“Dear Steve,
I just stumbled upon your site. THANK YOU for this empowering information. I’m in a tough situation.
I have been employed for the past 13 years at my company and am at the top of the pay scale for my position. I’ve got a lot of credit card and personal loan debt (36,000 all together) that I planned to have paid off completely in 3 years.
At my current salary, I can do this. I am single, only wage earner.
Unfortunately, I have a very toxic and bullying boss, and for my mental health, I need to get out of this job.
I have been applying for positions and get lots of bites, but there seems to be no way that I can walk into another job at my current salary.
I am looking at taking a 10,000+ reduction in pay per year. I need, for my sanity, to take another job quickly.
But, at this amount of salary reduction, I will very quickly be in trouble with my bills. I currently am totally current, a good payer with no history of default and have only been late like three times over 20+ years.
I have several questions:
1. What would be the best debt reduction strategy in this situation – I hate the idea of bankruptcy, but I am becoming more open to it, because I can not make debt the reason I stay in a situation that is literally compromising my mental and physical health.
2. Timing. Take a new job that will be much less money but keep me sane FIRST and then deal with the debt crisis that will follow, or do something with the debt and then change jobs? My concern is that many employers look at credit scores (mine is current 680) and will not hire if it is bad.
As a last bit of background, I will be paid for my unused sick time and vacation when I leave, which is quite substantial – I should walk out with somewhere between 12,000 and 15,000 after taxes.
Sherry”
Dear Sherry
Thank you for the kind words and contacting me.
I see debt situations as a giant plate with all sorts of priorities on it that you constantly have to juggle and balance.
As I frequently say, Debt is just a math problem wrapped in emotion. (Click to Tweet).
In this case we need to balance your current toxic environment with your obligations. This isn’t a matter that needs a moral judgment, it just is what it is.
Your options are to quit and look for that lower paying job and use the money you get from cashing out sick and leave time to settle your debts. It should settle most. But keep in mind when settling your debts you generally need to be delinquent on your debts first and that will be reported on your credit report for seven years. There are other considerations as well.
But let’s say we took a slightly different approach. What if you actually considered filing a chapter 7 bankruptcy to discharge your debt completely. This is in anticipation that will be taking a reduction in income and then would not be able to meet your obligations.
Rebuilding credit after bankruptcy is actually a very easy process. Getting your jerk boss to act like a human is probably beyond hope and impossible.
After your bankruptcy, which will take about 90 days, you could then proceed to take a lower paying job that creates a healthier environment and does not keep you festering and lingering in such an unhealthy environment.
If, after the bankruptcy is discharged, you then decide to leave, you can later get the cash payment for your unused sick leave and vacation days and either use that money to repay your creditors or use it to save for your retirement. Nobody has enough saved for retirement these days. We need to take care of your current self and your future self.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
I will agree with critics that this is a more extreme solution at first glance but essentially what is does is deal with the inevitability before you lose the income and give you a fighting chance of making a more healthy transition to a new life.
It sure seems like a better approach to me than suck it up and pay off your debt in a toxic environment you apparently have no control over.
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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Steve –
I can’t thank you enough for this reply. I have been terrified of the idea of bankruptcy. It’s crippling to feel like it is a moral failing. I have even had a friend say that bankruptcy is “we all get to pay for your mistakes.” Ouch. I don’t even know if that is true, that the taxpayers are actually paying for individual bankruptcies? I had no idea that the ability to declare bankruptcy is protected in the Constitution. I feel more relieved, that I have a real plan that will not only get me out of a devastating work situation but also could give me a new start financially. THANK YOU!
Your friend is laying guilt that is not true on you and ignorant.
Creditors assume some level of risk when they lend. That’s why there are different interest rates.