How Do You Know When Your Debt is Too Big to Try to Repay in Full?

Most of the time, people pay back what they’ve borrowed, but sometimes that’s just not possible. People get in over their heads in debt for all sorts of reasons, and sometimes it’s circumstances beyond their control. Whether it’s job loss or medical issues or lifestyle creep, you might find yourself with a debt balance that’s somehow not getting any smaller.

Not everyone knows this, but there are debt relief options that could help improve your financial situation. These options can range from something as simple as a debt consolidation loan to debt settlement or bankruptcy to reduce the balance you have to repay. 

So how do you know when it makes sense to pursue a solution like debt settlement or bankruptcy?

The key is to know when your debt balance is simply too big to pay back in full. And there are a few ways to know if you're in that situation.

Your Debt-to-Income Ratio Is Too High 

Your debt takes up a substantial percentage of your income.

A top way to assess if your debt has become too big to pay back is your debt-to-income ratio. This number compares your monthly debt payments to your pretax income. 

When you consider the amount of debt someone has, it’s easy to lose perspective. For example, you might think someone who owes $100,000 on their credit card is in serious debt trouble—but what if they make $10 million per year? That’s a very different picture.  

Comparing your debt to your income can give you a clearer idea of whether repaying your balance is affordable for you. For example, if you have credit card debt equal to half of your annual income, you may not be able to pay it off in full. 

Let’s say you earn $4,167 a month and your monthly debt payments total $3,333. In this case, your debt-to-income ratio is just under 80%, more than twice the recommended 36%. It may make more financial sense to explore debt relief options that could reduce your balances.

When your debt payments take up most of your income, it could be impossible to pay off the debt in a reasonable amount of time. There's just not enough money to pay off what you owe and still keep the rest of your life running.

Your Monthly Payments Are Unaffordable

It’s become a struggle to make minimum payments.

If you don’t have any room in your budget to pay the minimum on your debt, that’s another red flag. It’s a sign to explore debt relief options that give you some breathing space. Not everyone can get a second job or increase their income. Debt relief strategies could be an answer for you, especially if you’ve already cut back on meals out and other expenses. 

If you can't afford monthly payments, exploring a debt management plan or a debt consolidation loan should be the first step to finding out if you can bring your debt payments within budget. Those options typically don’t work for someone who’s already struggling. If they won't help you, then ask yourself, is debt relief a good idea? 

Your Monthly Payments Aren't Helping 

You’re making your monthly payments, but your debt balance isn’t going down. 

If you're paying money every month and your debt balance stays the same because it's simply too big, then you may be in a situation where you can't pay back the full amount. 

This could happen if your minimum payment is your biggest budget item and does little more than cover interest costs. In this case, you could be paying debt for years, never getting the chance to spend money on other goals, like saving for retirement.

If your payments don't reduce what you owe because your balance or interest rates are so high, first consider increasing your monthly payment or refinancing your debt to a lower interest rate. If you can't do either of these things, then it may not make sense to keep sending away hundreds of dollars each month without making progress. 

You're Putting Protected Assets at Risk  

You can’t afford to make debt payments as well as your mortgage.

If you're risking your protected assets while trying to pay your unsecured debts, then your debt balance may be too big to pay off in full. 

For example, you're paying your credit card companies but not sure you can make your mortgage payment. That’s a red flag. It doesn’t make financial sense to‌ risk your home because you're struggling to pay a balance that's not budging. 

Consider Talking to a Debt Expert to Explore Your Options

If any of these red flags feel familiar, that's a good sign your debt is too big to pay the full amount back. Consider talking with an expert to ask: How does debt settlement work?

A professional debt expert can help you explore different ways to pay less than you owe to figure out the right one for you. These options include:

• Debt settlement. With this option, you negotiate with creditors. The goal is to convince them to accept less than the full amount you owe, and forgive the rest. You can negotiate yourself, or work with a professional debt settlement company.  

• Bankruptcy. If you qualify, bankruptcy could erase your unsecured debts within a few months (with Chapter 7 bankruptcy). If you don’t qualify for Chapter 7, Chapter 13 might help you. That’s a three to five year repayment plan. Either kind of bankruptcy protects you from creditors.

For most people, debt settlement is a solid first choice because it gives you more control over the process. It’s not public, like bankruptcy, and you don’t need a good credit score to qualify.

Either debt settlement or bankruptcy could be the right move to pay back less than you owe. Both help you get rid of debt faster, so you'll be free to work toward other goals.

Both options are likely to have a significant negative impact on your credit. But getting rid of your debt could make it easier to maintain good credit in the future. 

If you're experiencing financial hardship and think you can't pay back your debt, reach out to find out how Freedom Debt Relief works. You may find that settling debt is your best option, and one that starts you on the path to a better future.