all different, but they all have a similar result: staggering debt. How can you avoid a similar fate? And if you can’t, how can you extricate yourself from it after it happens?
Once you acquire student loan debt, it’s hard to escape because bankruptcy does not wipe out this obligation, so the best course of action is to try your best to keep this from getting out of hand in the first place. Calculate how much debt you would have to take on to attend a particular school and how much you are likely to earn at the beginning of your career. Take a look at this student loan payment calculator to find out how much you would have to pay for the money you are thinking of borrowing.
You might be surprised to find out how unworkable some scenarios might be.
Credit card debt is different. It can be more insidious because it happens slowly and it can be hard to notice if you don’t force yourself to pay attention.
The way to avoid being surprised by a large credit card bill is to frequently check your balance. Go through the charges each month and categorize them so you know where your money is going. If you are spending hundreds on clothes, trips, meals out or electronics, you’ll know where you need to make cuts.
But suppose it’s too late? Suppose you’ve taken a vacation you thought you could afford or you bought equipment for a business that hasn’t yet gotten off the ground?
The solution is similar. Look at your debt and your spending habits and make a plan to budget your money so you can get out of the hole you got yourself into. If it’s overwhelming or you need help or support, go to your local consumer credit counseling office. But first, check out How to Get Out of Debt in 2017: A Guide to Financial Freedom for ideas.
Medical Bills: Get Out of Debt
There are few scenarios in which you can avoid medical bills, except maybe in the case of elective or cosmetic surgery. But these aren’t the type of expenses that put most people in debt; most are accidents, illnesses, and chronic conditions. Many Americans are too poor to buy health insurance but make too much money to qualify for Medicaid, so they are stuck in the middle, and when the unexpected happens, they are hit hard.
If you’re getting late notices and phone calls about your medical bills, you must take action. First, take a look at our advice on ways to save on medical expenses. You may be able to negotiate a payment plan with the providers, or you may agree to settle with a lump-sum payment up front for less than the full amount.
Read more: Here’s How to Get Rid of Medical Debt
Medical debt is the No. 1 reason for filing for bankruptcy in the U.S. If you see no other way out, this may be an option for you, but it comes with a cost. Your expenses will be carefully controlled for many years and you may have to forfeit your property, such as your house or car. Filing for bankruptcy will also affect your ability to get credit in the future.
Not all debts are discharged when filing for bankruptcy, however. You cannot get relief via this method for student loans, taxes, alimony or child support.
Anyone who has ever owed more money than they are comfortable with knows the feeling of dread in the pit of their stomach that can creep up on them when they try to concentrate on work, eat or sleep. It doesn’t even really matter how much it is — only that it’s an amount you’re uncomfortable with. Too many people try to ignore it because they think they are powerless.
But they are not.
You can take charge of your debt. Negotiate payments, make and stick to a budget and stay focused on the finish line. When you get there, your achievement will make you proud and wipe out your doubts about your abilities and your value as a person. For more ideas about how to get out of debt, see our post: Debt Consolidation 101.