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Over the last few years I have met many people with enormous amounts of debt. I have seen the stress that it causes between marriages and the struggle to figure out what to do about it. We have talked to people who have considered bankruptcy, consolidating credit card debt, even taking out more loans to get rid of outstanding debt.


This by far is the most common and first option that most people consider. They think if they file bankruptcy they basically walk away from their debt and start over.

Not true.

Many, many financial gurus suggest that this be an absolute last resort. Although it might seem a relief to not have the hounding of credit collectors, once you file bankruptcy, your credit is trashed – for at least 7 years! Chapter 7 bankruptcy stays on your credit report for 10 years! In that time, you will most likely not be approved for any type of loan or have to pay unbelievably high interest rates. Most debt can be cleared up in less time with less damage. What is “last resort”? Only in the most extreme cases of debt overload (usually 10 times or more of your annual income) and threat of asset seizure should the idea of bankruptcy even be considered.


Because you have basically told everyone who checks your credit report that you cannot handle money. Bankruptcy shows creditors that you will borrow to the extreme and not pay it back. Better to work through it, and in doing so, develop better money management skills.

Consolidating Credit Card Debt

This one can be quite appealing. When we were in debt, we did consolidate our credit cards by transferring lower balances from one credit card to another. For me, it seemed easier to have it all in one place rather than spread out. When I did that, those large debts were very intimidating. I felt like we were never going to get them paid off. It was easier to swallow paying of a $200 credit card here and there because we felt like we were making progress when they did get eliminated.

Where people run into trouble is when they go to a company that charges a fee to consolidate your debt. If you look into anything like that, do your homework. Remember, companies need to make money. You need to find out how they make their money by helping you. Always remember, consolidating debt does not fix the problem that created the debt: overspending. Making it more tolerable through consolidation can even make the bad behavior worse.

Taking Out Loans to Pay Debt

This is a scary one! People who take out debt to pay debt are just creating more of a problem.  To some, a home equity loan might seem like a good idea, but it is very risky. Yes, you might feel some relief to pay down some credit card debt and snag the lower interest rate, but if you don’t get your spending under control in the first place, you might end up in a worse situation. How can it be worse? Well, the recent real estate bust has shown us how. Many foreclosures occur on houses that have 2nd mortgages in the form of a home equity loan. They took their credit card debt (unsecured debt) and secured it to the roof over their heads. Bam! The person loses their job, the value of the home has dropped and the mortgages are higher than the value of the home. They cannot sell at a price to cover the mortgages, ultimately leading to foreclosure. Those people would have given the world to have gone back and just worked through the credit card debt – knowing their home equity loan would lead to their foreclosure. Remember, the reason those home equity loans are lower interest rates is because you are putting up your home for collateral!

The Solution: Get Your Spending Under Control

Stop creating debt. Start living within your means. This is easier said than done! It takes a complete paradigm shift in how you view money to really start digging yourself out of the hole.

  • Find people who have been in your shoes and got themselves out of debt and see what they did.
  • Go to a financial class offered in your area. Financial Peace University by Dave Ramsey is offered in many states as well as Crown University. In these classes, you will be with others who feel the oppression of debt and want to get out. It can be very encouraging and life changing to share with others fighting the same battle.
  • Work as hard as you can as quickly as possible to get out of debt.
  • Don’t be afraid to ask for someone to help you set up a budget or to help keep you accountable.
  • Realize that it is your responsibility to get out of debt, not someone else’s.

For years, I thought we would always have debt unless we won the lottery or someone gave us an inheritance. I never believed we could get out of debt ourselves. But after taking Financial Peace University, we changed our thinking and paid off the last of our credit card debt 18 months after beginning that class. It was hard. It was painful at times. But it is so freeing!

Image: renjith krishnan /

Image: David Castillo Dominici /