Julie 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.
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“Dear Steve,
I have about $70,000 in credit card debt with interest rates ranging from 12% to 26% on the highest balances due to medical expenses. I have a $250,000 home equity line of credit on my home to support a business I co-own, another home that is worth about $50,000 less than I paid for it, a personal loan of $16,000, a loan against my 401K of $50,000 and an income of $108,000. I have about $380,000 left in my 401K. I am feeling extremely overwhelmed and stressed. I used to have great credit, but due to the high loan balances, my credit rating has fallen…not below 700 though I don’t think.
I’m not sure what to do at this point, should I work with a debt consolidator, should I take the money out of the 401K and pay off the highest interest debts or should I file bankruptcy? I am 45 years old and a single mom of one child.
Julie”
The Answer:
Dear Julie,
I know exactly what that debt stress feels like. It seems to infect your brain almost all the time. At least it feels that way.
What I don’t want to see you do is launch into some wild solution just because you think it will make the stress vanish quickly. No need to fire a cannon to kill a fly. No need to go bankrupt or launch into credit counseling if that isn’t the right solution for the problem.
Let’s say that you decided that bankruptcy was for you, while that would address the credit card debt it does nothing to resolve the 401K loan you already have, touch the home equity loan, and it might even suck in your business if it is a personal asset in your name. Yet those other obligations are part of the heavy weight you are carrying.
The stress bubble that is smothering you right now is the byproduct of you being responsible, taking a large weight of the business on your back and borrowing money to make ends meet. Bankruptcy isn’t going to solve that.
Honestly, what I think you should do at this point is take a few days off from worrying, put all that aside and try to get some introspective clarity. I really need for you tho think if you are on the life path you really want to be on. Is this what you want to do with your life?
Maybe what might be more attractive right now is to consider reinventing yourself. Sell the business, downsize your life, pay off the debt and place yourself in a position where you can focus on enjoying the days, rather than killing yourself with stress.
Think about it and get back to me. Give me an update in the comments and let me know what you want to do moving forward.
