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I’m Unemployed, Looking for a Debt Consolidation Loan, and Paying Bills From IRA. – Becky

“Dear Steve,

Consolidating debt to avoid high interest rates or deplete 401K.

Have taken on about $50K in credit card debt and have secured mostly 0% interest rate cards that are coming due over the next several months.

I have depleted my brokerage savings but still have an IRA and 401K that I could tap into that would just barely cover the credit card debt.

I am unemployed and need to reserve at least part of that 401K and IRA cash for my monthly living expenses until I secure employment again.

I have a good credit score, pay all of my bills on time and for the most part have just been paying the monthly minimums.

I expect to earn a very favorable salary when I land a new job and I really am not worried about my ability to pay back the debt.

This is just a timing issue. My main concern is depleting the IRA and 401K and not having anything else to fall back onto except the credit.

Without employment, would I be eligible to get at least my highest debt credit cards consolidated into a personal loan? I would want to consolidate about $30k initially. What would you recommend?

Becky”

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The Answer

Dear Becky,

Im Unemployed, Looking for a Debt Consolidation Loan, and Paying Bills From IRA.   BeckyPlease correct me if I’m wrong but it sounds like you’ve depleted cash on hand just to pay bills and get by.

This is a classic mistake many make that leaves them in a dark hole without great options.

If I look at your situation just logically, there is nothing you’ve shared that would not indicate bankruptcy is your best option.

In a consumer bankruptcy your retirement accounts would be preserved and protected. The looming impossible liabilities could be discharged and you would be entitled to the fresh start and legal second chance you are entitled to.

And then of course there is the question about the benefit of putting this behind you so you can just focus on getting reemployed, which is the required component moving forward.

Based on the lack of current income, draining protected funds to service debt and no concrete income in the near future, I would not recommend a debt consolidation loan.

Below you will find a number of resources to help you understand more about the reality of bankruptcy and why most of the stuff you hear about it is just not true.

Bankruptcy Articles and Posts You Must Read

To get ready to read the information below with the right frame of mind, please first read How Do I Get Out of Debt Quickly? Change Your Mindset.

Bankruptcy Advice

Life After Bankruptcy

Filing Bankruptcy Yourself

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

Im Unemployed, Looking for a Debt Consolidation Loan, and Paying Bills From IRA.   Becky
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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  • becky

    Hi Steve,

    Thank you for the advice and yes, you are correct in your assumptions. I had not considered bankruptcy and do hold some of the belief systems highlighted in your bankruptcy information. But after reading all of that information, I can clearly see the benefits especially since my retirement accounts are protected.

    Question for you though, if I were to secure employment with say a $12K monthly salary in the next couple of months, I would be able to start paying back that debt pretty quickly. (my first credit card that moves from 0 to 20% is May). I am making this assumption with pretty solid confidence based on where I am with my job search. Total compensation/bonus/car allowance would probably be in excess of $200K. Would you still advise bankruptcy given this information?

    I really appreciate your story and how you highlighted bankruptcy as a practical choice and not something to be ashamed of or to fear. I completely respect and admire what you have done through your own experience to help us all out. Thank you for continuing to help us all!

    • http://GetOutOfDebt.org Steve Rhode

      Becky,

      Well nothing is on fire at the moment. If you wanted to take the next 60 days and see how things go, that’s fine.

      But I would suggest you stop making payments on your cards for now. You can certainly draw a line in the sand and identify a future decision day but continuing to draw money you can’t refill for debts you can’t afford to pay is, well, madness.

      If you get the job then we can deal with the resulting delinquent accounts and get you back on track.

      But, would you rather be down three more months of savings and not get the job or deal with being delinquent and then either filing bankruptcy or using new income to deal with the then bad debt.

      The delinquent approach may potentially give you just as hard a hit to your credit report as a bankruptcy and quick recovery.

      I get the income estimates but the reality is right now it is zero.

      At the very least, just find a local bankruptcy attorney and if you like them, go talk to them. You are a smart and intelligent woman. Certainly you’d agree that investigating this further would be a prudent thing to do.

      Agreed?

      Steve

      • Becky

        Hi Steve,

        Yup – starting with a bankruptcy lawyer is already what I was thinking to help prepare myself. Thanks for the suggestion on the stopping payments. I would not have even thought of doing that.

        Okay – great advice all around.. thanks for keeping me on the moving forward path!

        Becky

      • http://GetOutOfDebt.org Steve Rhode

        Don’t get lost. Come back and keep me posted on the steps you are taking and the decisions you are making to deal with this. I really care about you and how this works out.

      • Becky

        Thanks Steve, I will.

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