Question:
Dear Steve,
Over the last year – two years, I have found myself to be in a huge debt hole. I can’t even say exactly how I got here or why I went down the path that I did. Since 2014, we have slowly maxed out our credit cards, and then in late 2019 or early 2020, I discovered personal loans and took out a few of them.
I guess the funds from them eventually ran dry because, in October 2021, I realized our income was no longer enough to cover all of our monthly expenses. The apparent ultimate issue is me living outside of my means for years, and it has now come back to bite me.
I have picked up a second job, but my husband will only allow me to work two days a week and one day on the weekend, and he is not willing to get a second job. This results in pulling in only about $641 extra income per month to pay off debt, while still coming in with my monthly income not being enough to pay all of our expenses when we include our debt.
Until mid-December, I was making all payments on time but have paused some of them because I am not sure what to do and cannot make money magically appear that I do not have. I know this is not wise, but I am unsure what else to do.
Our Credit Score is already trash – 587, so I am less concerned about our score taking hits if we do this or that. I know we can rebuild over time.
I want to get these balances and loans paid off as soon as possible and free us from this debt burden. Then I want to cut up and cancel every credit card we own. I do not want to be in debt EVER again. I am so ashamed and hate myself for being in this position.
I don’t know how I didn’t realize how bad things were. I am beyond furious at myself and exhausted and sad and angry. I want to free myself of this burden and course correct.
Do you have any suggestions on how to handle this situation when expenses outweigh income due to the amount of debt accrued?
Amber
Answer:
Dear Amber,
The first thing you must do is forgive yourself. You screwed up. The best thing you can do now is learn from past mistakes and do your best not to repeat them.
Slow Down
The worst mistake you can make at the moment is to do anything “as soon as possible.” It will only make the situation much worse.
Reacting emotionally to a terrible math problem will lead you to make decisions that are not logical.
What we need first is a plane, not immediate action.
For a second opinion on anything I’m about to say, I recommend my friend Damon Day who is a talented debt coach.
You didn’t get in debt overnight, and digging yourself out and repaying the creditors is not going to happen overnight. So do not make a bad situation even worse by jumping into some magical get out of debt plan that you have little chance of succeeding at.
Get Clear Headed
Before you leap to tackle the debt, we must first know what the goal is.
You might feel a burning desire to repay your creditors at all costs, and in doing that, you will sacrifice your retirement savings and future financial safety net. Use my online calculator to see what the future damage will be.
Doing what is “right” for your creditors is not the right or wrong position to take.
You might feel you are so far in a hole now that learning from the mistakes and getting a fresh start is a logical thing to do. Filing bankruptcy, eliminating all of your debt in about 90 days, avoiding collection calls, and discharging your debt tax-free are options available to you.
You can find a good local bankruptcy attorney and have a free discussion about what bankruptcy would mean for you. Bankruptcy is the fastest way to get a fresh start for the least money.
You and your husband owe it to yourself to read Those That File Bankruptcy Do Better Than Those That Don’t .
And don’t let people mislead you into thinking your credit will be ruined from bankruptcy. Your credit score will quickly improve, and it is stupidly easy to rebuild your credit after bankruptcy.
So Who Are Your Doing Right By?
At this point, your two paths are either to try and honor your past agreements with your creditors and maximize their profit or to do what is right for you and protect yourselves.
You can spend the next five years struggling, fighting, and slaving to attempt and make enough payments to dig out of this hole, or you can start doing better tomorrow and start saving for retirement when it counts.
The Argument is Wrong
The position that some take that you have to honor your promises to your creditors is one I’m just sick of hearing. Life changes, situations change, but creditors don’t care and didn’t care when they gave you credit.
I’m not suggesting you should walk away from your debt and legally make it go away for fun. Instead, I suggest that you have a primary duty to evaluate your situation and make a logic-based choice of what is suitable for you and your family from this day forward. Don’t move forward by looking back.
The one factor in this equation that you can’t replace is time. So by focusing on digging yourself out of debt, you will waste the precious time you need to magnify retirement savings so you don’t wind up old, broke, hungry and cold. That, I guarantee.
Please comment below and let me know what you wind up doing.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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I need advice about how to get out of debt.
Amber, please post a comment and let me know what you decide to do after reading my answer.