The Seven Stages of Debt. Which Stage Are You In?

Many years ago I wrote my original Seven Stages of Debt, as modified from the Five Stages of Death and Dying by Dr. Elisabeth Kubler-Ross.

Both experiencing the emotional loss of a loved one and the emotional loss of your financial life are similar in some distinct ways. However, the emotional stages of debt also have two additional components that a mortal death does not. And these stages are almost magical as they can lead to a new and better life for you.

When I was going through my financial troubles I distinctly remember passing through all the stages below. And in helping thousands and thousands of people over the years to deal with their financial issues I’ve clearly witnessed them passing though these same stages as well.

But people don’t pass through these stages in necessarily an orderly fashion, they may jump back and forth but in the end the healthiest way to deal with any debt problem is to acknowledge each stage of debt and be aware of how you are emotionally feeling at the moment. It will help you to understand how your emotional state at the moment may be clouding your judgment about how to deal with your debt.

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If you are living with financial problems right now I challenge you to identify what stage you are in right now.

The Seven Stages of Debt


Denial begins a long time before the financial problem rears its ugly head and gets in your face. Denial distorts reality like a street drug. It’s addictive. As an impartial observer, I’ve seen bad situations brewing time after time. But the person about to land in the sticky stuff often says the same thing, “It won’t happen to me.”

Whatever you are in denial about will wind up smacking you in the face like a cinder block on a rope. Even if you don’t know what that’s like from experience, I think you can imagine what kind of a mark it will leave.

Here are some things people have actually said to me while in the denial stage:

  • “I know I can’t pay my mortgage, but they won’t take my house.”
  • “I refuse to take my child out of private school just to pay my bills.”
  • “I didn’t know they’d sue me if I didn’t pay them back.”
  • “It’s not worth my time to get out of bed for a $12 an hour job.”
  • “How did I know a collector would call me? It’s not like anyone ever reads the fine print.”
  • “My creditors suck because they keep calling me for payments. I’ll pay them when I’m
    good and ready.”

Yeah, I know they sound funny. But the people involved weren’t laughing, and I’m guessing you’re not laughing at your situation, either.

My role as the Get Out of Debt Guy is to get you through these initial stages as fast as possible and get you to where you want to be. Here’s all you need to know about denial.

If you think you’ve got money troubles, you do. Period.

Denial will just slow you up and, if you are having problems with money, time is your enemy. You have to take action as quickly as possible. The more time you spend in denial, the further you will circle down the bowl and, unless you can get past denial, you may actually go down the drain.


Anger is an emotional waste of time and energy in most situations, especially when it comes to money troubles. Remember what I said before? Your situation just is what it is. You can be angry all you want, but things will get better faster if you can turn that anger into a fire inside of you that creates intense motivation to properly deal with the underlying situation and take positive action to repair the situation.

Okay, so you want to get angry. Let’s get it out of the way.

  • Creditors — These are the folks you promised to repay when you took their money. You even signed terms and conditions that stated what would happen if you defaulted. You can be mad at your creditors all you want, but that’s not going to change the price of eggs in China, nor is it going to get you out of this mess.
  • Yourself — So you’re mad at yourself. At least that’s fair. After all, you’re the one that got you into this mess and probably through no fault of your own. So let’s have a quick pity party and then go for a walk and talk some sense into you. You think you’re a failure? So what? Everybody, I mean everybody, fails at some point in their lives at something. I certainly have. It’s part of life. Failures are great learning tools. They teach you what not to do. But unless you’ve developed a time machine, you aren’t going to be able to go back and change anything, so the best you can do is learn from the lesson and leave the anger in the past. If you screwed up, you screwed up. No need to beat yourself up over it. There’s no sense wasting a perfectly good mistake. Learn from it and let’s move forward.
  • Others — The “others” category is broad, vast and deep. “Others” falls into the same group as “Them” or “They.” There is no “They” and I still haven’t met “Them,” but they sure do get the blame for a lot of the world’s ills. If you are angry with others, stop it and forgive them. It’s not helping anything.

    Yes, it’s possible that situations and experiences in your past led you to make some of the decisions that have gotten you where you are today. But no matter what those situations and experiences were, you always had a choice, every step of the way. Probably many choices. And for whatever reason you made the ones that got you here. Stop casting blame all around town. This is your life. At some point you’ve got to take responsibility and stop blaming others. Without personal responsibility, you’ve got no way to fix this so that you can get on with the life you always wanted.

  • External Events — There is no need to cast emotional blame on external events like a slow economy, accident, divorce, illness, relationship issues, etc. There is a never ending set of circumstances and events which can lead you to financial problems. Unless you can control them, sometimes you are just caught off guard. Life is just what it is.


There is no question that money troubles aren’t fun. They typically lead to some kind of loss and that makes us sad and/or depressed. The loss can be anything from cutting out the cleaning service to having to sell your home and moving to a cheaper area. There is no doubt that some of the things you might go through may be difficult, but rather than stew over them, let’s put them into perspective.

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If you had your choice of either dealing with what you are going through right now or getting poked in the eye with a sharp stick, which would you do? It’s a no-brainer, right?

I remember one day, I was talking with a lady who was paralyzed with inaction, even though her mortgage company was about to foreclose on her home. She was so bitter about the situation, she was blaming a cast of characters and refused to see a way out. In fact, she had waited so long that it was pretty darn likely that her house was going to be sold at auction that week. She said that foreclosure was the worst thing to happen to her. I asked her, if she had a choice, would she rather lose her home to foreclosure or be set on fire? She laughed. That put it into perspective for her.

The lesson to be learned here is that no matter how bad the situation feels, it can always be worse. Even when it’s bad, there are still things to be thankful for. Try as hard as you can to look up and find the rainbow rather than stare down the well. That’s not just some “New Age” nonsense. Medical studies have shown that people who think positively live longer, have fewer health problems, experience less stress and, consequently, get the things done that they need to get done.

It may be hard to believe sometimes, but mood is a choice, just like most other things in life. Don’t believe me? Try this exercise. What kind of mood are you in right now? If you are feeling pretty good, think about the worst thing that ever happened to you. Close your eyes and put yourself back into that situation and live through it again in your mind. I bet that brought you down pretty quickly. Now try the reverse. If you are feeling down, angry or depressed, think about some of the good things in your life. Maybe you have a wonderful wife or husband. Perhaps you have great kids. Everyone has things to feel thankful for, even if it’s just the fact that you’re not on fire right now. Again, close your eyes and focus on those good things. If any bad thoughts creep in, push them out of your mind and go back to the good stuff. If necessary, pretend that you’re happy. Laugh out loud. Jump up and sing your favorite song at the top of your voice. Do whatever you would do if you were in a great mood. If you give this an honest try, you’ll find that pretty soon you start to feel better. Everyone feels down from time to time, but with practice, you can take control of your emotions and not let those down times run your life. Besides, as long as you think only sad thoughts, you’re going to be sad.

For some depression is rooted in an out of balance brain chemistry. No matter how hard you try to lift yourself up you may just need to talk to a psychiatrist or or doctor about medications to help you slip the cycle of depression. I’ve watch the miracle of recovery from depression in ones I love after they worked with a medical professional and were prescribed specific medications. It took a while to tune the dosage but the results were lifesaving for them.

Here is the easiest advice to give but the hardest advice to follow: Suck it up or take action and get medical help and let’s move on toward a solution. Bad things happen to good people. Life is unfair and sometimes cruel. It is what it is. Heard that before?


Typically, this is the stage when your higher power is brought into the mix.

  • “God, I promise I’ll make all the rest of the payments on time if you can help me get out of this jam.”
  • “God, if you can just bring my credit card payment current somehow, I promise I’ll go to church every Sunday/be nice to my kids/work really hard for the rest of my life/never buy a $500 pair of shoes again.”

I know all about this stage. In 1990, I filed bankruptcy. It was not the happiest time of my life, but out of that mess came my passion for helping other people find solutions to their financial problems.

When I was going through my troubles I searched all around and couldn’t find the kind of help I needed. Sure, there were a lot of companies out there who said they could help with debt, but all they do is collect your money and distribute it to your creditors. That might help a few people who just don’t have the discipline to make their payments on time, but if you’re in a real financial jam, like I was, you need a lot more advice and assistance. Unfortunately, it just wasn’t out there.

I now help many people through GetOutOfDebt.org to get their financial lives back on track by providing free help and advice. Strange how life works. My biggest failure turned into my greatest success. I would not be able to help as effectively unless I had lived through that situation.

You can bargain with your God (or the Devil) all you want, but you might as well go outside and look for a four-leaf clover or throw some coins in a fountain. Bargaining is nothing more than wishing and wishing is okay, so long as it’s not your only plan.

Bargaining also sets you up for trouble if you bargain the wrong way with debt collectors or creditors. Some people make bargains to resolve their debt by promising payments they can’t make. They feel if they tell them what they want to hear it will make everything better. It won’t. The first time miss a payment all bets and deals are off or you make a big payment thinking the balance of your debt will be eliminated. And speaking of deals, if you are bargaining with your creditors or debt collectors, get it in writing. If you don’t, any bargain they made with you is worthless and trust me, I’ve seen too many examples of creditors or collectors that later deny they made any such bargain.


You made it. Congratulations. I’ve been waiting for you. This is my favorite stage, even though the next two are where you start putting the pieces back together. I love the acceptance stage. It is so full of peace and leads people down the right path. Until now, you’ve been like a long-distance runner going round and round in circles, lost. Once you reach acceptance, you are turned in the right direction and now, instead of being tired and going nowhere, every step you take is in the right direction toward your new life, whatever that may be.

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Once people reach acceptance, they know that what I said before is a fundamental law: Life just is what it is.

If you got your hours cut and you are not bringing home what you used to, it just is what it is.

If you bought a home that was too expensive and now you are struggling to afford the payment, it just is what it is.

If you’ve been unconsciously feasting at the all-you-can-eat buffet of debt for the past few years and now it’s caught up with you, guess what? It just is what it is.

Once you reach the acceptance stage, you are like a fertile field ready for me to sow the seeds of your brighter future. Up until this stage you are going to deal with some uncomfortable moments. Life just isn’t going to be much fun. It will be cloudy and uncertain. But when you reach acceptance, the clouds will part and a new day will dawn.

Acceptance does not mean that you aren’t going to suffer loss or pain. In fact, you probably will. But the good news is that if you can see your situation with clarity, you will understand that whatever loss you are going to experience will be temporary. Don’t let loss bury your hope for a better future.

Although I’ve talked a lot about what you may have to give up right now, it doesn’t mean that you’re going to have to live hard the rest of your life living off beans and water. It’s like being sent to your room. As much as I hated it as a kid, it passed, and I was soon outside place and each day is a step closer to a repaired and better life, if you let it happen.

The acceptance stage is the point where you can make the best decisions about how to deal with your debt. You can be clear of thought and inquisitive about what path may be best for you. It’s at this time that you may want to investigate credit counseling, debt settlement and even click here to talk to a local bankruptcy attorney to become better informed about solutions that may or may not be appropriate.

You should also read How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. They will give you a great overview of what we need to deal with to get you moving in the right direction.

Then use the free How to Get Out of Debt Calculator to review your options.


Some time will pass after you take action and seek a way to intervene in your financial troubles, but slowly you will notice that you are starting to rebuild your financial life. You can even resurrect your good credit rating by following this guide.

If you are careful, you will be able to start saving money and buy a few luxuries again. It’s OK. If you lost your last home to foreclosure, you’ll be able to buy another. If your last car was repossessed, after you take care of that situation, you’ll be able to get another. (After my bankruptcy I drove a $500 used Postal jeep until I could save enough money to buy a better vehicle. That jeep was an accident waiting to happen. I held my breath every time I turned a sharp corner, praying the darn death trap wouldn’t overturn!)

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

Gradually, you will start to see that what I’m telling you is absolutely true. Now, you might not have as much stuff as you used to – you might not have the three-car garage and beautiful home on ten acres – but you’ll have what life wants you to have and you’ll find greater joy in it.

This stage is just like coming back from the dead. Your financial life was pronounced DOA, but now – “CLEAR!” – you’ve zapped it with a defibrillator and there’s a pulse again. Sure, it may be a faint pulse to begin with, but its regular and getting stronger every day. Let’s learn from whatever mistakes we made and move forward — smarter and sharper.


Your life will have changed noticeably once you reach this stage. The experience of surviving your financial problems will have made you a stronger person; a different person; a better person.

I firmly believe you can lead multiple lives within the one that exists between the time you were born and the time you die. We grow, evolve, learn and change. We grow apart, grow together and just plain grow old. Your life can be so much more than the struggles you are going through right now. You didn’t get into debt overnight and it’s probably going to take some time to be reborn, but trust me, you’ll be a better person for it, if you want to be.

The past does not have to predict the future. You don’t have to be saddled with your old mistakes. Others might not, but guess what? It’s as simple as being forgiven. I forgive you. Life just is what it is. If you need a hug, I’ll gladly give you one.

What others might not see, or reward you for, is that when you were faced with your money troubles, you did everything you could, gave it your best shot and survived. That’s pretty darn amazing. You will truly be a silent hero. But I’ve got a special place for you in my heart and, if you send me your picture and story of survival, I’ll frame it and hang it in my Debt Survivors Hall of Fame.

Damon Day - Pro Debt Coach

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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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