How in the World Do We Even Start to Get Out of Debt?

Question:

Dear Steve,

My husband and I both went to school about ten years ago. He has federal student loans ($30k-ish) and I have both federal student loans (40k-ish) and private student loans (30k-ish).

We are both currently enrolled in school again, full time online. So all of his and my federal student loans are in deferment. However, my private student loans recently “ran out” of deferment time. (Didn’t know about that when I started taking the loans out at age 18!!!!)

My student loan company put me in a special repayment program to lower the private student loan payments, which I was paying, but that only lasted 3 months. Now they’re saying I don’t qualify for the program anymore and want full payment. It’s not possible.

Most of my private student loans are co-signed by one of my parents. Neither one is able to help out much. They actually went through bankruptcy about 6-7 years ago around the time that they got a divorce.

We also have credit card debt (20k) that is currently in a consolidation program. It’s not a settlement program- these are paid every month but the monthly payment and interest rate have been lowered.

To top it off, we do have a car payment. We use to have two cars that had a lot of negative equity, and we couldn’t afford them. And we couldn’t just sell them because of the negative equity. So we traded the two in for one and put the negative equity on the new car loan.

We both work two jobs, are full time in school, and we have a toddler that we can’t afford childcare for, so we have magically balanced our schedules to keep her at home. (We don’t qualify for any government help in that area because we make too much money from having multiple incomes, which is mostly going to debt). Needless to say, we are busy, tired, and stressed. We can’t take on another job. We’re pushed to the max.

How can we handle all of this?

-we can’t let go of the car because of the negative equity. Also, we need a car.

-I can’t default on any student loans because then I’ll have to drop out of my current program, which my employer is counting on me to get. I’ll get a raise when I graduate. I’m almost done with this degree!

-we’re finally making headway with our credit card debt, and those will be paid off in about 3.5 years.

Should we consider bankruptcy? Should we get a lawyer? If we didn’t have all of this debt, I could pay for my current degree monthly with cash. I don’t care about our credit. We won’t be able to buy a house with our debt, anyway.

Hannah

Answer:

Dear Hannah,

What is clear is something has to change.

My friend Damon Day and I talk about your situation, in general, at the end of this podcast.

There is no magic solution to getting out of the situation unless you come into a financial windfall.

Otherwise, your options are to make the best of the least traumatic choice in dealing with the debt.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

You have options. But what you don’t want to do is decide what you want to do based on your perception of each option.

For example, a consumer bankruptcy may be a perfectly good solution to eliminate your consumer debt and give you room to make the student loan more affordable while you put the federal loans on an income-driven repayment plan.

You asked if you should consider bankruptcy and you absolutely should, along with your other options. You can get a sense for your general options by using my online calculator.

I would strongly suggest that you find an independent debt coach to talk to, like my friend Damon Day, who can listen to what you want to achieve, explain the pros and cons of each approach, and create a custom plan that is best for you.

Hasty decisions and shooting from the hip here can cost you millions in lost future retirement savings. Find a trusted professional who can guide you down the dark path you are currently on to help you towards a brighter future.

Trust me, good options exist but you may not be ready to accept them just yet until they are part of an overall plan.