Filing bankruptcy or choosing debt consolidation is something to consider when you’re far in debt. Decide which is better to start paying your debt.

Q: I am over $20,000 in credit card debt, and I make $24,000 a year, net. My question is would debt consolidation be the right choice through one of the many companies out there by paying one monthly payment or is bankruptcy the way to go?

A: We’re so sorry that you’ve gotten so far into credit card debt. But you’re dangerously close to – though not over – the line for where bankruptcy would no longer be an option. It would be a must-do.

According to Credability, a national, nonprofit credit counseling organization based in Atlanta, when your credit card debt is equal to or greater than your income, and there is no way to increase your annual income, then bankruptcy becomes the best option for getting yourself reorganized financially. (Full disclosure: Ilyce volunteers on an advisory board for Credability.)

You’re nearly at that place, or perhaps you’re already there. (When you say $24,000 net, do you mean after taxes? That would imply that your gross annual income is higher, perhaps at $30,000 to $35,000 per year, which is far better in terms of your debt-to-income ratio.)

Is there a way to take a second job and devote all that income toward paying down your debt? If you took a part-time job as a waiter, for example, and took in $100 per night, three nights per week, you’d be able to devote about $80 per night, or $240 per week, toward paying down your debt. That’s nearly $1,000 per month that you would have available to pay down your debt, and you’d get rid of it in less than two years.

If you go with a debt consolidation company or nonprofit credit counseling organization, even Credability, you’d be charged a fee of $50 or more per month to get put into a debt management plan (commonly referred to as a “DMP”). Although you’d have other resources available to you, including counseling to help you stick with the plan, that’s another $600 or more per year that could be used to retire your debt.

Worse, many of the debt consolidation companies that advertise on the Internet are not non-profits and they may charge you a whole lot more than $600 per year to do even less for you. Fees of $1,500 to $3,000 are not uncommon – but are totally unnecessary. If you decide that you can’t increase your income but do want to pay down your debt without filing for bankruptcy (which will have long-lasting implications for your credit history and credit score), then you should make sure you only talk with nonprofit credit counseling agencies that are members of the National Foundation for Credit Counseling (

NFCC has a number of useful tools on its website, including one called “My Money Checkup,” that walks you through the basic building blocks of budgeting, asking about various checking and savings accounts you have and how confident you feel about paying your bills each month. It also discusses basic budgeting, borrowing, home expenses, and other items before helping you plan your budget.

Since the tool ( is comprehensive, it takes a while go walk through the different questions and you may need paperwork on hand (like your monthly checking account statements). But the results may be enlightening and may give you enough guidance to start paying down your debt and moving on with your financial life.

If you want to investigate nonprofit credit counseling agencies further, you can search for one associated with the NFCC on the website, or call toll free 800-388-2227 to find a company in your area.