“Dear Steve,
I lost my job in December of 2010.
I owe $41140.00 in credit card debt.
My monthly minimum payments are approximently $1112.00.
My unemployment is $1320.00 a month.
My household expenses are about $1100.00.
I am currently drawing from stock sales and a life insurance cash out.
These assets are about $20,000.00.
Right now there are no definate job prospects for me.
Given my current situation, no steady income source, what is my best course of action to get out of debt.
Thomas”
Dear Thomas,
The reality is the smartest thing for you to do right now is to stop paying your credit cards from your investments.
When you stop paying your credit cards you will wind up in collections. For a healthy perspective on this, read this article.
Here is what we know for a fact at this point.
- You have no income.
- Unemployment benefits will end at some point.
- You have a limited amount of money in investments you can tap.
- You need to find new employment.
- There is no reasonable expectation you can repay your debt on your current income.
Your current situation is like this. Let’s say you are on an old sailing ship far out to sea. You have a small raft you can abandon the ship on to save yourself. Each hour the ship springs a new leak and your only option to stop it is to take a part of your raft and plug the hole. At some point in the near future the leaks will continue to appear but your raft will have been consumed in the meantime. You will then drown.
Are you better cannibalizing the raft to plug holes till the raft is gone or abandoning ship early to live for another day?
My advice is born out of helping people with money troubles since 1994. What my experience has taught me is that it is much better in these situations to stop making payments and file bankruptcy now, or when you get a job, to deal with the old debt. It just is what it is.
You may find some insight in “The Honest and Unvarnished Truth About How to Get Out of Debt.”
Personally, I think those that embrace the bankruptcy experience and realize they did it because there were no other good options have a much better chance to recover faster. A Chapter 7 bankruptcy now will clear the decks of the debt, will discharge the debt in about three months, and will you to use all your daily energy to look for a new job with greater vigor and hope than being chased down by people for debt you can only pay by sacrificing the limited funds you may need to use to eat later.
Please post your responses and follow-up messages to me on this in the comments section below.
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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