How to Get Out of Debt. The Honest and Unvarnished Truth.

As a student of the history of debt, having lived through debt problems myself, and having founded and run a credit counseling organization, I have a unique view from inside and outside the debt world. If there were mistakes and beliefs to be had, I’ve had them. If there are perceptions about debt, they’ve floated through my mind; if there are moral decisions to be weighed regarding debt, I’ve also wandered across all of those boundaries.

But Here is What I’ve Learned About How to Get Out of Debt

The bottom line about debt is it is just debt. Nothing more. It is neither an object that can be stigmatized nor engage in some form of judgment or morality. It just is what it is. And what it is, is a financial obligation that becomes problematic or unsustainable. It becomes an unmeetable installment in the exchange of money according to a contract or agreement.

All that other stuff, the stigma, morality, guilt, shame, and things that make us feel poorly are creations inside our heads and not a function of debt itself (see Is Bankruptcy Sinful and Bad or Right and Moral?). Debt does not feel like a thing. It does not judge you. It bears you no ill will.

Debt is created when an entity gives something of value in exchange for the pledge to repay that value in the future, often with some additional compensation calculated by interest. And what is interest? Well, that’s the number used in the formula that a creditor creates to estimate how much extra money they will need to add to the amount lent to make a profit and cover their estimated losses from engaging in this lending business.

Notice there is nothing moral attached to the act of lending. No moral component is tangled in the decision to lend or in pricing for a profit and coverage of a projected loss.

When a lender and borrower enter into a transaction to borrow and repay, they both are taking a risk. The lender hopes to recover the asset lent, and the borrower wishes to repay that which has been borrowed. Both parties, however, are guessing what the future holds for them. The bank cannot estimate if the borrower will be laid off or have their house destroyed by a volcano. The lender has no idea if the borrower will be in a fatal car accident or choke to death on a baked potato. Therefore, the lender is taking a calculated risk and covering that risk with interest charged by engaging in the transaction.

Consumers are constantly confused by this, and in their hour of problem debt, they often assign feelings to the fact they can’t repay as agreed because life has dealt them a bad hand. As a result, people feel they have let down their creditors, and they will think less of them; they struggle with feelings of failure and are made to feel immoral because they can’t repay.

You don't ask the person who's house is on fire what the best way to put out the fire. You let the professional firefighters attack the blaze logically and rationally that will best put out the fire.
You don’t ask the person whose house is on fire what the best way to put out the fire. You let the professional firefighters attack the blaze logically and rationally that will best put out the fire. Start thinking like a firefighter.

The reality is that while those feelings are all present in one delusion or another, they are not reality. But if you feel them, they are excellent tools to manipulate you into repaying for the benefit of the creditor, not you.

The creditor wants you to repay, not to save your soul, but to collect as much as possible back to maximize their profit. The entire end game of the typical financial transaction is just that, to make a profit, not damn you to hell.

The fact that creditors, debt collectors, and many debt relief companies know that you can’t see is that debtors can be easily emotionally manipulated for the other party’s benefit. Don’t let that happen to you. Wake up and see reality, please. (To better deal with debt collection calls, you should read “Hooray, You Are in Collections! The Debt Collector is Calling. The Debt Collector is Calling” after you finish reading this article.)

But you know what the creditor already knows? Not everyone will be able to repay, and they factor that into the interest rate they charge. So they have already made allowances for debtors running into hard times and unable to meet their financial desire to repay their creditors fully.

I am by no means suggesting that you casually walk away from manageable debt. I am saying that in times of unmanageable debt, you’ve already been accounted for if you must walk away.

And let’s not forget, the creditor wanted you to go into debt in the first place. This is not a one-sided transaction. It takes both a lender and a borrower to play. Creditors want you to get into debt so they can make a profit off of you or sell their goods. And it has been this way since borrowing began.


“Keep out of debt!” How often we have heard this slogan?
I say — Go into debt! And I mean it.

DEBT — The right kind of debt is to man what ballast is
to the ship. It helps us keep our balance. It enables us realize
our responsibilities and aids in keeping “our nose to the grind-
stone.” A blessing in disguise.


Debt is a tester of character. A prover of merit. Debt is
the kind of ballast which when carried a while, makes others
realize our REAL WORTH. Soon comes a time when we hear
voiced their estimates of us, compelled to acknowledge that;
“She has grit,” or “He has sand.”

Former Bank Advertisement,
The Washington Times, August 2, 1919.

So You Feel Like a Total Loser

Collectors are calling and asking you to make promises to repay. But, unfortunately, those calls are stressing you out and making you feel bad. The stress causes you to lose sleep, affecting your life, work, and relationships. Life feels like it is spinning out of control, and it is for you.

Your creditors’ lives are not spinning out of control. They are not stressed about your loan. They don’t feel bad for taking a risk on you to make them a profit. Instead, they feel clever and proud.

The only person judging you is yourself and maybe some other people you may personally know who don’t know about the reality of debt.

You are not a loser. You are a debtor. Those are two very different things. Because you are a debtor, you are not also, by default, a loser. People confuse the two all the time.

Cut yourself some slack. You are probably panicking about debt because there has been some change in your life circumstances. For example, your income has been reduced, your expenses have been increased, or you’ve suffered an injury or medical problem.

In fact you may be clouded by debt induced PTSD. Click here to learn more.

The debt is the byproduct of some underlying issue that has created this unmanageable financial obligation. So if you want to jump on something, start focusing on the issue that caused the imbalance and the debt.

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If you can cut expenses, do it. If you can increase income, do it as well. But the last thing you should do is label yourself as a loser. You are not.

You deserve dignity as you dig your way out of debt. Read Debt with Dignity.

The Emotional Stages of Debt

People dealing with debt often go through the same emotional stages as those dealing with death and dying do.

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Generally, people move through those stages in that order. But they may slide back and forth along the way. Now that I’ve pointed this out to you, I bet you’ll recognize it in others.

You must be aware this is a normal process, so you understand you are neither broken nor alone. You can read about the Seven Stages of Debt here.

Debt is Dark and Depressing

If you are suffocating under debt right now, you probably feel dark and depressed. It is a natural feeling, but depression is a mask to the life being experienced by others at the same time.

As you read this and maybe feel hopeless. Your creditors are not. Employees at the banks are laughing and having a good time. They have jobs with contests and rewards, and the bank is managed by highly experienced and compensated teams who claim to know what they are doing.

Your hopelessness may even make you feel suicide is a way out. That is just not a rational solution, and the debt leads you down dangerous emotional back alleys. The way you are feeling right now is not you; it’s the debt talking.

Don’t let the debt ruin or even take your life. Just realize “You Ain’t Your F*cking Debt.”

If you are feeling dark and depressed, seek help. But, first, make an appointment to talk to your doctor about how you feel. Many suitable treatments for depression can restore you to a better balance in short order. And once you get treatment for the depression, it will help you see your situation with clarity.

The Ultimate Sin Debt Tempts Us With

If there is any ultimate sin of debt, it is the one root of robbing your future to repay the past. It is cashing out retirement money or borrowing from it to repay debt carried forward from yesterday. And the reason people do this has NOTHING to do with logic and everything to do with hyperbolic discounting.


Hyperbolic discounting is the human tendency to prefer smaller payoffs now over larger payoffs later, which leads one to largely disregard the future when it requires sacrifices in the present. Being mortal creatures with limited lifespans and resources, the human survival instinct has evolved to appreciate that one cannot enjoy a conserved resource tomorrow if one doesn’t survive today. This hard-wired tendency may be the bias behind our temporal short-sightedness, causing many people to make decisions that lead to short-term happiness and long-term disaster. – Source

Under the theory of hyperbolic discounting, a person is more likely to apply an uneven value to something at hand than to something in the future. For example, if you loved chocolate and said, would you rather have a half box of chocolate now or wait a week and get a whole box, most people would want the half box of chocolate now because they want it now. If I said you could have a half box of chocolate in a year or a whole box of chocolate in a year and a week, most would go for the entire box and wait a week more for it.

If you’d like to learn more about hyperbolic discounting, watch my interview with Dan Ariely.

People are more willing to make the irrational decision of cashing out their retirement money and screwing their future, even though the 401(k) is protected from creditors, because they interpret that money to be the way to make their stressful feeling about their debt go away quickly and restore themselves to some balance of moral equilibrium.

But what is happening when they take that cash is they are leaving themselves more exposed in their later years when they will not be earning. They are robbing their future by draining the 401(k) to nullify their feelings of today.

While it is not a rational decision, it is one that people make daily. They assign a more excellent value to end their emotional feelings about the debt they are experiencing today by cashing out the future with no emotional attachment for them.

Saving for Retirement Needs to be Your Top Worry, Not Repaying Your Debt. Don’t believe me? Then retire poor and see what it’s like.

Take a look at What Repaying Your Debt Will Cost You in Retirement – Calculator.

The refrain I often hear at this point is, “But Steve, it is the right thing to do, and I want to do the right thing to repay my debt.” Is it the right thing to do? Or is it the right thing to do to protect your retirement money for the future when you need it most and can earn it least? Let’s turn this question around and ask you if your bank was in the same position, would they do the same thing and sacrifice their future to cut you a break now?

This is why big companies and corporations are rewarded on the stock market when they file for protection through the courts when they can’t make ends meet. Wall Street views this legal protection as the responsible action for the business to take to return to profitability.

The Napa Valley Register reports the Napa Valley Symphony Association has recently filed for chapter 7 bankruptcy protection. The quote by the board president certainly sounds similar to that felt by many people facing equally dark times.

“It’s not something we did lightly,” said Michael Enfield, president of the association’s board. “But sometimes, when you’re on a path that doesn’t lead anywhere, it’s time to break a new path, even if it also breaks your heart to do it.”

The story of the journey to bankruptcy for the symphony also reads like a traditional family in which one member is facing challenging times.

The Napa Valley Symphony Endowment is a separate legal entity but has helped the symphony make ends meet.

“In the last three years, we’ve given them $400,000. They would come to us and say, ‘If you could just help us out.’ We’d say ‘OK, but this is the last time,'” Hadleigh said.

“In January, they came to us and said, ‘We haven’t paid the musicians since October.’ We felt that as a community, we’d all enjoyed the music and made sure they were paid. But we also said, ‘This isn’t working.’

But faced with a legal opportunity to reorganize your debt that would protect 100% of your retirement money, people elect not to consider that solution, even when it is the most logical, reasonable, and rational approach. The approach the responsible business takes.

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For most consumers in financial trouble, who cannot repay their debt in mutual agreement with their creditors, the most logical approach to debt elimination is to investigate a fresh legal start, otherwise known as bankruptcy. Under this financial second chance program set in law, your creditors must stop collection activity, they can’t sue you, your debts are wiped away, and your retirement money remains yours for when you need it most in your later years.

Some other solutions exist to relieve yourself of problem debt, but those are minor solutions appropriate in very narrow situations. Those solutions include credit counseling, debt consolidation loans, and debt settlement.

And then there is the wide assortment of minor schemes and confabs to eliminate your debt. Those would include the collection of trickery and deception that hucksters play to mostly separate people from their money in their time of trouble by promising consumers magical solutions to make their debt go away.

Debt Relief Mistakes Are As Old and Debt

As a student of debt relief history, I know that since the 1880s, there has been wave after wave of promises by others to eliminate their debt through some intervention, only to leave people without satisfaction and worse off.

Nearly every decade has seen a wave of debt relief approaches saturated with opportunists who appear to only act in their best interest and earn a dollar on the back of the consumer in trouble by making false promises of eliminating their debt.

People falling for magic solutions is not new; it’s not even something from the good old days. It’s a constant that has always happened and will always happen. And it happens because of the emotional misdirection created by the people in troubling debt.

People will always apply their emotional state to the magic promises and conclude that something too good to be true is true.


One low monthly payment takes care of
everything. No endorsers, no security, no
credit investigation. Not a loan company.
Phone for appointment today.
(1955 Advertisement)

No matter how fantastic an offer to relieve you of your debt sounds, the reality, and the unvarnished truth are only two solutions that will relinquish the debt quickly.

The first is to agree with your creditor to allow you to repay a mutually agreed amount. This approach is commonly known today as debt settlement. Used correctly, it can be an appropriate solution, but most consumers are not well suited for this solution.

The second solution, and the only one that gives power to the consumer and forces a creditor to accept the repayment plan or wipe away the debt entirely, under law, is bankruptcy.

Two other solutions will allow you to repay your debt over time if you can afford to. One approach is credit counseling, where your monthly payment will remain about where it is now, but your interest rates may be reduced. But it would be best to consider a credit counseling program’s real cost before enrolling. Read this.

The second is a debt consolidation loan, where your monthly payment and interest may be reduced.

A debt consolidation loan is an approach as old as credit as well.

People have always found themselves in positions of limited means and wanted to borrow their way out. So it is nothing new at all, and for some, it works and works well.

If You Are in Deep Debt and Older Than 40, You Must Act Now

Time is not on your side if you are in deep debt and older than 40. While you may want to do everything you can to work your way out of this hole over the next decade, if you don’t take action to resolve your debt situation within 12-24 months, it may have a very negative impact on your retirement. You will retire broke because you were unable to afford to save.

Every month you don’t save for retirement is a compounded month you’ve lost to avoid a financial catastrophe when you can least afford it.

I think there is a very logical argument to be made that if you are struggling with unmanageable debt today, a consumer bankruptcy now that allows you to get back to saving again makes complete sense in the face of otherwise retiring with little to no income of your own. – Source

Ready to Do Some Research?

Use our guide, 10 Must-Do Steps to Find the Best Credit Counseling or Debt Settlement Company for You to make sure you find the right help for you.

Once you do that, you can move on to the next step.

So Armed With This Knowledge, What Now?

Here is my approach to looking at possible debt solutions.

First, let’s take the retirement account out of the picture. Don’t borrow from it or cash it out. Leave it completely alone and untouched.

Next, if you can afford your regular monthly payment but want to get out of debt, look for a debt consolidation loan or talk to a credit counseling agency. You can click here for credit counseling information.

If your creditors are nipping at your heels and you can’t afford to repay them, you are being sued by them, or collection calls are burying you, then it is time for you to click here to talk to a local bankruptcy attorney.

Every debtor should talk to a bankruptcy attorney to be well informed about the one legal debt solution under the law. All preconceived notions should be taken off the table, and a bankruptcy attorney should be consulted with an open mind. You can reach out and talk to a bankruptcy attorney, not with the intention of filing but to educate yourself about what bankruptcy would mean to you in your situation.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.
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If you are worried about how bankruptcy might impact your credit, then read my free guide on how easy it is actually to rebuild your credit after bankruptcy.

Avoiding bankruptcy has hurt more people than bankruptcy ever could. Read Do Not Avoid Bankruptcy for more information.

Lastly, if you have cash on hand now to repay about 50% of your debt, or you will shortly, then debt settlement may be a solution for you. That is, as long as you leave the retirement funds alone. You can click here for debt settlement information.

Take a look at my free How to Get Out of Debt Calculator to review your options.

And that’s the honest and unvarnished truth about debt. As you can see, it does not have to be a complicated problem once you take the emotions out of the picture.

If you need more structure in your path to getting out of debt, then read A 12-Step Plan to Get Out of Debt Fast!

If you are ready to hunt for a debt relief company to assist you, be sure to read my guide, The Ultimate Consumer Guide to Checking Out a Debt Relief Company Before You Sign On the Line.

Don’t forget, if you need some help figuring things out, seeing them clearly, and getting some direction on your way out of debt, ask. I’m here to help.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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