Get Out of Debt Guy

Are There Programs to Help Us Avoid Bankruptcy? - Erica

Posted April 23, 2013

WRAL Reader Asks

My husband and I have three boys, the oldest is graduating and going to college in August.

We own two houses - we purchased our primary residence in December 2011 and we previously purchased a home in September 2005 that is currently being rented. Neither home has any substantial equity.

We tried to get a home equity loan to pay off some of our high interest credit cards and we denied for this reason. We had children young and amassed hugh debt coming out of college. We owe $30,000 on two credit cards (AT&T and Sears) and we owe another $15,000 on store credit cards.

The embarrassing part of all of this is I am a finance officer for a major organization and my husband is a teacher. I know all of the tips to improving your credit and I know I made stupid decisions coming up as it relates to my finances. My husband is a spender and I am a saver and we are struggling to pay all of our bills each month. We have not made a late payment on anything in at least 10 years but we continue to take on more debt and we want nothing more than to pay off our high interest credit cards.

There seems to be a lot of programs designed to help people who are behind on their mortgage payments or credit card payments. Are there any programs available to help people who are current in the payments but barely making it each month? Are there any alternatives to filing bankruptcy to help us?

Erica

Answer

Erica,

First off, you should not be embarrassed about your situation. Over the years I've helped everyone from bank presidents to CPAs to finance officers to just about anyone in the financial field. This is not a failure in any way. Life just happens.

Your comment about savers attracting spenders is right on target as well. Opposites do attract in relationships and it almost always seems that one partner is the spender and the other the saver.

I think readers may enjoy taking my Money Personality Test.

You are smart to address the debt issue now. We need to get a handle on this because everyday wasted in minimum payements is a day you might not be saving for retirement. Now is the time to do that.

The amount of debt indicates two things to me. The first is you've probably been living beyond your means and helping to make ends meet with credit. The second is the high level of debt on the store cards might just indicate one of you is a stress shopper. Someone who uses shopping as a way to reduce stress or improve self-esteem. My book The Path to Happiness and Wealth addresses these issues and you can download the book for free.

Your situation typifies the fact that debt is often just math wrapped in emotion. It's not the math part here that is going to be tough, it's the altering your lifestyle to accomplish your goals.

If you've been using credit to help make ends meet, then in order to pay down the debt we not only have to bring your budget back to break even but reduce it even further to free up money to reduce the debt. That's really hard for people to do a sustain. See my story about the reality of digging out of debt using a budget and the deep cuts that have to take place.

These deep cuts will fundamentally change your lifestyle and unless you are all committed to making these changes you may not be successful. 

There are other alternatives to helping you to get out of debt. For those I would suggest you use my How to Get Out of Debt Calculator and learn about the pros and cons of the different approaches.

At this point I think whatever path you choose needs to take into account you have kids headed for college which might but a further drain on your wallet and that your emergency fund savings and retirement savings may be a bit behind the curve. If those issues are true then ramping up the intensity of the solution would be warranted.

Read though all I've said and shared and let me know in the comments what seems like a real solution for you. Don't rush, take it all in and let it percolate for a few days. 

What you might find is that in your current situation, considering all the facts above, bankruptcy is not necessarily a solution to be discounted if there is little likelihood you will be able to dig out, build your emergency fund, and get back on track for retirement.

Steve

Steve Rhode
WRAL Get Out of Debt Guy

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.