What to do when debt triples your incomeDon't be ashamed to seek help, especially if a long disability is to blameBy Todd Ossenfort
Dear Credit Guy,
Help
me, please! I am 35 years old and have accumulated $63,000 in credit card debt
and $38,000 in student loans. I currently have an income of $31,000. I find
that I am living paycheck to paycheck, and at times short on income for expenses.
I am at my wit's end and only see bankruptcy in my future (for the credit card
debt). I know that I made some unwise financial decisions over the years;
however, for three years I was on long-term disability, which resulted in my
using credit cards to live. I just want out of this depressing situation. I
want to pay off my debt, but there are times when I have to choose between a
utility bill and a credit card payment. What do you recommend?
-- Rachel
Dear Rachel,
I
can understand why you describe your situation as depressing. Carrying credit
card debt in amounts greater than twice your salary in addition to student loan
debt equivalent to your salary is enough to make anyone depressed.
I
recommend that you contact a qualified consumer credit counseling agency to
determine if you have the ability to repay your debts or if filing for
bankruptcy would be in your best interest. Card issuers are [%Link?type=article&id=2459&text="working with consumers
more"%] than they ever have in the past, so it could be that you would qualify for
a hardship program with your lenders that would allow you to pay back your
debt. You can find a reputable, nonprofit credit counseling agency near you at the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.
If
after a thorough review of your finances, it is determined that bankruptcy is
the best option, don't feel bad about yourself. As you said, you were on disability
for three years and had no other way to pay your obligations. The bankruptcy
laws in this country are there for a reason. Without the fresh start that
bankruptcy provides to those who need it, many people would be in debt their
entire lives. The most important thing to keep in mind with bankruptcy is that
you want to make sure you have researched all other possible options before
choosing bankruptcy. Your credit counselor will help you do just that.
A
certificate of completion from a credit counseling session is required now to
file bankruptcy. Therefore, should you decide that the best solution for you is
bankruptcy, your credit counselor can assist you with the counseling required
to file.
The
essential thing to remember with a bankruptcy or a hardship program with your
creditors is to learn from the mistakes that landed you in so much debt and not
repeat them. Rather than relying on credit in times of emergency for unexpected
expenses or a disruption in income, a savings account of three
to six months of living expenses is critical. Savings can help you weather a
financial storm without adding to your debt load.
Living
within your means is the other key ingredient to financial well-being. Once you
have the debt paid off, either through a repayment plan or through bankruptcy, be
sure to keep your expenses less than your salary. Sounds simple, but you'd be
amazed how many people don't follow this sound financial rule.
Take
care of your credit!
See related: Card issuers don't make hardship programs easy, After creating a debt management plan, stick to it, When medical problems hit, bankruptcy can make sense
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to The Credit Guy.
Published: October 19, 2009
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