We’ve Struggled to Pay Off What We Can. – Maggie

“Dear Steve,

In 2009 my fiance and I had an income of approximately $60,000. We lived more than comfortably. Over the course of the next two years however, we had a sick baby whom I chose to stay home and care for, he lost his job, had to surrender one of our two new cars, defaulted on personal loans, credit cards, ran up utility bills and had to leave our apartment so that the landlord would not evict us and take us to court.

We accrued $30,000 in debt. My fiance bounced from unemployment (which we only received in lump sum payments after being eligible for 5 months at a time, thanks Rhode Island)

After I took over the finances, alone I reduced our debt to approximately $7,000 through settling for lesser amounts and paying off everything in chunks from tax refunds and the lump sum unemployment payments.

I still am staying at home with our son and my fiance has finally found a stable job that pays about $35,000/year. We do not qualify for government assistance.

Our current vehicle loan (one of the few good things on our credit reports) comes due in May with a balloon payment around $2,500-$3,000. However, we have about $7,000 left to pay off in old charge offs and then we qualify for a home loan!!

We can’t save the $600-$800 payments the creditors ask for to settle for a lesser amount. When our taxes come in next January we will be getting @ $4,000. Now that we are nearing the end of the long dark tunnel that was our debt history, how do we make the hard decisions of what to pay off when money is still very tight?

What is the right thing to do?


Dear Maggie,

What you are asking is a chronic problem people struggle with. The reality is people often put themselves in a tough spot by repaying what they can’t afford in an effort to repair the past rather than fix the future.

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changeImagine if you had considered bankruptcy back when he landed the new job. Your debt would have been behind you, you could still had the car and you would already be saving and rebuilding your credit.

But the situation is what it is at this point.

It appears you are over withholding on your taxes in hopes of getting a big refund check next year. You can adjust the withholding and that would put about another $400 a month in your pocket when you need it most.

When deciding where to delegate the money in tough times, people tend to make the wrong decision and they stop saving and building the emergency fund. It is precisely at times like this when you need that financial safety net the most?

The ballon payment on the car is interesting. Since it is not a lease is it from the lender sticking late or missed payments onto the end of the loan?

If your credit score was over 660 then one place to look for funds is from Lending Club, a peer-to-peer lender who still makes unsecured loans.

But at this point it looks like you’ll have to stop settling debts, adjust your withholding and save up the money to deal with the car situation.

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

What is the right thing to do? Wow, that’s a loaded question. All I can tell you what is the right thing to do from my point of view and decades of experience in helping others.

When you face tough times financially there are a lot of factors that go into determining what makes the most logical and mathematical sense to do. And then there is the emotion people throw in.

If you don’t have a retirement nest egg built the right thing logically and mathematically to do for the future is to declare bankruptcy and get back to saving as quickly as possible. The earlier you save the larger your retirement funds will be and with some doubt as to the support Social Security will give you when you get old, you have to take care of yourself first. Time is the enemy, not your credit or creditors.

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If you want to see the math, use the calculator below to see how repaying your debt in an extended repayment approach robs your retirement.

The Question You Always Need to Ask Yourself

If you ever find yourself in a tough financial spot again, you need to ask yourself the following question. “Do I have a greater responsibility to fix my financial past, or fix my financial future?”

Please post your responses and follow-up messages to me on this in the comments section below.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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