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How to Manage Debt: A Guide to Handling Debt | UNest

When you’ve got debt hanging over your head, it can be difficult for all involved, whether you’re in a relationship, part of a family or handling debt all on your own. 

Americans have an average of $90,460 in debt, and this includes all consumer debt, from credit cards to mortgages to student loan debt.

Let’s go over how to manage it, what to do about unpaid debt, how to reduce credit card debt and more. 

We’ll also discuss how to walk through bankruptcy and foreclosure and how to handle them if you find yourself in that situation.

Managing Debt

One of the most important steps you can take to manage your debt involves knowing how much you owe. It’s easy to lose track of how much you owe if you have multiple types of debt  — credit card debt, mortgage debt, auto loans and more. Make a list of everything you owe money on and create a monthly bill payment calendar. You can create one yourself or find one online.

You’ll want to make at least the minimum payment amount on time every month, but if you can pay more, that’s even better.

Next, once you have a schedule put together and a list of debts, decide which debts you want to pay off first. 

Let’s talk through a hypothetical list. Let’s say you have the following debt amounts and the following interest rates: 

  • Mortgage: $150,000 at 3%
  • Student loans: $25,000 at 5.5%
  • Personal loan: $9,000 at 10%
  • Auto loan: $20,500 at 9%
  • Credit cards: $7,800 at 17%

Have you heard of the debt snowball or debt avalanche method? They offer two different options you can use to pay off debt:

  • Debt snowball method: The debt snowball method means you pay off the lowest amount of money you owe first. In the example above, you’d make the minimum payments on all loans but pay extra on the $7,800 on the credit card debt because it’s the lowest amount. Focusing on the lowest amount you owe first can give you a quick win because you can more quickly pay it off. 
  • Debt avalanche method: The debt avalanche method means you pay off the loan with the highest interest rate first. In this case, you pay off the loan with the highest interest rate first. As you can see with the above example, your highest interest rate is the credit card interest rate at 17%, so in both cases, you’d pay that off first!

You may also consider consolidating your loans. This allows you to make just one payment every month.

However, what happens when you have debt that threatens your credit, your monthly finances, your way of life? We’ll go over what to do with unpaid debt, credit card debt, bankruptcy and foreclosure.


Unpaid Debt

Do you have unpaid debt that you’re trying to ignore, even if collection agencies have approached you? 

If so, an in-house debt collector from a creditor will reach out to you when you owe money (usually after you miss three or more monthly payments). If unsuccessful, a debt collection agency or a law firm may then try to collect via phone, email or mail to collect on overdue bills. In this case, the creditor might sell the debt to a debt collector.

The best thing you can do is not ignore the debt that’s gone unpaid. Tackling that debt and working with the creditor you owe or the debt collector on a payment plan gives you the best option to stop any collections in progress against you. 

Before you talk to the creditor or collection agency, understand how much you owe and how much you can afford to pay each month. A debt collector might accept 75% of the debt you owe instead of the full amount. You may need to either pay the creditor directly or send payments to a debt collector; find out who you’ll need to pay.

Also bear in mind that you may not owe the debt (mistakes do happen), or the collection company could be a scam. Research the debt collection organization contacting you before you pay a dime.

Reducing Credit Card Debt 

Credit card debt can really mess up your financial life. Americans have $756 billion in outstanding credit card debt and approximately 95% of adults have a credit card account open in their name, according to Experian.

What gets people into trouble with credit cards? 

Only paying the minimum balance is one reason. Credit card issuers offer you the option of only paying this minimum balance each month, which usually makes up just 2% to 3% of the balance. However, when the average credit card interest rate is high (it was 15.91% in 2021, according to the Federal Reserve) that can result in you paying a lot of extra money over time if you only pay the minimum amount. 

In addition to the debt snowball and debt avalanche methods above, you can also consider automating your credit card payments to pay the full amount. 

A couple of other tactics include: 

  • Doubling your minimum payment
  • Applying any extra money in your budget to your payment
  • Splitting your payment in half and paying twice 
  • Transferring your balance to a 0% balance transfer credit card, though keep in mind that 0% credit cards often have an introductory interest rate of 0%, then they increase. Some credit cards offer a long 0% introductory period; from 15 to 18 months.
  • Taking out a personal loan to pay off your credit card debt. Fixed-rate personal loans often have a lower interest rate than credit cards, so taking out a personal loan and then applying the proceeds of the loan toward your credit card debt can make a lot of sense if you want to have a lower interest rate loan to pay off.



If worse comes to worst, you might have to file for bankruptcy. You might have already heard of Chapter 7 bankruptcy and Chapter 13 bankruptcy. What’s the difference between them, though?

  • Chapter 7 bankruptcy: Chapter 7 bankruptcy wipes out unsecured debt, or debt that isn’t “held” by anything, such as a house or a car. In this case, the court stops creditors from collecting payments, garnishing your wages, foreclosing on your home, repossessing property, evicting you or turning off your utilities.
  • Chapter 13 bankruptcy: A Chapter 13 bankruptcy allows you to get on a more affordable repayment plan with creditors. You’ll need enough income to afford payments and be below maximum debt limits ($400,000 for unsecured debts and $1 million-plus for secured debts). The repayment plan usually lasts between three and five years. Once you finish the plan, the unsecured debts will be discharged. These can stay on your credit report for 7 to 10 years. 

It’s important to note that some debts, such as student loans and tax debt, usually can’t be erased in bankruptcy.


When you can’t make your mortgage payments, you may face foreclosure on your home. Foreclosure refers to the legal process in which a lender takes back a home or property and sells it when you cannot fulfill your required payments.

The foreclosure process usually involves when you miss a few payments. However, if you can tell your lender that you’re having trouble making payments ahead of time, that’s in your best interest. You can come up with a payment plan or another way to handle the missing payments. Work with your lender to determine a plan moving forward.

If a payment process isn’t figured out ahead of time, the foreclosure process usually occurs through judicial foreclosure, which means that the case goes through the court. On the other hand, non-judicial foreclosure is done without filing a court action.

Debt vs. Leverage 

So, even though we’ve covered several negative debt occurrences, does that mean that you can only consider debt to be a bad thing? 

No, not at all.

You can use good debt to acquire an asset or as leverage to grow your asset in the future. For instance, if you take out a loan to invest in a side business, you can leverage your initial investment to earn more money.

Another example involves using debt to purchase rental properties. Investing in a rental property can mean that the proceeds of your rental income allows you to come up with the down payment for more rental properties.

Can you think of other ways you can turn your investment into more money? Many options allow you to turn money into more money. For example, brokerages lend money to traders through margin accounts. (Though this is only recommended if you know what you’re doing as a trader.)

Get Help with Debt if Needed

What’s the best way to handle debt? It’s easy to say, “Never get into debt in the first place,” but that’s not always possible. Debt has a way of creeping up on even the most organized of individuals.

Do what you can to build an emergency fund so you can protect yourself from mounting debt. It’s recommended that you save at least three to six months’ worth of savings in a liquid emergency fund, or an account that you can get to easily. A money market account, ETF or other type of account can make a great investment option. 

Finally, recognize the signs that you need help. If you’ve budgeted, cut out all the “extras” (like gym memberships and more), paused investing and stopped taking on new debt and you’re still drowning, it’s time to get help. Contact your creditors to find out how you can work out a payment plan. If that still doesn’t work, contact a nonprofit agency that provides debt relief solutions so you can get your personal finances back on track.

In addition, read more about debt and managing your money with UNest.


This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, UNest does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.