What to do When You Can't Pay Your Debt

Let’s start by taking a big breath. You’re not alone here, almost 20% of Americans have a debt that is in collections. We live in a country that doesn’t financially educate us, promotes an excessive lifestyle, and doesn’t regulate complex financial products. The banks and creditors know this and so they’ve built out processes for these situations that you can take advantage of if you know about them.

Here we’ll walk you through your options step by step:

Analyze your finances. Figure out if you really can’t afford your debt. You’ve probably already done this, but if not, take a close look at your finances. See if there’s a way you can move things around to be able to pay back your debts. Can you cut down on spending? Can you pick up extra hours at work or start a side gig?

Call your creditor. If you call your creditor before you’re late on a payment and explain your situation, they might be able to work with you. Your creditor can have programs that can help you get through your hardship, for example if you lost your job due to covid or a disability. At the very least, your creditor might be able to push back your payment date or give you a lower interest rate.

Time to negotiate. If you miss a few payments, you will begin to get calls from your creditor or a collections agency. These calls can be very intimidating and aggressive, but just know that you have rights and they cannot harass you just because you owe them money. At this point your debt has been written off by the creditor, that means they do not expect you to pay it back. This opens up an opportunity for you to negotiate. Answer their call and tell them your situation, and how much you can pay. A good outcome would be 50% off the debt owed or a payment plan over a few months or years with no interest. If you don’t want to do it yourself, you can hire a debt settlement company to negotiate on your behalf.

Consider bankruptcy. Bankruptcy is not as bad of an outcome as most people think. If you don’t have any assets like a house, bankruptcy could be the best option. Your debt is eliminated, your credit report is wiped clean, and you can start to rebuild again.

Of course, this is an oversimplification of the process to explain the steps and different options you have. The journey of getting out of debt is long and full of hurdles, but just know that you have options, even though it may not feel like it at the time.

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