What to Do When Your Debt Is Bigger Than Your Salary

When you hear the phrase “six-figure salary,” you probably think something along the lines of, “Man, that person makes a lot of money.” Debt is probably the furthest thing from your mind.

But making a ton of money doesn’t mean you’re managing it well. For example: A man recently posted to Reddit that he’s making about $100,000 annually, and he has about $115,000 in debt, including four credit cards with balances, a peer-to-peer loan, student loans, a car loan and a loan from his parents. He wondered if he should try a debt consolidation loan or go for another peer-to-peer loan.

The first commenter’s response: “You have a spending problem.”

Yeah, he probably does.

When Debt Gets Out of Control

It’s not so much the number on this man’s debt load but the type of debt he has that makes his situation problematic.

“If I see credit card debt, that’s a red flag to me,” said Alan Moore, a financial planner and founder of Serenity Financial Consulting. “It’s an indication of some poor financial decisions.”

Having a debt load that matches your salary isn’t always too much — financial planners and other credit experts often give the advice that you should only take on as much education debt as you plan to make in your starting salary. While you don’t want to take out more than you can afford, having student loans equal to your annual income isn’t a bad thing.

But throw in a few credit cards, and the story changes.

“You have to stop the backwards movement,” Moore said. “If you don’t, it wouldn’t matter if $100,000 fell in your lap and you paid off all your debts, because you’ll end up back in debt.”

This is where the spending problem comes in. If you’ve been taking on debt to live beyond your means, you have to commit to one of the hardest goals: changing your behavior.

“In my experience working with that kind of file type, it’s absolutely behavioral,” said Michael Bovee, who has 20 years of experience working with consumer debt and is the creator of the Consumer Recovery Network. “I have not found a file that doesn’t have an answer, it’s just that the answer may not be what the person wants.” Bovee said he once helped someone conquer more than $400,000 in credit card debt alone — the most he’s ever dealt with.

“There’s almost always a solution, given time, resources and goals.”

Reversing the Damage

As many of the commenters on the Reddit post suggested, this guy needs to start tracking his spending. Oftentimes, people find themselves in these situations because they have no idea where their money is going.

“What I find is that when clients start tracking their spending, budget adjustments start happening naturally,” Moore said. “[It] is way better for these thing to happen organically, rather than slashing budgets.”

For example: It’s much easier to keep track of where your money goes and see that you’re spending a lot on food, and with that on your mind, you’ll think twice before going out to eat or spending on things you don’t need at the grocery store. What won’t work: Saying, “I spend too much on food, so I’m never eating out again.” That’s not going to happen.

After you stop adding to your debt, you need to make a plan to pay it off. Bovee said to start looking for the best deals, whether that’s consolidating debt at a lower interest rate or settling debts for less than their worth. Credit counseling is an option worth exploring, too. The key, really, is to get started, because the longer you wait to make and execute a plan, the more that debt is going to grow.