Pam Is Out Of Cash And Out Of Time

Posted by Steve Rhode

October 11, 2008

Pam wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

I am no longer making ends meet. I have my daughters Sallie Mae $20,000 loan payments starting in one month, I can only afford to put little bits of gas in my car at a time, I have a $5,000 car loan and about $12,000 in credit cards.

I have not bought anything that I did not need only used my credit to make ends meet and now I have no more credit. I’m hanging on to a 700 credit score and wonder if theres any use to even worry about keeping my score since the market is crashing and the FEDS are ruining our economy.

I make $45,000 per year and am a single mom with two daughters Should I stop paying my credit card bills and use that money to live off of?

Pam”

Dear Pam,

Often times the hardest thing to admit that a moment of change has been reached and now is the time for radical or bold action.

From what you so kindly shared with me it is apparent that continuing the path of yesterday will not work for you tomorrow. You have student loan payments getting ready to kick in and you are all ready maxed out.

It does not sound like there is any reasonable expectation that your income is suddenly going to increase and allow you to pay both the student loan and the credit card debt.

I would suggest that you only make payments on the credit cards if you can afford them after all your other expenses. You don’t need to file bankruptcy right now but it is probably in your future if things don’t change.

While you can’t discharge or get rid of the student loan in bankruptcy, you can contact the Department of Education and see about getting on an ICR plan to pay what you can afford. See this previous answer for more information on that.

It is unfortunate that you have found yourself in your current situation but I think most people would recognize that when you are in a situation where you can only put a little bit of gas in your car at a time, that things are pretty severe.

I would not suggest that you enter a debt management or credit counseling program. That is not going to help you as tight as your finances are. The best way out of your current situation is to increase your income or reduce your expenses. And with your budget already trimmed to the bone, getting into the Department of Education ICR plan for the student loans and discharging your credit card debt is probably the best approach at the moment.

It would also be a good time for you to explain the reality of your situation to the kids and ask them how they can help in this difficult time. Maybe your daughter, with the student loan, can contribute some money each month towards the loan.

The reason I think that is important is that it sounds like you are living month-to-month and all it is going to take, even with bankruptcy, will be one unexpected and unaffordable expense and being homeless won’t be that far off.

The thing I’m least worried about is your credit score. Take your eye off your credit score right now and find a way to live within your income without resorting to credit. And every extra dollar you can manage to save, put it in a savings account for unforeseen expenses.

I’m worried about you. Be safe.

Big hug.

Steve

Do You Have a Get Out of Debt Question You Want to Ask?

I'm happy to answer any question you have about how to get out of debt, as honestly as possible by sharing with you my experience and truth that I learned from helping thousands of people to get out of debt. Don't be shy, if you need help, ask now. And if you want to follow the latest questions and answers, just subscribe to my site RSS feed or get the email newsletter for free.