Get Out of Debt Guy

I Can't Sleep Because I'm So Stressed Out About My Debt

Posted March 5, 2013

Question

"Dear Steve,

I'm 50 years old, wife is 41, two boys age 14 and 11.

Boys are special needs and attend private special needs school, tuition paid in full by my Mom.

Own home with $133K left on loan balance. Equity is anywhere from $2K to $10K. Home prices have stabilized in my zip code but area was hit pretty hard.

About $100.00 in savings. Approx $40K in 401K.

Have a 401K loan, approx $20K left on it with payoff in 10/2016.

Forgot to add to background child support of $500.00 per month.

Tried to start two businesses over the last 3 years. Neither has made anywhere close to a profit. Closed 1, other still exists. Work 2 jobs in addition. Tech Support making $65K/year and a Church web site administrator making $9K a year.

Wife is stay at home and does odd jobs now and then. My Mom provides anywhere from $200 to $400 a month gift to us each month to help make ends meet. Two cars, one paid for other owe approx $17K with payoff sometime in early 2017.

Two motorcycles. Owe $4K on one, $5K on other with payoffs in late 2016. Approx $45K in unsecured debt.

Of that is a $10K bank loan my ex wife and I are making 50/50 payments on. Approx payments per month on unsecured debt in $950 per month.

3 years ago co-signed a loan with sister in law on a car. Approx $12k left on it with payoff sometime in early 2017. Payments on time with it.

None of my bills whether secured or unsecured is behind at this time. We still run negative in budget each month (approx $500) forcing us to use credit cards to make up difference. We've slowed down the use of cards as best we can; it's not as bad as it used to be.

But, the writing is on the wall. At some point I won't be able to pay something or something will need repair, etc. Then, the "fun" will begin.

I can pinpoint 3 major causes for us getting in to this mess: 

  1. We helped members of her family by providing a place to live in tough times which increased expenses, 
  2. Starting two businesses, and
  3. ourselves being unwise with money such as eating out vs in, using credit cards for a purchase instead of saving up/deferring, etc.

I'm feeling stressed. Wake up most nights worrying about this. I'm feeling trapped. Need guidance on how best to proceed. Have considered Credit Counseling and Bankruptcy. Really just want out of this situation and to go on with my life.

Can credit counseling help me? Do I have too much income for Chapter 7 bankruptcy? How does my age (50) affect decisions meaning should I lean more towards one type of solution vs another?

What's a good starting point for me to make decisions? I thought I knew but now no longer sure. Thank you for your help.

Bill"

Answer

Dear Bill,

Most people would probably sit down and make out a list of income and expenses to deal with your situation. I don't need to do that because you've told me three things which are the key factors.

  1. You are short each month and for a time have needed to turn to cards to help make ends meet.
  2. You mom is helping you just to make it through the month.
  3. You have nothing in savings and no ability to save.

For me, I don't need to know more than that to give you my advice. And I'm going to talk straight to you so take it with the love that is intended.

Bill, you are slowly drowning with no real way out. Keeping the lights off or eating out one less time a week is not going to solve this problem at this time. This isn't a situation where you can do a long term budget and dig yourself out. This is a mess that needs intervention.

Anyone that promises you some monthly payment plan to get you out of this situation is not going to be putting you first. They are going to want to sell you their debt relief widget.

For you to be able to dig yourself out you'd not only need to make an additional $400 a month consistently, but also make another $400 on top after taxes just to put in savings. And then some more to make up for the monthly incidental expenses that will come up so you don't have to rob savings. Honestly, is that a reasonable expectation you can do that?

I just don't see that as a realistic plan of action that balances both the reality of your past financial situation and creates a reasonable life balance moving forward with your life as well.

Looking back you made some decisions or life dealt you a blow that is unfortunate. But you know what, who cares. The best you can do is learn from those mistakes and get your revenge by doing better moving forward.

We need to plan for a future where we can fit your life inside your current income and a reasonable projection of what your income will look like over the next five years. And that includes a monthly savings plan.

You've already robbed your 401(k) and still drowning. The only thing that has happened there is your borrowed funds have lost out on the big returns in the stock market over the past year. That 5% or so interest loan is costing you 20% in lost returns. Don't do that again. You'll soon be and old fart and need all the retirement savings you can get.

It's time to stop bargaining your way out of this mess. It's time to take action, even if it is difficult and tough.

Taking action will help you to deal with the stress and sleeplessness. The primary cause of that is fear and worry of the unknown. When we come up with a solution that is known and you commit to executing it you will be able to get your emotional life back. The stress will melt away and you will begin to sleep well again.

From my point of view you are drowning in your past financial decisions. It's time to take decisive action to get your life back and create a safer financial future for your family.

I'd suggest you strongly consider a chapter 7 bankruptcy. I would bet you would be able to qualify for a chapter 7 bankruptcy, keep the home and car and get the legal fresh start you are entitled to.

I'm a motorcycle rider myself and for me it is a great source of joy. But in considering your path I would suggest you talk to a local bankruptcy attorney about handing back your bikes or at the very least, the more expensive one. It's time to regroup for a better future.

The items like the loan and your ex-wife are repaying are not an issue since even if your obligation for the loan is eliminated there is nothing that prevents you from continuing to make those payments to her.

I would suggest you click here to find a local bankruptcy attorney and talk to them for free.

Bankruptcy Articles and Posts You Must Read

Now is not the time to get stuck in regret, it's the time to take decisive action and create a safer future.

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

If you have a credit or debt question you'd like to ask just use the online form. I'm happy to help you totally for free.

Steve Rhode
WRAL Get Out of Debt Guy

Original story

3 Comments

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  • jsgrayunc08 Mar 14, 2:26 p.m.

    What would you say are signs of an unconscious spender if not 45k in unsecured debt and only $100 in savings?

    I read in another one of your post that financial problems are math problems wrapped in emotion. Hence, the lack of sleep and reliance on mother.

    With no late payments to report it sounds like this is a present financial problem. I also saw in a post of yours that the way out of financial problems is either increase income, decrease debt, or both (balanced approach (ha)). There is an available wage earner and there are 2 unnecessary motor cycles loans.

  • steverhode Mar 8, 3:35 p.m.

    My view of his situation is different. Based on the information given, which is obviously not complete, the key points for me were the facts that things are so tight they only have $100 in savings, the situation has become so impossible that it is impacting his stress level and sleep, and he can't even make it through the month without help from Mom.

    Those are not the signs of a typical unconscious spender. In my many years of experience those are the symptoms of someone in a financial crisis.

    Based on what the reader shared, in my opinion, it would be impossible to assume he has an extra $1,447 in monthly income to live in the current situation.

    Your statement also fails to take into account the future lost cost of trying to repair a past financial situation at this point. Does he have a greater responsibility to repair the past or the future?

  • jsgrayunc08 Mar 8, 3:07 p.m.

    Steve, I find it very disappointing that you have no help to offer this man with his debt situation. You ignored several key factors in his letter and jump to the conclusion that he is in a hopeless situation because of his tone. By my calculations Bill has monthly payments of about $2840 per month. With a gross monthly income of $6167 and a net amount of about $4317 that leaves 1447 disposible income. That should be enought to support 4 people on a budget. Bill, You have to cut down on your spending. Find a budget plan that works for you and your family. Write out these bills with the correct amounts and see exactally what is left. Look at you statements and decide what you can do without. You have done awesome by not missing any payments but you can't go on recyling your credit card debt. You are blessed with a mother that is willing to help you. Instead of taking the money she is giving you ask her to put that in a savings account for you in case. There is hope and you can do this.

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.