Retired, with $70,000 in credit card debt

Reduce expenses, increase income, but don't sell your home

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
I have gotten into a mess with credit cards. I think I owe about $70,000. I am in the process of selling my home and will get nothing extra out of it except to pay off my two mortgages. I do not need counseling -- most of this debt was from helping my family in hard times, not from overspending. But I am at a point where there is more money going out than coming in. I have been able to rob Peter to pay Paul to keep from missing payments or being late, but I am reaching the end.

I feel bad because the card companies gave the credit to me in good faith and I have always had 5-star credit, but since retiring, it has been tough. I am living on credit cards to buy food and things, and the payments just keep getting higher and further out of reach. Is there anything that I can do to get out of this mess with the least amount of embarrassment possible? -- Rosemary

Answer for the expert

Dear Rosemary,
You might be surprised how many people get into debt the same way you did -- not by spending too much, but just by helping friends and family in need. In fact, many people who wouldn't dream of spending money on themselves are the first to write a check when a friend needs help.

Regardless of how you got into debt, however, there's always a way out. There are no magic escape routes -- contrary to some ads you may have seen -- just proven, basic steps people take every day to become debt free.

Many people immediately think of filing for bankruptcy in situations like yours. However, bankruptcy should be the very last resort, especially for someone who has always had "5-star credit" and believes in paying her bills. It is a public procedure that many people have found very demoralizing. It involves a lot of paperwork -- it certainly isn't the easy way out! It costs more money than you may expect, and it may not erase all your debt. And, in most cases, you can solve your debt problems some other way.

First, find out exactly where you stand. Make a list of your bills, including how much you owe on each account, the minimum payment and the interest rate.

Next, you need more money. Unless you can move someplace much, much cheaper, I'm not sure selling your house when the market is down is the best strategy. It costs more to sell a house, move, and settle into a new place than you might think. If you owe more than you can get from your house after expenses, you may be expected to bring a check to closing. Your biggest investment is probably your house; don't let it go without a fight! 

Instead of selling your house and moving, consider using your time to earn more money. If your health allows, you can use your skills to make extra cash -- without going back to the full-time grind. For example, you could watch a few kids after school, give piano lessons, or work in a retail store part-time. Sometimes it's easier to make a bit more money than it is to squeeze an already tight budget. When you're struggling to pay bills, a few hundred dollars a month makes a huge difference.

The third step to getting out of debt is to cut expenses -- in your case interest expense. On $70,000 in credit card debt at 24 percent, you could be paying $1,700 a month in interest!

Look at your list of bills and see if you can move any debt from a high-interest card to a low-interest one.

You should also call your credit card companies and see if they will lower your rates. (See "Interested in a lower interest rate?") Don't say you're having a hard time making your payments. Instead, refer to your good payment record. Every point you get your interest rate lowered will save you almost $60 a month ($70,000 times 1 percent, divided by 12 months).

If you still think you might not make all your minimum payments, be sure to call your bank before you miss a payment. Try to at least make partial payments, and always maintain contact with the bank.

Financial difficulties are nothing to be embarrassed about. One step at a time, you can get through this financial crisis and maintain your 5-star credit.

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Updated: 11-24-2017