Every once in a while, I receive a story of a person who has slowly backed into a desperate financial situation. Usually, it’s pretty easy to root out the cause, so I often don’t share these horror stories with the world. Yesterday, though, I received a frightening email from a reader who laid out an incredibly painful story fraught with bad insurance choices, an overbearing parent, bad debt decisions, depression, sickness, and more. Let’s move through Maggie’s story piece by piece and see what advice we can use to help her out.
I am in way over my head in credit card debt and a personal loan… about $60k worth and growing.
Maggie has extensive personal debt right out of the chute, ignoring everything else. Likely, with that amount of personal debt, some of it is quite high interest.
I was on disability as of last September thru December for major depression. When it came time to decide if I was going to go back to work, go into long term disability or separate from my company, I did the stupid thing and left. This in actuality was a good thing for my mental well-being, but horrible for my financial situation. I didn’t think I would be unemployed for as long I as I was.
Maggie has some issues with depression as well. While I realize that clinical depression is a pretty severe medical condition, I do also know that debt can be an emotional drain. Also note that not going back to work at her previous job was identified as a good thing for her mental well-being, so it’s fair to conclude that Maggie was very unhappy at her previous job.
I just got a job this past June. So in essence I was without a paycheck since last October. I had a good deal of debt at that point but it was manageable. I was doing odd jobs to pull in money, but it was very small amounts, $100 here and there. I started living on the plastic and used one to pay off the other, etc. I was trying to clean up other parts of my life and get my mental capacity to be stable enough to take on even trying to look for work, which I didn’t really start doing until the end of February and not super seriously until almost April.
Maggie essentially took a six month period here in which she lived entirely on plastic without seriously looking for work. That’s going to be a huge financial drain for anyone. While part of me wants to say that she should have been looking seriously for employment from day one, that’s water under the bridge at this point.
I have a good and stable job right now with Columbia University, but I’m still waiting to become permanent (90 days and all that) and to get benefits.
Now, though, she has a full time job. This should enable her to start making a dent in fixing her earlier financial mistakes.
The problem is that I can’t afford my payments anymore and I am totally maxed out. I am also making less that I was, which is hard too.
In a nutshell, Maggie’s lifestyle for the last several months has far outstripped her income. It’s time to cut back big time.
Action Point #1: Learn how to live cheaper. Cut out every single bit of extraneous spending from your life. Get rid of cable television. Sell your car. Do whatever you have to do to lower your monthly expenses. Here’s a list of forty ways to reduce your monthly spending.
My rent is about 1100/m (i live in ny), phone $62, gas/tolls $350, electricity $80, food $200 and my paycheck at the moment is about 1140 biweekly. However, once the benefits kick in, I’ll have to pay union dues and health care. So potentially, I could lose up to another $200/m.
Her required living expenses right now add up to $1,792 a month, while her income after the benefits kick in is $2,270 per month. That gives only $478 a month in breathing room, and that $478 includes all debt repayment.
Action Point #2: Get rid of some of these expenses. You’re on the campus of Columbia on a daily basis, right? Use internet telephony (get a Skype account) to talk to friends and family and ditch the $62 a month for your phone. If there’s a subway entrance – or even a commuter rail line that gets to Grand Central – near where she lives, she should ditch the automobile, sell it, eliminate that $350 a month expense, and use that money to get rid of some of the most pressing high interest debt.
On top of that, I have MS, so I figure I will have doctor visits and medication that will tack on extra costs to my cash flow. Having the condition also makes it difficult for me to take on a second job because I can’t really handle too much stress or letting my body get too run down. The other problem is that a second job probably still won’t be enough to allow me to make my minimum payments.
Action Point #3: See whether or not your job at Columbia can be used to get treatment at the Columbia University Medical Center. Many universities associated with a medical school have very inexpensive or free care at the university’s medical center. Inquire about it.
The more I keep looking into things, it sounds more and more like I should file bankruptcy. I’m 28. I really don’t want to file, because I’m afraid they’ll touch what I’ve built up in my retirement funds.
There are retirement funds?
My family and friends can’t really help me, because no one really has extra cash lying around, and besides that, I’m terrified of telling them, embarassed, ashamed, and hate asking for help.
Action Point #4: Kick your pride to the curb right now. If pride is keeping you from being honest with people who love and care about you, pride is doing nothing more than standing in the way of you moving forward.
Normally, I wouldn’t care and would do anything to get rid of that debt, but my dad handles my IRA’s. He is the bain of my existence, a super control freak, and has the power to easily knock me back into depression.
So there are family issues involved here, too. If you’ve earned the money, how does your dad control your IRA?
Action Point #5: Regardless of your current financial situation, you need to get control over your own money. If you are actually being blocked from accessing or managing your own money, look for legal resolution. Seriously. This is a very unhealthy situation. As a functional adult, you should have control over your own assets.
Once you get control over your own assets, you need to look at the tax penalties for early IRA withdrawal. Generally, you’ll have to pay a ten percent penalty to withdraw this money early (unless it’s a Roth IRA, in which you can take out your own contributions without penalty), but in your situation, it may be worth it.
Is there anything else I can do? Is debt negotiation or settlement a good thing? Is there a way to get my debts down without touching my retirement funds? On top of that, how do I know who’s a reputable company versus people who are trying scam me? I’ve got nowhere to go.
If you declare bankruptcy, your retirement funds are quite likely exempt from the creditors, so that shouldn’t be a concern. If you are truly so far in debt that your IRA funds wouldn’t save you, you should likely consider bankruptcy, because credit counseling is likely not going to save you either.
Right now, you’re in a situation where basic living expenses are eating up 80% of your income and you have ongoing medical expenses as well. Something has to change in this scenario – it’s not tenable in the long term regardless of whether you can dig out of this debt situation. Here are some potential solutions to the situation, but most of them will require you to suck up some pride.
Know how bankruptcy works in your state. You may need to ask for legal help. See if there are opportunities for free legal help available to you as a Columbia employee. Lay out the situation and ask whether bankruptcy is right for you.
Move back home for a while. From the way your story sounds, you do have family that live in the area. Look into moving in with a family member for a few years until you can get your career and your financial situation on track. You can offer to pay rent if that makes the situation more comfortable.
Look at living in a less expensive part of the country. You didn’t specify what your job is, but you did specify it was at a university. Are there universities in the Midwest or South that offer similar programs? There are several good universities in Iowa, for example, that may have jobs in your specialty. If you’re saying “no” to this even without knowing there are jobs available, ask yourself why you’re immediately saying no.
Hopefully, readers will have more good suggestions for Maggie.