Get Out of Debt Guy

What Can I Do to Get Out of Debt Besides Bankruptcy? - Michelle

Posted March 16, 2013

WRAL Reader Question

I have about $9600 in credit card debt that cost me $260 (minimum payment)

Between my mortgage ($905) student loans ($605) Car and Ins ($360) and other expenses (utilities and tithes - I tithe 10% of my gross income $426 month).

I'm over my income $500. If I go on my current rate I will not pay off my credit card bill for 20 years!

I had a water leak at my house which I put on my credit cards and electrical issues as well (6 year old house 2nd owner, shoddy workmanship).

I would like to take a loan from my 401k to pay the debt off (which will result in a payroll deduction of $160).

I am also applying for a H.A.M.P (adjustment to my mortgage payment as well). I am working a second job and was able to pay off $3200 in the past year.

But I will not have this job past April 15th (seasonal employee). I'm currently looking for other employment opportunities but have not found any to date.

Am I missing some other actions I could do besides bankruptcy?

Will taking a (5yr) loan from my 401k (i'm 29 and been at this job for 4 years) hurt or help me?



Dear Michelle,

In almost all the cases I've looked at, borrowing from the 401(k) makes no logical financial sense. Essentially what you are doing is stealing from your retirement to react to a current problem. 

Only 14% of people say they have enough money for retirement when they stop working. The numbers will be even lower in twenty years.

Trust me, your older self will be pretty angry when she realizes your fund robbing stole loads of money from yourself when you needed it most in retirement.

When you borrow from a 401(k) most people think it's a cheap loan. What they fail to understand is what you are doing is paying interest on top of the rate of return you would have achieved if you had left the money alone in the creditor protected 401(k).

Want to see how this all adds up? Read Here’s Why a 401(k) Loan to Pay Off Debt Can Cost You a Massive Amount in Retirement

Maybe you can post more details in the comments below but you did not share if you are short each month, unable to save, or will be in trouble when the seasonal job ends. 

But I would like to address two issues you raised.

The first considers tithing. If you want to tithe that is a decision only you can make. Some might criticize you for doing so in the face of money troubles. I won't, but not for the reason you might think.

Tithing, like many things, is a priority for you that you have roped off. That's fine. But that is your choice.

If tithing is more important than getting out of debt quickly, that's fine, but again, that's your choice. And whatever we need to do to deal with getting you back on track will be the result of you making tithing a top priority.

In the past I have suggested to people who are financially struggling that they talk to their church about other ways they can tithe when they can't afford it. For example, you can tithe with your time, or do volunteer work.

One person I helped approached his church and explained his situation and they understood. Instead of continuing his money donation the church asked him if he could donate his time to mow the church property which had a similar value.

The other issue that troubles me is the apparent exclusion of bankruptcy. In fact I just wrote an article titled Do Not Avoid Bankruptcy. Many people put bankruptcy off limits based on incorrect assumptions and not reality. The reality is more people have been hurt by excluding bankruptcy, not filing bankruptcy.

If you are concerned about the Biblical implications of bankruptcy then you should to read this and this.

About the mortgage modification, you need to understand that no bank is required to modify any mortgage. Hoping for a mortgage modification can be a stressful process. Some who write me have been trying to get one for years without luck.

If you do want to go for one I would suggest you contact a HUD Housing Counselor to help you with the process. Their services are free.

Steve Rhode

WRAL Get Out of Debt Guy

If you have a question you'd like to ask, click here.



Please with your account to comment on this story. You also will need a Facebook account to comment.

Oldest First
View all
  • steverhode Mar 19, 2013

    There is no reason you can't file bankruptcy individually to clear this mess. You are probably getting a divorce to get a fresh start and bankruptcy is exactly the same. It is a legal fresh start to give you a second chance. Before discounting it you owe it to yourself to get the facts first. Here is a post that will help to shed more light on the issue.

    You said you are short each month in your original question. Not only do we need to make up for the shortage but get you positive enough to start saving again and building retirement money and an emergency fund. Plus we need to get you position for reduced income to boot.

    The townhouse might create an issue, especially if there is a lot of equity in it. But that's a secondary issue.

    On the private student loans there are no options. The federal student loans would be best repaid on the 10 year plan but there are other options.

    Check this out and please report back.

  • Michelle1915 Mar 19, 2013

    Hi Steve,

    None are his. They are all in my name. He has given me his half and this is my half. I owe $19600 in credit card debt. $68k ($48k is private student loans) and $11k on my car. I pay a mortgage ($900) a town home and I have land left to me in a northern county by a relative (it remains in the family and someone lives on it). HOA dues $72.

  • steverhode Mar 18, 2013


    Can you please give me some more information? I'd like to know which debts are joint debts with your ex and how much you owe on each. Post your update in the comments.

    It is very common for me to see divorce followed by bankruptcy since you take a dual income household and convert into two single income households. It's no surprise the match often doesn't add up.

  • Michelle1915 Mar 18, 2013

    Hi Steve thanks for responding so fast. The only reason I don't want to resort to bankruptcy b/c I'm legally separated and I don't want to involve or mess up my husband's credit. Yes I will run short after this seasonal job is over and no, I do not have an ability to save right now.

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.