How to Get Out of Debt With the Get Out of Debt Guy » income contingent repayment plan

My Girlfriend is Mentally Ill, Has Student Loans and Owes Bank of America. – Aaron

Steve Rhode — Tue, 27 Apr 2010 16:41:05 +0000

Aaron

“Hello Steve,

My girlfriend is a full time student in college. She has maxed out her Bank of America credit card ($6,000) and has about $5,000 in student loans. She has a mental illness and most likely won’t be working for quite some time.

She has missed one payment about 4-5 months ago. Her credit card rate I believe is around 9.5% and her monthly rate is $30 or so. For the time being she is struggling to make the minimum payments. I am asking for advice/help because she is horrible with finances and as mentioned above has a mental illness.

What would be her best option? She is 23 and a full time college student with student loans to boot. Bankruptcy? What would be the easiest way for her to consolidate her debt (Student loans & credit card)

Thank you very much.

Aaron”

The Answer:

Dear Aaron,

What we actually have here are several different issues.

The first is the mental illness issue. Different forms of mental illness can manifest themselves in different ways financially. Typically both those with clinical depression and those that are manic-depressive seem to wind up running up debt either during periods of exuberant optimism or spending as a way to make themselves feel better. But their are a host of other mental issues that lead to defective spending as well. You’ve got the co-dependents, hoarders, etc. But that’s for another question.

Next is the student loan problem. Student loans are one of the most severe loans you can owe. While many people think they are good loans, they can follow you to your grave and garnish even your disability or social security checks. Nasty stuff to fall behind on.

Finally there is the Bank of America debt. With a $6,000 balance I would suspect that her monthly minimum payment should be around $120 a month. If she is only paying $30, then there is more to that story.

Depending on how her mental illness manifests itself, it might just be too much for her to be able to manage life details, like finances and payments. Not everybody is good at everything and she might need your help to stay on top of the bills. There are people you can hire to do this but with money being tight, you are the best person to take this over for her.

If she truly will not be able to work and earn money to repay her student loans, she should stop going to school. The penalties for defaulting on her student loan are severe, including up to a 40% collection fee and interception of tax refunds.

If she is unable to pay Bank of America at least $120 a month then I don’t think a repayment plan is going to work. Even if Bank of America offered her some incredible $30 per month deal for six months it would only add to the balance and if she is unable to work for “quite some time” then what is the plan at the end of six months?

Student loans can not be eliminated with bankruptcy. If she needs some consideration to repay the loans that she has she might want to look at the Income Contingent Repayment Plan (ICRP) offered by the Department of Education. However, I would bet that once she does that she would not be eligible for any additional student loans since she will have demonstrated she can’t pay.

The credit card debt could be eliminated with bankruptcy but I think that debt is the least of your problems. Even if that debt is eliminated you still have the bigger issue of not being able to afford more student loans if there is no expectation to repay what she already has.

To better educate yourself about bankruptcy, contact a local bankruptcy attorney and ask to schedule a free bankruptcy consultation. The bankruptcy lawyer will sit down with you guys, review the situation and help to educate you about what bankruptcy would mean for you.

Big Hug!

@GetOutOfDebtGuy

My Husband is Not Aware of our True Financial Situation. – Nancy

Steve Rhode — Fri, 19 Mar 2010 23:11:52 +0000

From How to Get Out of Debt

“Dear Steve,

I’m unemployed since 9/4/08 and my work is in the IT field. I collect unemployment of about $1,160/mth. My husband is a Maintenance Mechanic and brings in about $27k a year, or $1,600 after taxes and deductions.

I used to make upwards around $45k as a programmer before I got sick about 5 years ago. I’ve also had 5 surgeries within that 5 year period and now deal with fibromyalgia and the medical bills are killing us, but we are current on all bills. I’m also paying COBRA for my healthcare.

However, for the last 4 years or so we have been borrowing from CC to pay our monthly bills that our income does not cover. We have close to $80k in CC debt, $100k on mortgage with no equity, $48k for my student loan debt, and about $10k in medical bills.

Our monthly expenses – just bills – comes to around $4k. I handle the finances and I’ve shielded my husband from the stress I go through to pay the bills. I’ve talked him into signing CC checks to deposit into our checking account in order to cover the bills.

My position is that I would rather pay the cash advance fee than deal with creditors calling us and harrassing us – of which I feel it is their right to do so because we used the credit and we do need to pay it. I feel like we are getting closer to bankruptcy and I’m so scared of losing our house. I dont know what to do.

My question is – what do I do? What is your advice?

Thank you,

Nancy”

The Answer:

Dear Nancy,

Now is the time to step up and take action to stop this slow motion train wreck from happening.

There are two immediate steps that you must take. The first is that you need to share the reality of your situation with your husband. He is just as culpable in the shielding of information here. While you’ve been keeping the truth from him, it does not sound like he’s make much of an effort to look.

The deception has served both of you. It has prevented both of you, you from confronting the truth about your financial health and him from having to deal with it. Now is the time.

So what will happen. At first he will be pissed off and upset. The air might be chilly for a few days but it will thaw. The key here is for the two of you to look at the reality of the situation and face it, together, with eyes open. Remember, “for richer or poorer, for better or worse”. If your marriage is strong, and you are a team, this can actually bring you closer together.

Just make sure that you’ve got all the details at hand and documentation of the debt to show him if he asks questions when you talk. Guys like that.

Next, once you’ve had that discussion you need to immediately stop borrowing from credit cards or taking cash advances. This is clearly money that you can’t afford to pay. I’m not going to judge you in anyway for having done that, just stop doing it.

Money problems are solved with lifestyle changes. Sounds odd, doesn’t it. But in order to get your life to fit within your income, it requires you to make changes in the way you live and spend money. Maybe you’ll become more frugal, or enjoy cutting expenses more that working harder. The choice is up to you. The bottom line is that what needs to happen is that you need to increase your income, reduce your expenses or a combination of both to get your life to fit inside your income.

It certainly sounds like bankruptcy is in your immediate future. You have no equity in your house so I doubt you are going to lose that.

After you’ve had that chat with your husband about the reality of the situation, and the two of you are ready to face solving this situation, I think you both need to go to a local bankruptcy attorney and have a free bankruptcy consultation where you can discuss your situation and how bankruptcy might impact you. Meeting with the bankruptcy attorney will give you facts to deal with and help to eliminate the fears that are currently racing through your head.

Bankruptcy won’t discharge your student loan debt so you are also going to be left with that. One thought is the Income Based Repayment Plan (ICRP) to get the student loans adjusted to fit within your income. See Tiffany is Behind in Student Loans, Late On Other Payments, And Looking For Hope.

You’ve also got to tackle the job issue. While getting a job is tough these days, even for IT people, I guarantee that it will be easier and less stressful once you deal with the massive financial stress that is pressing down on you. Financial stress also creates or exacerbates physical conditions like fibromyalgia. So dealing honestly with your financial reality, while painful at first, will make your life better moving forward.

Finally, there is nothing that prevents you from repaying your creditors after bankruptcy if you feel you must repay them. At least you’ll be able to repay them at 0% interest with no collection pressure.

Nancy, this is the moment that you need to stop living in fear and stand up and take charge of your life. You can do it. Your life will be better for doing it. I believe in you.

Contact me on Twitter @GetOutOfDebtGuy and let me know how the conversation with your husband went.

Big Hug!

@GetOutOfDebtGuy

Alex is Buried in Student Loan Payments

Steve Rhode — Thu, 04 Dec 2008 20:22:46 +0000

From How to Get Out of Debt

“Dear Steve,

I have Federal Student loans dating back to ’94/95. My situation was unusual. I first attended MBA school and left after a semester because I also got accepted to Law School at a different university. I went to Law School for a year and a half only to realize it wasn’t what I wanted to do so I left. I returned to MBA school and all the while I had been using student loans for both business school and my short term in Law school.

When I graduated from MBA school, I deferred my student loand until I could afford to make my monthly payments. I have deferred and used forbearance until today. I have no deferment elegibility left so I have to forbear. Unfortunately, the $680 monthly payment is too much for me to pay. I now owe approximately $108,000 in student loans. :-( I need help on how to takle this. I cannot afford that payment because I have a mortgage and other monthly bills. What can I do? I would greatly appreciate your insight and guidance.

Sinking deeper into student loan debts,

Alex”

The Answer:

Dear Alex,

I worry more and more about student loans as the years go by. It used to be that college was the preferred route to take to provide you with the skills necessary for a richer future, in many ways. But now, college loans are getting to be so expensive and such a noose around the neck of students, especially those like you that seek advanced degrees, that I’m no longer as supportive.

The graphic above is from a great New York Times article, “College May Become Unaffordable for Most in U.S.” that everyone should read. It challenges our old assumptions that college is within reach of young students now.

As I write this, your student loans are already 13 years old and you really have not even begun to start to repay them. This is a horrible problem. But your story is not unheard of. I’ve met many people that began law school, only to realize that it was not something that they wanted to do and so they quit or switched focus. Unfortunately that does not relieve you of your obligation to repay loans used for studies.

Since your student loans are not eligible for discharge in bankruptcy, you’ve really got one option, make suitable repayment arrangements. The ICRP (Income Contingent Repayment Plan) plan is probably going to be your best opportunity. See “Tiffany is Behind in Student Loans, Late On Other Payments, And Looking For Hope” for a more in-depth look at student loan repayment options.

Steve

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