As a debt counselor, I hear many stories from individuals struggling with debt. Some fell on hard times due to financial misfortune, and others suffered from poor spending habits. But every now and then you come across someone who started with only a little debt, then tried to get themselves out, but, because they didn’t know the system and what questions to ask, they somehow became mired in debt.

So, for those friends of mine out there, this article is for you.

Let’s start off by reimagining debt as someone sitting in a leaky boat in the middle of shark-infested waters, wondering how they got themselves into this situation. How would you advise this person not to become fish food? I’m going to venture that, more or less in order of urgency, you would say: Plug the leak, see what tools you have available, and then start bailing out water from your boat.

Well, in many situations, debt is no different from an ocean full of sharks, and those same rules apply rather well to the debt situation. So, let’s see how our own advice can be used to get us out of debt.

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Plug the Leaks

If you’re spending more than you earn every month, then your boat is leaking. This is the first and most pressing issue we must address.

The math is rather simple: you can either increase your earnings, or you need to decrease your spending. And because you’re reading this article, a big portion of that spend also probably comes from payments on your debt.

Increase Earnings

Consider getting a second job or becoming an Uber driver on the side. Uber says it’s drivers makes $25 an hour, but after you account for commission, gas, depreciation and taxes, you’re taking home about $11.77 an hour. Working 4 hours a day for 6 days a week, that’s still an additional $1,224 a month a month though.

In The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing, Marie Kondo’s challenges us to ask the question of whether an item that you own or treasure sparks joy. If not, then sell it. Many second-hand stores will buy decent clothing and sports equipment. If you have an old phone or computer lying around, try selling those too.

Decrease Spending

You can find a million ways and blog posts on how to save money. I’ll just focus on a few big ticket items here to get your creative juices flowing:

• Do you need the vehicle you have, especially if it’s purchased on a loan? If you sold it and downsized to something smaller, could you reduce your monthly payments? Having a car loan doesn’t just increase your expenses, it also makes getting additional loans more challenging, because it inflates a ratio that many lenders use to assess you called Debt-To-Income ratio (DTI).

• Can you reduce your cable and internet expenses? I had a friend who was evicted for being unable to pay rent, yet she continued to pay $150 a month for her cable and internet. I wish she had just listened to my advice and applied for Xfinity’s Low Income Housing program where internet can be as low as $10 a month (also available to students, but you need to ask around). If you buy your own modem, you save $13 a month by not renting theirs. And for TV, you can just buy an HD Satellite. In all, that would have saved her $140 a month.

• Shut off all monthly subscriptions. I had a friend that paid $70 a month for credit monitoring services that offered more or less what CreditKarma offers for free. That was an easy cancel. I also joke that I pay for fitness club memberships so I can tell people I go to the gym. If you’re anything like me, then just pay for a daily pass if you do go, or better yet, just do push-ups in your living room or go for a run outside. If you have to be part of a gym, then consider community centers and the local YMCA. They often offer very competitive rates for membership or single-use cards.

• Regarding food, look for deals and avoid eating out and going to bars. I used to spend $8 a meal at Chipotle and $2 for a cup of coffee. That ended up being $540 a month for just the basics. Add in the fancier restaurants and going out for drinks on Friday nights, and my food bills was around $1,000 a month. After I decided to prepare my own food, I started each week by buying only items that were on sale or that I had coupons for. I also start shopping more at the grocery stores that consistently had lower prices (Ethnic supermarkets and farmers’ markets often sell groceries at 50% of the price in large corporate chains) and quickly found I was only spending $4 a meal and saving about $700 a month or $8,400 a year. It’s not as fun or convenient, but it helped me quickly stop my leaks.

Decrease Your Debt Interest Rate

If you have a credit score above 600, you might qualify for a lower interest debt consolidation loan so you can pay off your more expensive credit card bills.

If you have excellent credit, you can also qualify for certain credit cards that offer 0% APR for balance transfers for the first year. This will buy you 12 months of funding interest free to pay off your debts.

You may want to visit our extensive “Understanding Interest” article if you have any questions about the subject.

Buyer Beware: If you know you don’t have the fiscal discipline, then stay away from this strategy. Better yet, cut up those credit cards. I’ve come across too many customers who tried to consolidate their debt by taking out a personal loan, but the moment they received the cash, they spent it all and instead only got further in debt. Needless to say, the same goes with the credit card. If you can’t pay off your bills in 12 months, then don’t do it.

Double Beware: Certain lenders will only give you a personal loan if you offer collateral, such as a car or the title to a home. I would strongly recommend against this. I think Shel Silverstein sums up that strategy best with this poem:

My dad gave me one dollar bill
'Cause I'm his smartest son,
And I swapped it for two shiny quarters'
Cause two is more than one!

In summary: don’t trade unsecured debt for debt that requires collateral. It’s a bad deal.

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See What Tools You Have Available

In addition to debt consolidation, which I mentioned above, there are many programs out there that offer assistance with debt. I’ll cover the most popular ones here:

Paying off Your Debt:

Do this the old fashioned way by applying all your newfound savings from above, and paying off your creditors:

Pros: It feels good to do it yourself. Best effect on your credit score too.

Cons: It can take a while and requires a lot of discipline. Also, it might not be enough if you’re completely swamped in debt

Recommendation: If you can afford this, this is the most honorable approach. If you do want to pay off your debt on your own, check out my article, Understanding Debt, that explains the difference between an avalanche and snowball strategy for paying off your debt.

Do Nothing:

For all your credit card debt and most other unsecured loans (excluding student loans, childcare, and liens) if you do nothing for 7 years, technically your slate is wiped clean and the creditors can no longer legally pursue you or ding your credit score anymore.

Pros: You don’t have to pay anything

Cons: Your credit score can be destroyed for 7 years, and you will suffer the agony of being hounded by collections agencies for years on end. These will still continue even after the 7 years. Even though the collectors have no more legal rights to pursue the money from you, they will still harass you in hope that you’ll pay up out of ignorance.

Recommendation: I would not recommend this, especially if your debt is large. The chances are that you will be sued at some point by the creditors, which means going to court and wage garnishments.

Debt Management Plan:

These are offered by nonprofit organizations that help consolidate and then renegotiate your interest rates with your creditors. This option can be an alternative to debt settlement. They usually charge a monthly fee (in the US, this cannot be more than $79 a month, but most average around $25 a month).

Pros: They have minimal impact on your credit score

Cons: Their program lengths can run for 5 years, which means you’d be paying around $1500 in fees before you’re done

Recommendation: You can use these if you don’t have a lot of debt and you can be quickly in and out of the program.

Debt Settlement Plan:

These programs, also known as Debt Relief, withdraw a predetermined amount from your bank account each month that they put into escrow for you. This option is often an alternative to bankruptcy. They then negotiate with your creditors to reduce your overall debt amount and use the money they have been saving for you to pay off that debt.

Pros: You can get out of debt within 2 years and pay as little as 27% of your original debt, although it averages out to be around a 55% discount

Cons: In order to get your creditors to be willing to negotiate, you’ll have to let your bill payments fall behind. If they aren’t already behind, this could have a big impact on your credit score. Also, many debt settlement programs charge exorbitant fees of up to 25% of your original debt amount. This often leaves debtors paying more than if they had just stuck with their original payment schedule.

Recommendation: There are many debt settlement companies where the representatives are not honest with their counsel or their high settlement rates. If you use debt settlement, make sure you find a good company, go through an exhaustive list of pros and cons, and always ask about their rates and payment plans.

Payday Loans & Title Loans:

Going back to our metaphor, these tools are drills that will help you poke more holes in your boat. Only good if your goal is to sink as quickly as you can.

Pros: You get instant cash

Cons: The interest rate can be so high that it will keep you in the debt cycle.

Recommendation: I can go into horror stories here, but just please take my advice and avoid these.

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Start Bailing Water

Once you decide on a strategy, the most challenging part is having the discipline to actually start bailing yourself out of debt. The key to this is budgeting.

For those that haven’t budgeted before, I recommend to start simple. Start so simple that you are literally only tracking and documenting how much you make and how much you spend in one month. Too often, we try to jump into hyper-complex budgeting apps/methods that burn us out in 5 weeks.

For those that want a more informative budget, such as how much you really did spend at Starbucks this last year, Mint has a helpful free app that allows you to input all your credit and debit cards. It then monitors all your non-cash spending and categorizes each expense before summing up your category spend by month. This is a great way to see where you need to focus your attention when it comes to saving.

Also, if you struggled with credit card debt in the past due to uncontrolled spending, then cut up your credit cards and only use debit cards. Watch Marie Kondo’s special on Netflix (but don’t get the subscription if you don’t already have one) and find ways to really cut down on your spending.

The work isn’t easy. Sometimes it might not feel like you’re making an impact. But like the metaphor goes, bucket after bucket, if you put in the time, discipline, and effort, you will rescue yourself from debt. I’m rooting you on, and if you want to share your success stories, I’d love to hear about them. Every success is worthy of a boast and celebration.

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