What to do when you're sinking in debt

Drastic measures need to be taken to keep your financial ship afloat

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question for the CreditCards.com expert

Dear To Her Credit,
My husband and I fell behind on our bills. Mortgage, cars, credit cards -- you name it, we fell behind on it. We're trying to get out of our rut, but it's just really hard. We have three children: a 2½ -year-old and 7-month-old twins. Our kids come first as far as spending our money. So we fell behind on some bills and now trying to catch up just seems impossible.

Every bill we get in the mail has late fees and over-the-limit fees. How can we catch up on our bills if they just keep tacking on all these fees? We are behind a few months on our mortgage; I am scared that we will lose our house.

All we want is a good life for our kids. A roof over their heads, food, clothes. This day and age it's just becoming too hard. We can't file for bankruptcy because we did that three years ago. I really just don't know what to do.

I think we might have to sell our house and rent one instead. That is even if we can sell it. Our mortgage just keeps going up. Please help with any advice that you have.  -- Virginia

Answer for the CreditCards.com expert

Dear Virginia,
Your story demonstrates the futility of filing for bankruptcy without solving the underlying problems that get people into debt in the first place. Your experience is not unusual.

For one thing, bankruptcy is filed as of a certain date. The court may not even discharge (get rid of) debts from bills too close to the bankruptcy date. The bankruptcy process takes a while -- and by then many people are far in debt again. And then some debts, such as child support and most taxes, are not dischargeable at all.

You are in a desperate situation. Small steps like cutting back on lattes or saving change are not enough. When you are "a few months" behind on your mortgage, you could indeed be very close to losing your house.

The first thing to do is find out exactly where you stand. Make a list of all your bills and how much you owe on them, including amounts past due. This step is very important; you need this information for your next step.

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Next, look at your options. These are potentially drastic options, but that's what you need:

  • Sell one or both of your cars. If you have two cars, sell the one with the biggest car payment. If you live near a bus line, you can probably get along without a car for a time.
  • Rent out your house. If you can get enough rent to cover your mortgage payments and taxes, that's one way to avoid foreclosure. You can stay in an apartment or even with your parents, if that's an option.
  • Sell your house. Set a reasonable price so it sells quickly.
  • Sell other items of value, such as a motorcycle, boat or travel trailer. Or have a garage sale.
  • Adjust your income tax withholding. If you always get a refund, file a new Form W-4 with your employer and claim more exemptions.
  • Work more hours, or take temporary or seasonal work. Every dollar helps.

Regardless of the other options you choose, be sure to stop all money leaks, starting today. Resolve never to pay another late fee -- you have to make the payment, so make it on time. Get rid of excess or overlapping insurance (don't skimp on the insurance you need!). Cut out unnecessary spending like junk food and stress shopping. Spending money only causes more stress in the end.

Resist the urge to spend money unnecessarily on the kids. I remember when my kids were little, and it seemed like everything we bought was for them. But kids actually need very little. Having parents who are not stressed out over money will do them more good than all the latest toys and goodies.

If this seems overwhelming, consider getting financial counseling from a reputable nonprofit organization. This situation is a wake-up call. Use it to start learning about personal finances. You'll be able to relax and enjoy your growing family when you have control of your money and you know you have a secure financial future.

See related: Take control of debt, avoid bankruptcy, Pay off credit card debt or avoid bankruptcy, Five tips for those considering bankruptcy

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Updated: 01-18-2018