When Is It Time to Get Professional Help for Your Debt (and What Type of Help)?
Debt can be manageable until it isn’t. A few credit card balances or monthly payments may not seem like a major problem at first. But as interest charges grow, expenses increase, and more of your paycheck goes toward minimum payments, it can become increasingly difficult to make progress.
The challenge is knowing when you’ve reached the point where handling debt on your own is no longer working. You don’t necessarily need to wait until you’ve missed multiple payments or have accounts in collections to explore your options. Recognizing the warning signs early can give you more options for addressing your debt.
Professional debt help can take several forms, including credit counseling, debt consolidation, debt settlement, and bankruptcy. The right approach depends on how much you owe, the types of debt you have, your income, credit profile, and ability to make monthly payments.
Key Takeaways
Struggling with everyday expenses can be an important warning sign. If you’re relying on credit for necessities, moving balances between accounts, or have exhausted your savings, your debt may be too difficult to manage.
Different debt relief solutions are designed for different financial situations. Credit counseling, consolidation, debt settlement, and bankruptcy each have different requirements, benefits, costs, and potential consequences.
You don’t have to wait for a financial crisis to explore your options. Understanding what solutions are available can help you determine which path makes the most sense for your circumstances.
5 Signs You Need Help With Your Debt
Having debt doesn’t automatically mean you need professional help. But certain financial behaviors can indicate that your current approach isn’t sustainable. Here are five signs it may be time to explore your debt relief options.
1. Using Credit for Everyday Essentials
Using a credit card for groceries or gas isn’t necessarily a problem if you’re able to pay the balance off. It becomes more concerning when you’re using credit because there isn’t enough money in your checking account to cover basic living expenses.
If necessities such as groceries, utilities, transportation, or household expenses regularly go onto credit cards (and those balances carry over from month to month), you may be creating new debt faster than you can repay existing debt.
Over time, interest charges can make this cycle increasingly difficult to escape.
2. Debt Churning: Using Credit to Pay Other Credit
Another warning sign is moving debt around simply to keep accounts current.
You might use a cash advance to make another credit card payment, repeatedly transfer balances, take out a personal loan to pay off cards only to run the balances back up, or use one form of credit to cover another debt.
Sometimes refinancing or a balance transfer can be part of a legitimate repayment strategy. But if you’re shifting debt without actually reducing the total amount you owe, it may be time to consider a different approach.
3. Your Savings Are Depleted
Savings can provide an important buffer when unexpected expenses arise. But when debt payments consume a large portion of your income, you may find yourself repeatedly dipping into your emergency fund just to keep up.
Eventually, there may be little or nothing left.
Without savings, expenses such as a car repair, medical bill, or home repair may have to go back onto a credit card—potentially adding even more debt.
If your debt payments make it nearly impossible to rebuild savings, professional guidance may help you evaluate whether there’s a more sustainable way forward.
4. You’re Avoiding Creditor Phone Calls
Ignoring calls, emails, letters, or account statements because you’re worried about what they might say is another indication that your debt may require attention.
Past-due accounts can potentially lead to additional fees, collection activity, credit damage, or lawsuits depending on the circumstances.
Avoiding the problem typically doesn’t make the debt disappear. Understanding your options can help you develop a plan for addressing it.
5. Debt Is Causing Emotional and Physical Stress
Financial problems don’t always stay confined to your bank account.
Debt stress can create tension with family members, make it difficult to concentrate on work, or get a good night’s sleep.
If you’re constantly worrying about which bills to pay, checking account balances, or wondering how you’ll make it to your next paycheck, your financial situation may be affecting more than your finances.
Seeking help can provide something often difficult to find when you’re overwhelmed: a clear understanding of your available options and a path forward.
Types of Debt Relief Help
There isn’t one debt relief strategy that’s right for everyone. Your options depend on factors such as your income, debt amount, credit score, types of debt, and whether you’re able to make regular monthly payments.
Here are four common approaches.
Credit Counseling
Credit counseling organizations help consumers review their finances, create budgets, and develop strategies for managing debt.
In some cases, a credit counselor may recommend a debt management plan (DMP). Under a DMP, you typically make one monthly payment to the counseling organization, which then distributes payments to participating creditors. Creditors may agree to certain concessions, such as reduced interest rates or waived fees.
Credit counseling may be worth considering when you can afford to repay your principal balances but are struggling with high interest rates or managing multiple payments.
It’s important to understand the fees, terms, participating creditors, and expected repayment timeline before enrolling.
Debt Settlement
Debt settlement takes a different approach. Instead of focusing on repaying the full balance under modified terms, the goal is to negotiate with creditors to accept less than the full amount owed to resolve eligible debts.
Debt settlement is generally geared toward consumers experiencing financial hardship who have significant unsecured debts, such as credit card balances or certain personal loans, and are having difficulty keeping up with their payments.
There are important risks and tradeoffs. Creditors aren’t required to settle, collection activity may continue, accounts may become delinquent, and your credit can be negatively affected. Forgiven debt may also be taxable in some circumstances.
For someone who cannot realistically repay their unsecured debt in full, however, settlement may be one option to consider alongside other forms of debt relief.
Debt Consolidation
Debt consolidation involves combining multiple debts into a single new loan or credit account.
For example, you might take out a personal loan and use the proceeds to pay off several high-interest credit cards. You then make payments on the consolidation loan instead of managing several separate balances.
Consolidation can be useful when you have good enough credit to qualify for a lower interest rate and sufficient income to comfortably make the new payment.
However, consolidation doesn’t reduce the underlying debt by itself. It primarily restructures it. If you continue accumulating balances on the accounts you’ve paid off, you could ultimately end up with more debt than you started with.
Before consolidating, compare the new interest rate, fees, repayment period, and total cost of repayment.
Bankruptcy
Bankruptcy is a legal process that may provide relief from certain debts when someone’s financial situation has become unmanageable.
The two most common types of consumer bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 can discharge many qualifying unsecured debts, although eligibility requirements apply and certain assets may be subject to liquidation depending on applicable exemptions. Chapter 13 generally involves a court-approved repayment plan lasting several years.
Bankruptcy can have significant financial and credit consequences, but for some people facing severe financial hardship, it may provide a necessary path toward resolving overwhelming debt.
Because bankruptcy is a legal process, consider speaking with a qualified bankruptcy attorney if you believe it may be appropriate for your situation.
Frequently Asked Questions
Final Thoughts
Knowing when to ask for debt help isn’t always easy. Many people spend months—or even years—trying to keep everything afloat by making minimum payments, moving balances, using savings, and cutting expenses.
But if your balances aren’t going down or your debt is making it difficult to cover everyday necessities, continuing the same strategy may not solve the underlying problem.
The important thing is to understand your choices.
Credit counseling, debt consolidation, debt settlement, and bankruptcy offer different approaches to financial hardship, and each comes with advantages and potential drawbacks. Taking the time to compare those options can help you make a more informed decision about what comes next.
If unsecured debt has become difficult to manage, MoneySolver can help you explore whether debt settlement could be an option for your situation. Understanding what’s available may be the first step toward creating a more manageable financial future.
