Husband & wife graduated from undergrad 15 years ago.
Both graduated with Master’s degrees 2 years ago (to increase job opportunities). Both before and after Master’s Degrees husband did not have full-time employment (or full-time wages) and was unemployed for a significant amount of time (higher amounts were taken on student loans for master’s degrees to compensate).
Wife has worked full-time while also going for Master’s part-time. Now husband also has full-time job and is finally starting to make full-time pay. Total student loan debt from all 4 degrees equals $165,000 (earlier loans have been in all forms of payment options – forbearance, income sensitive, etc – and new loans are currently in forbearance).
All loans will come due at the end of this year and the expected payment is around $1200 per month. Credit card debt equals $24,000 with the bulk of that at 26% and 29% rates – the minimum payments total $700 a month (and no new debt has been put on them for a while).
The house is underwater and the balance of the mortgage is $85,000 (6% rate) – the home’s value is unknown as the neighboring houses are selling anywhere from $20K to $80K. The neighborhood is not the most desirable and since moving in 6 years ago the house has presented issues that require a bit of remolding to return it to it’s state at purchase. (We would like to move for our child’s schooling in a different district and to leave our neighborhood which is becoming questionable in its safety.)
There is a lease on a car but father is paying the monthly payments as a gift. The other vehicle is 100% paid for. No late payments on any bills, always on time with mortgage, an fair (not great) credit scores. We do not take vacations, but clothes at thrift stores or get hand-me-downs, an live very simply in a small home.
Expected income for the next 12 months is $70,000 but with all current payments will not have enough left over in the budget at the end of the year to make the student loan payments.
Three years ago we made a plan for debt snowball to pay off all debts in 10 years (just in time to start paying for child’s college) but un- and underemployment derailed that plan. Bankruptcy has been suggested to us as a viable option, but we are hesitant.
Where should we begin? Is the best place to start a bankruptcy attorney to explore all the options? Does our situation laid out here help provide clues into which direction we should take?
People supplying debt advice basically fall into two camps. One camp is the thrift store, make your own soap, reuse coffee filter crowd, and the other tries to sell you some magic debt relief solutions.
The coffee filter crowd offers advice which seems logical on face value but it always leaves me questioning the benefit of their plan. While you could roll a golfball up a mountain while walking backwards, that doesn’t mean it is a smart thing to do.
My experience in helping people and providing advice has led me to the conclusion that it is a lot smarter to look at solutions that fix things moving forward rather than trying to repair the past.
Recently I wrote that getting out of debt is about looking at your solutions as if you were a corporation. Read How Do I Get Out of Debt Quickly? Change Your Mindset. That is so true.
So if your took a step back and just looked at your situation using math, not emotion, what story is it telling you?
From what you described you have a ticking time bomb of student loans that is going to financially explode soon. At the same time you are underwater in your home and drowning in a bit of debt.
You can always do whatever you want to but from my viewpoint you need to get yourselves ready to deal with these upcoming student loans and clear the decks of the other debt and obligations. That probably means bankruptcy.
But logically, facing the unlikely situation you will be able to dig your way out of this hole and build a safe financial foundation to protect you moving forward, this situation appears to need some intervention.
Bankruptcy is a legal second chance and a fresh start that is afforded to U.S. residents under the Constitution. But bankruptcy does not mean you’ll never be able to buy a home or car again. You will be able to.
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.
Make sure you have contacted the Department of Education and pursued consolidating those loans and potentially reorganizing them into reduced payment programs. On the private student loans the only options available are what the servicers offer.
Forbearance just grows the balances so make sure you start paying towards them as soon as possible.
Please post your responses and follow-up messages to me on this in the comments section below.