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How To Deal With Debt If You Borrowed Too Much

woman looking at receiptLearning how to deal with debt is not the easiest lesson. This is especially true if you are already drowning in it.

The sad thing is, you cannot live without debt – or at least it is difficult to not have debt. Our society has made debt quite important by inventing the idea of credit scores. This score is something that will help lenders and creditors determine if you can be trusted with a credit account. In order to have a good credit score, you need to be in debt and display good behavior in paying it back.

In our society, consumer debt indicates confidence in the economy. It also indicates that you are confident about your personal financial position. After all, you will only borrow money if you know that you can financially deal with debt. Unless of course you are facing an emergency. But even then, you cannot borrow money unless the lender knows that you can handle the credit that you are taking out.

Since our society treats debt as the norm, you need to understand that it is up to you to be careful about how much money you will borrow. You need to make the right choices because if not, you can end up compromising your future. It is important for you to determine if debt will bring you financial wealth or death.

According to a recent survey from, 37% of Americans are in a dangerous financial situation. It is revealed that 24% of the survey respondents have more credit card debt than their savings. 13% of their survey respondents are in a different situation but it is no less dangerous. They said that they do not have credit card debt, but they also do not have any savings. That means if something happens that will require them to spend beyond their budget, they could end up in debt – just like that.

Both of these situations can make their finances turn for the worse – with just one emergency situation.

While borrowing money is not necessarily something that you should avoid, you should always be careful to loan only what you can afford. When you end up borrowing too much, it might be more difficult to deal with debt.

Signs you borrowed too much on these top 4 debts

There are so many debts out there but we will be concentrating on the top four debts in the country: mortgage, student loan, auto loan and credit card debt. Let us discuss the signs that you borrowed too much money on these different loans. Later on, let us discuss how you can handle these debts after you have put yourself under so much debt.


Buying a house is one of the most expensive purchase that you will make. That makes mortgages one of the highest debts in every American household. Although that is true, this type of debt is something that will help you grow your equity. As you send in your payments, the equity in your home grows. That signifies that you own more and more out of your home.


The sign that your mortgage is starting to become more than what you can handle is when you find the monthly amortization difficult to meet. When you realize this, you should come up with a new plan to deal with debt. You know that you cannot compromise your home loan payments because you might lose your house in the process. Not only that, if your mortgage ends up being bigger than the actual value of the house, that means you really borrowed too much.

Student Loans

For the past few years, student loans have been making headlines because it keeps on growing and growing. It is starting to pull back the financial growth of young adults. A clear sign that you have a lot of student loans is when you are finding it hard to get a job that is paid enough to help you meet your monthly payments. Now this can be a problem especially when you have mostly Federal student loans. They have very aggressive collection methods that includes wage garnishment – something that they can do even without a court judgement. They can also get your tax refund, Social Security benefits, etc.

Auto Loans

In most cases, you are at a disadvantage when you get car loans. The moment you drive off the dealers with your car, it already depreciated on you. In essence, you will always borrow too much with this type of debt. That is why you need to exert caution when you deal with debt from buying a car. The truth is, it is ideal that you pay your car in cash – or at least, save up as much as you can so you can pay in cash. It is how you can keep your losses from being too much.

Credit Cards

Now this is the type of debt that you can easily borrow too much of. According to an article published on, the average American household owes $15,609 in credit card debt. This data came from the Federal Reserve and only includes households that are indebted. There are two ways to determine if you borrowed too much. The first is when you reach your credit limit. The second is when you can no longer afford to pay the minimum payment requirement. The thing about credit cards is that it makes purchasing convenient. You do not have to reapply for new credit in order to borrow money. As long as you have not reached your credit limit, you can go ahead and continue to use credit to purchase almost anything. That is what makes this debt one of the most dangerous that you can be involved with. It is also notorious for the high interest rate that can ruin your finances quite easily.

What to do when you borrowed more than you can handle

Now that you know the signs that you borrowed too much, it is time to find out how you can resolve this problem. Unless you deal with debt the right way, you will never achieve debt freedom. So here are our tips for the top 4 debts that you borrowed too much of.


We all know that not paying your mortgage would mean losing your home and the equity that you have built upon it. Now the best way to deal with this debt is to reach out to your lender. You need to inform them that certain changes happened to your finances that made it difficult for you to pay off your monthly amortization. Ask them about the options available based on how much you can afford to pay. Among your options would probably include refinancing your loan. The goal here is to get a new loan with better terms, use it to pay the old loan and continue paying the mortgage based on the new terms. The term should ideally have lower interest rates or a longer payment term – anything that will help you reduce the monthly amount that you need to pay.

Student Loans

You have to be careful when you deal with debt owed to the government. Their collection methods are quuite aggressive. In case you are in the midst of a financial crisis, you can apply for deferment or forbearance. If you do not qualify for it, you still have other options. When it comes to student loans, an article published on suggested three options that you can pursue.

  • Ask for forgiveness. If you work in the public sector or the army, you may be able to qualify for loan forgiveness. You need to check with your loan servicer or lender to find out if you can apply for forgiveness.
  • Qualify for a repayment plan. If you current repayment plan is difficult to meet, talk to your loan servicer if you can qualify for other repayment plans. The most common option are income-driven repayment plans. These are dependent on how much you earn each month and your financial position. The monthly amount that you need to pay is usually a percentage of your salary.
  • Automate your payments. In most cases, if you automate your student loan payments, you will get a discount. So if you need to lower your monthly payments and if you want to make it convenient, then opt for auto payments.

Auto Loans

The best advice when buying a car is to pay for it in cash. If you cannot afford it, then pay at least 20% on the downpayment. You should also try to limit your terms to 4 years or less. You can also be careful with the expenses associated with your car. If you can save on car maintenance costs, it can make your budget more bearable.

Credit Cards

To deal with debt borrowed through credit cards, you need to look at options that will give you low interest rates. You can use debt consolidation loan so you can put your balance into a low interest debt. Another option is balance transfer. You can get a 0% credit card, transfer the balance of your high interest cards and then pay off the principal while the 0% introductory period is still in effect. You can always get help by going to a non profit credit counselor. They give free consultations so you can get professional advice for your debt situation.

Here is a video about how a family and their financial struggles. Bryton, the one in the video, married young and she said that before marrying, their parents insisted that they take a Dave Ramsey course that will help them manage their finances. This came at a great time because both she and then fiance did not have any debts yet. So when the time came for them to borrow money, they were very wise about it. Bottom line is, you need to know how to handle your finances because it will not only help you make the right financial decisions. Financial literacy can also get you out of tight spots in case you made the wrong decisions. Watch this video to find out about how their financial knowledge got them through the ups and downs of their personal finances.

3 Life Curveballs That Can Make Your Debt Situation Worse

sad man in a sinking boatWe all want to avoid a bad debt situation. But at the same time, it is not encouraged that we eliminate the use of credit. Society have placed a huge importance to credit scores and that means you have to keep using credit in order to maintain a good record. This is really not something to be overly concerned about because if you know how to manage your debt well, you can keep it from ruining your finances.

However, there are instances wherein debt becomes a problem – not because you were irresponsible with money, but because of certain curveballs that life throws at you. Even if you borrow money wisely, if something changes in your life, you could be faced with a debt situation that you can no longer handle.

If you think about it, this is probably what happened to a lot of consumers when the Great Recession happened. They had everything under control – even their huge credit card and mortgage debts. But when the market crashed, their debt suddenly became a huge problem.

At that time, you can blame the economy for what happened to your finances. But do not feel complacent right now if you hear reports that the economy is recovering and doing very well. There may be personal changes in your life that can suddenly transform your debt into a financial catastrophe.

3 unexpected life situations that can make your debt problem worse

There are three unexpected situations in your life that could make your debt a big problem.

You got a car loan for a new car, then one of you lost a job

We actually got this problem from an article published on According to one consumer, they recently got a car loan in order to buy a new car. They got approval and was actually using the car already. However, life seemed to play a joke on them because the wife got furloughed from work. The debt situation was probably a breeze if two of them earned an income each month. But when one lost their job, that can become a problem.

In this scenario, the change was something that was beyond their control. But even if that is true, the lender only cares about your payments. So what can you do to keep this from totally ruining your finances?

The article suggests that you talk to the car dealer to ask if you can return the car. Of course, the value of the car will be lower than what you paid for. That is already a loss that you cannot get back. If you traded it for an old car, you will still be at a disadvantage.

Another suggestion from the article is to sell the car to someone else. This will probably help keep your losses low – but only if you find the right buyer. Also, time is of the essence here because you need to find a buyer fast to keep your depreciating car from losing you more money.

Getting rid of the car, and in effect, the car payments, seem to be the only way that you can save your finances because of the unexpected job loss.

You got a home loan and shortly after, an illness with expensive medical treatments

The next curveball that can happen to you involves your home loan and your health. In this scenario, you get a home loan because you think you can save more if you use what would be the rental money and pay it towards the amortization of your house. But then again, another cruel circumstance happens – you or a member of your family becomes sick. This sickness is something that suddenly bloats your expenses. Instead of saving you money, the home loan suddenly becomes a problematic debt situation.

Since you need to prioritizes spending on your health requirements, you have no choice but to put other expenses in the back seat. Sometimes, people choose to use their home loan. One way to help you out of this situation is to refinance your home loan. According to, the low mortgage rates is currently igniting a home refinance boomlet. That means people are using the equity that they have on their house to help them survive a current financial problem.

But the thing is, your situation cannot use this option because you only got your home for a short time before the medical need came to your family. That means you do not have enough equity yet. What you can do at this point is either to try earning more or to just get rid of your house. You do not have to go back to renting. You can sell your house and transfer the mortgage responsibilities to the new owner and just buy a smaller home that you can afford considering your medical expenses. You can even get a home that has a basement or garage that you can rent out. That way, the lease of your tenant can probably take care of your monthly amortization and at the same time, help you build equity on your home.

You got a student loan for a college degree but you cannot find a high paying job

The third scenario that can turn your debt situation into a big problem involves student loans. According to, it is estimated that new graduates are still lagging behind when it comes to joining the workforce. In fact, they make up 40% of the unemployed in the country. Since a lot of college graduates use student loans to help them finance their education, you can expect that a lot of these unemployed graduates with have a debt situation in their hands. If it takes them more than 6 months to get a job, their grace period would be over. They could encounter problems in paying back their student loans.

Now what can you do to keep your student loan problem from getting worse? You have a couple of options but you need to start by talking to your loan servicer or lender. You need to discuss your options with them so you will know what you are qualified to apply for. For the sake of information, here are a couple of choices that you have.

  • Find employment in the public sector. Most of the time, there is a huge demand for professionals in the public sector. The pay is low, but you can qualify for income-driven repayment plans. This means you can use your income as a basis for your monthly payments. And if you employ yourself in the right sector, you can qualify for the Public Service Forgiveness Program.
  • Apply for deferment or forbearance. When you are in a tough financial situation, you can apply for the temporary postponement of your loan payments through deferment or forbearance. That way, you can delay payments without ending up in default.
  • Join the army. This is a great way to qualify for deferment and possibly get funds to pay off your loans. If you serve an active duty, you may be able to get rid of your student loans fast.

All three of these scenarios can make your debt situation worse so you need to act fast in order to keep it from ruining your financial future.

How to keep your debt from becoming a financial catastrophe

There are a couple more habits that you can implement if you want to keep your debt from becoming a financial crisis. Here are three that can help you do this.

  • Set up an emergency fund. If you want to secure your finances despite your debt, you need to build up your emergency fund. That way, unexpected scenarios like losing a job or an illness will not make debt payments too much of a burden. Set up your finances so you have a much as 6 months to a year’s worth of living funds.
  • Borrow lower than what you can afford to pay. In case you have to borrow money, you need to loan an amount that is actually lower than your payment capabilities. For instance, if you can afford to borrow a loan that will ask you to pay $1,000 a month, choose a loan that will only require to you pay $500. That way, you are not stretching your budget to the limit. In case you have an unexpected expense, you can meet that without compromising your other debt payments.
  • Do not add more debt if you can. If possible, do not use your credit cards or get other loans. At least, until you are sure that it will not endanger your current debt situation. Keep your debt balance low. If you got a car loan, pay that off first before borrowing again. If you have a home loan, since this takes longer to finish paying off, make sure your equity is high before you think about borrowing another loan.

What Are Debt Traps And How To Avoid Them

woman chained to a dollar signIf you are intent to grow your personal wealth, it would be difficult to do so when you are in debt. There are debt traps that can really pull you down into a financial ruin.

Some business gurus like Robert Kiyosaki say that debt is not entirely a bad thing. When you utilize it correctly, it can help you grow your money exponentially. But when you do not know how to use it properly, it has the power to rule over your life and put you in misery.

Admittedly, there are debts that has the potential to do you so much good. Things like student loans or home loans that can help increase your personal net worth. But even these debts that have the potential to improve your wealth can turn into a total nightmare. At least, it will if you end up getting yourself into debt traps.

Different scenarios that will trap you in debt

Debt comes in many forms but it is used the same way. It allows you to purchase things or avail of services that you would have otherwise been unable to pay for in cash. You do not have to wait because you can use the money of someone else to finance your expenses. Of course, that comes with a price. You have to pay back the money with interest. That is how debt becomes destructive.

The released the most current report about the American household debt. According to their data, the total outstanding debt in November 2013 is now at $3.087 trillion. It went up from the $3.075 trillion last October. Of course, this growth may be because of the holiday shopping that peaks around these months. But regardless of the cause, it still goes to show that the credit is rising. It still means people have a bigger amount to pay for.

The fact that it is rising means consumers are not paying enough. They may not be defaulting but they are adding more debt to their overall balance. You want to make sure that you will avoid the debt traps that will keep you in financial crisis. To help you do this, here are the different traps that you may want to keep an eye out for.

  • Buying too many homes. Having your own home is great. Having more than one, is also better. But here is a word of caution. Make sure that any house that you will get in excess of where you intend to live can afford to pay for itself. Investing in rental properties is a good idea because it give you a significant amount of passive income. If you can put up a two door apartment that you can rent out for $2,000, that gives you $4,000 extra income a month. But make sure your mortgage loan on either properties will be less than $2,000 a month. That way, it can pay for itself while providing you with a small amount of income to put aside for its maintenance, insurance and taxes. If you cannot do this, then be more conservative with your property investments.

  • Enrolling in an expensive school without a plan to pay back your student loans. In general, student debt is a good idea but if you fail to pay it back on time, it can lead to a lot of problems. Among the debt traps, this is one of those that cannot be discharged by bankruptcy. Expensive and prominent schools are great choices but make sure that you have your career mapped out to pay back this loan once you graduate.

  • Co-signing someone else’s loan. This is never a good idea – even if it is for your child. There are parents who co-signed the student loan of their children and when the child ended up failing to pay for it, they had to sacrifice their retirement. Even if it is a close friend or even your significant other, learn how to say no to a co-signed loan.

  • Borrowing from your 401(k). Technically, this is your money so people will wonder how this is part of this list of debt traps. But think about it. When you contribute to your 401(k), it will be on your pre-taxed income. When you borrow from it, you have to pay it back with post-tax money. And we all know that when you withdraw your retirement fund when you retire, it will also be taxed. In effect, the same money is taxed twice. Not only that, you have to pay a withdrawal fee when you borrow money from your 401(k) during your pre-retiree years. All in all, it is really not a good debt to be in.

  • Paying only the minimum of your credit cards. Believe it or not, the only people who will benefit from you paying only the minimum are your creditors. The minimum payment is a credit card debt trap. While it will keep you from paying late penalties and ruining your credit score, it will lead you to waste a lot of money on interest rates.

All of these debt traps can really put you in a bad financial situation. You should try to avoid this as much as possible. If not, you could ruin your chances to increase your personal wealth.

Tips to keep yourself out of a debt pit

The credit traps that we discussed are all real and if you fall into them, you will really find it hard to get out of that debt pit. So here are some tips that will help you avoid them.

  • Live below your means. Some people will say that you should live within your means. While that will keep you from incurring debt, it will not give you enough money for savings. If you have financial goals, you should spend below your income capabilities. This way, your extra money can go to saving or even investing.

  • Create a budget plan as a family. Creating a budget is the right way to go. It will help you ensure that you will be living below your means. When you create the budget with the whole family, you will find more success in implementing it. The members of your household can all contribute to that budget plan and they will feel more responsible in following through with it.

  • Pursue budget friendly hobbies. Living on a budget does not mean you give up on entertainment expenses. On the contrary, you need this to make life a lot more fun to live. However, you have to consider the money you will use up on it. There are various hobbies that you can pursue and some of them are even for free.

  • Limit dining out. In a study conducted by the Principal Financial Group, the top reason why Americans failed in following their budget is the fact that they ate out a lot. 22% of the respondents in their survey mentioned how dining out is the main culprit. Just make use of your kitchen to cook and eat healthy food. That will turn out to be more economical and good for your body too.

  • Save money like it’s a bill. It is also important to decide on a money that you will put aside every month. Treat it like a bill that you have to contribute to consistently. That should help you grow your emergency fund faster.

Follow these steps to keep yourself from the destructive effects of debt traps. Make wise financial decisions to ensure that you will only put your money where it will grow.

If you have acquired some debts and it is carried over from last year, here is a video from National Debt Relief to help you find debt freedom.