How to Get Out of Debt When You Owe More Than You Make

Getting out of debt when you owe more than you make requires careful budgeting and sacrifice. Eliminating discretionary spending on cable television, hobbies, eating out and traveling is essential. Even that may not be enough and could force you to make other hard decisions about your finances. Government-certified credit counselors, such as those affiliated with Consumer Credit Counseling Service, can offer suggestions based on your income and expenses. The public library or local charities such as the United Way can offer referrals for credit counseling in your area.

Instructions

1

Sell some of your assets to pay down debt. Eliminate a second car that is paid for, if possible. Sell household goods through a garage sale. Raise enough money to completely pay off some debts.

2

Take money from savings accounts to pay off other bills. Dipping into savings is difficult, but using the money to pay off high-interest credit cards is a smart move. Tap into retirement accounts only as a last resort, especially if you will incur penalties for early withdrawal.

3

Earn more money by taking a second job -- or even two additional jobs. Use the additional money to pay down debt. Or settle some debts for less than the full amount. For example, a credit card company may agree to settle a $1,000 credit card balance for $500 -- a savings of 50 percent. However, debt settlement hurts your credit score because you failed to pay an account as agreed. Also, creditors will not settle accounts that are in good standing, meaning you'll have to miss several monthly payments to qualify. Only unsecured debts, such as credit cards, are eligible for debt settlement.

4

Eliminate a car payment you cannot afford. Sell the car if possible. This may be difficult if you owe more on the car than it is worth but it is worth exploring. Contact your lender to determine how much you owe on the vehicle. Look up the fair market value of the car on free online sites such as Kelly Blue Book. Some debtors who cannot afford their car payments contact the lender to arrange for a voluntary repossession. However, this severely harms credit and is best avoided if possible.

5

File for bankruptcy if all other options fail. Chapter 7 bankruptcy eliminates unsecured debt in just a few months. Chapter 13 bankruptcy requires a payment plan lasting three to five years. Most bankruptcy attorneys offer free consultations to offer advice on which plan is best for your situation.