Updated on 09.10.07

(Just Like) Starting Over

Trent Hamm

Over the last day or two, I’ve been going through the piles of email that have built up since the birth of my daughter and found a few stories worth sharing, which I’ll be sharing today and (maybe) tomorrow. Here’s the first one, from Amy:

I am thirty years old, college educated, and a certified teacher. For the past several years I have taught school and used that money to buy a house with an ARM. This past January I sold the house. The 18k I made on the sale I rolled over to pay debts.

Last year I took out credit cards and my intention was to sell the house and pay the cards. However, several small things like car accidents, a move to an apartment, and buying a truck took the air out of the plan.

When all was said and done, I still have $4,000 in student loans, and $35,000 in unsecured debt.

Now here is the sad part of my story. I was advised by a friend to “just walk away” from the unsecured debt. “Pay the student loan and forget the rest.” This came from a banker. “In a few years you will not have the unsecured debt. It will be a write off. Disappear for a while.”

Since I am a teacher, I decided to take a job overseas. I was being paid to teach under the table. It was not the best idea. I decided after two months to face the music, come home and start again.

Which leads me to today. I have no money in the bank. I have $35,000 in unsecured debt. My student loans are paid through January–but then I have the payment coming back at me. I have no assets except my truck, paid for, and my laptop. Luckily, my brother is letting me stay at his house while I look for a job.

Any advice you can give would be appreciated.

Before I say anything else, please note that if you have a significant amount of credit card debt, re-read the story above. It could happen to anyone who puts themselves in a shaky financial position.

First of all, I fully understand the logic behind the advice from the banker, but it’s not good advice for the next several years unless you intend to live elsewhere. Why? Doing that will destroy your credit and leave you with harassment from creditors for many years. If you live in a situation where it’s difficult for them to contact you and your credit doesn’t matter, then this might be a good move, though I personally consider it dishonorable to walk away from your debts.

So what can you do in your current situation? Here are the steps I would take to get back on track.

First, I would focus very hard on getting a job, even if it happens to not be a teaching job. Work evenings somewhere so that you at least have some income coming in, then beat the streets for other work during the day.

Next, I would utilize a reputable credit counseling service. This is a significant enough debt situation that most normal debt repayment plans will probably not work. As a general rule of thumb, for-profit agencies are generally less helpful than non-profits. I would start with Consumer Credit Counseling Service, though that’s not a recommendation.

Also, live as cheaply as you possibly can. Don’t spend a single dime unless you have to. Live like you were in college again, eating ramen noodles and living in a tiny room. Focus on getting your finances healthy before raising your standard of living.

Another tip: don’t be afraid to look for charity right now. Talk to local pastors and see if you can at least get some free meals. Don’t be proud – pride right now will cost you.

Perhaps some readers will have additional advice for Amy.

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  1. dong says:

    While I don’t advise walking away from debt as it is matter of personal responsibilty to pay the debts that you have, ultimately if you can’t pay, you can’t pay. It’s a good thing we don’t have debtor’s prisons anymore.

  2. Amy says:

    There’s a reason that credit card companies charge 20%+ APR. It’s because they know that a certain percentage of their debtors are going to default. I don’t really think honor enters into that sort of relationship…on either side.

  3. Heidi says:

    I am a banker and I only advocate bankruptcy as a last resort. Based on Amy’s current situation (her unsecured debt is likely more than an annual salary for most of the teaching positions she is qualified for), I would encourage her to consider filing. It will likely cost around $2,000, but it gives her a fresh start. As long as she learns from her mistakes and does not charge up unsecured debt again, she could have a 650+ CB score in a year or so.

    I have seen clients who have filed be able to finance homes and cars at competitive rates in as little as 12 months after it hits thier credit report. Considering today’s economy (credit terms are tightening), it may take her a bit longer, but she will be thanking herself in 3-5 years when the bankruptcy is old news on her credit report and she doesn’t have that huge monkey on her back.

    Another alternative, follow Trent’s advice and work two or more jobs to bring in $50+ per year and spend every free cent on unsecured debt. She may be out from under the worst of it in a few years if she doesn’t need to replace her truck or have any other “emergency” expenses. It will take her far longer to repair her credit and FICO score this way, but it is the honorable thing to do.

  4. KK says:

    Ok, For starters,
    I do not walking advise walking away from your debt. In most cases they will continue to go after you. They basically have 6-7 years, will hire a lawyer, that lawyer will add their own fees, and worse comes to worse, they will SUE you for more than what the credit cards are worth. Trust me, It’s not worth it. Maybe you can get a few 0% offer and transfer some balances and pay them off.
    I was a victim of idenity theft by my own mother, and tried to ignore what she had did to my credit but they never ignored me. They continued to go after me until I decided to file a police report (long story).
    Also I would suggest getting a budget. You can’t do anything without knowing what’s coming in and out.
    Good luck
    and don’t walk away, the bills will only follow you.

  5. redhelper says:

    Funny that no one has responded to this. . .you’re quite brave to share.

    I have been in a similar situation – got way into unsecured debt, one thou more than you. I went overseas, came back, paid off everything, felt great for a while, and then, slowly, primarily through deliberate under-employment, got back into a little debt – comparatively little. Then I started seeing articles that showed that I should not have paid of the debt in the huge lump and not put anything in savings and retirement (I didn’t, I just canxed all of the There is a part of me that thinks if I get myself in the same jam again, why not write it off? I’ve seen people that have declared bankruptcy live identical if not better lifestyles, get houses, etc. It’s very frustrating. I could probably blog for about six blocks on this, but I will say this. There seems to be a very financially responsible side to you, and an opposite side – human nature. I will always be the person that got myself out of that first jam. I hope you choose this route. The fact that you’re conflicted indicates there’s two sides, the accountable and one and the one that just wants to walk. I’ve heard that “walkers” or those that don’t get to the real issue (it’s never money) just get back into debt, worse than before.

    I’ve just volunteered to go overseas to work again, because I’m certain I’m more responsible than not. I bet you are, too. I am out to insiduously sabotage the irresponsible side. Here are things that helped me get the three steps forward, before I took the one step back.

    Suze Orman – I just listen and watch – her point about straightening out the dollars in my wallet (lining them up, unwadding them) was a meditation that got somewhere to that deep dark place that wants me to stay in denial about my financical future. Ihope you find a similar small gesture that rights your course.

    Your Money or Your Life – Trent is not kidding about this being a life changing book. The hourly wage and the psychological tendency for some personalities to stay under-employed really hit home. I did some “inner” work to get into a job that demands more and pays more. It took a while to let myself pull in a little more cash.

    Trent’s Blog – One of the few places you can go where you don’t feel the undercurrent that someone is trying to sell you something

    Roomates.com – I rented a room in a nice house and helped someone make their mortgage – this lifted me up a little bit

    Oh yeah, and I worked overseas where folks make it on one dollar a day or less. It didn’t instantly transform me, but something about the first world entitlement side is definitely unravelling, and that’s good. It sounds hammy, but I did need to witness someone with much less, and someone with much more (lots of friends are rather rich), not for motivation or appreciation — just to make the whole thing, amount of money a moot and random point.

    I drive a used paid for car. Your car is paid for too, right? I used to secretly loathe it, and then one day, without any mental effort on my part, I started to really love and cherish that car. This was huge. It’s the one financially highly functional aspect of my life, evidence that I am at least a little responsible.

    Around the same time as the car-bonding moment, retirement numbers and figures, and how little it will take to just be Okay (versus completely dependent) willmove from abstrac things that Those That Have Stuff worry about, to Very Real Numbers to you. This dents the dumb things I do with money, or dents the satisfaction.

    I expect it will take me another three to five years to really experience and get centered into a more financially responsible person. I’m done being ashamed of the erratic progress I make. Eventually, money will just a be a neutral thing in my life, I’ll see some gains in my paln, and I will face the larger challenge of living in this part of the world, which is, what am I if not primarily a Consumer?

    Good luck. You’ve got a compass, you will be fine. P.S. No harm in asking for a little spiritual help, if you lean that way.

  6. Beth says:

    I’d just like to say kudos to Amy for coming back to face the music. Whether that involves paying off the debt or filing bankruptcy, it’s far smarter to sit down and deal with things than it is to just disappear. That advice was supremely lacking in integrity.

    Six months from now, a year from now, five years from now, Amy is going to be very glad that she started taking these painful first steps. Good luck!

  7. redhelper says:

    Apologies for the poor writing style of previous entry, trying to do two things at once. Most importantly, thank you Amy for putting it out there. Best, Redhelper.

  8. jake smith says:

    One word – bankruptcy. In my opinion, this is the way to go and get a true fresh start – that’s what its for. Do not worry about whether declaring bankruptcy is the noble or honorable thing to do – you should be concerned only with your well being in this regard, and anyways being a teacher is plenty honorable. Good luck.

  9. Emily says:

    Maybe Amy could look into getting into a live-in companion situation, either with an elderly or disabled person or with someone who has school age children. Since Amy is a teacher she would have weekends and afternoons/evenings relatively free and maybe she could trade room and board for preparing meals and house work. I would suggest she look on craigslist and check with local churches and community service centers for someone who might be looking for a live-in companion situation. I had an acquaintance who did this in college and saved himself a lot of money on room and board. In exchange for doing the shopping, household chores, and cooking (stuff you have to do if you live on your own any way) he got a room and meals rent free. Of course I would recommend all parties involved do background checks and draw up a carefully written agreement.

  10. vh says:

    Better follow Trent’s suggestion: find a REPUTABLE debt counselor.

    Some debt counseling outfits that bill themselves as “nonprofits” are not, so be sure to check their reputations on the Web, with the Better Business Bureau, and through any other sources you can find. Bankruptcy laws have changed over the past few years, the purpose being to make it harder for the average Jane or Joe to get out from underneath credit card debt. So you need to investigate whether this really is an option.

    Meanwhile, as a former teacher, IMHO teaching is a fun, exciting, and altruistic profession. However, it’s grossly underpaid. You can get much better-paying work in private industry and not have to work anywhere near as hard as a good teacher does. Recently I met a veteran high school teacher who was earning more selling kitchen appliances at Sears than he ever did in the classroom.

    Before you do good for others, you need to do enough good for yourself to keep a roof over your head and food on your table. Consider looking for work outside teaching and then returning to the profession after you get on your feet.

  11. Eric says:

    Bankruptcy exists for a reason, use it.

  12. Debbie says:

    I recommend taking any job while job hunting. If you are having trouble finding teaching jobs, you might look into what it takes to get certified in a field where it’s easier to get hired. Or you may have friends who know your work habits and can get you another kind of job.

    Once you get a good job, start negotiating your credit card interest rates in case you can get a break there.

    Do whatever you can at your brother’s place to make your stay easy on him. In your case, you can do things that take time rather than money such as doing laundry and dishes, cooking, mowing the lawn, or whatever ways you can think of that would help. Plus try to be a pleasure to have around, even if you are feeling depressed. Pretending to be happy and have fun can sometimes turn into actually being happy and having fun, and this also makes it easier to find jobs!

    Some people do very extreme things like live out of their truck for a while, ditch their car for a while, or eat lots of beans and rice. This can be depressing, or it can be empowering. The more you learn from places like this website, the more tools you will have at your disposal. Remember that many of your strategies will be temporary. Some you’ll turn out to like so well, you’ll keep doing them when you don’t really need to anymore.

    Many people have to feel like they have hit rock bottom before they can find the motivation to change their ways. There is something you have been doing to build up this debt. What can you do about that long-term?

    I don’t have much direct advice because I’ve never gotten into this kind of trouble before (just $10,000 in student loans). However, I only just recently exceeded the salary of a first-year teacher (and then they got bigger raises and have caught up to me again). You really can do a lot on that income if you have the right tools.

  13. Sean says:

    I’m a little bit shocked at the people who said that Amy shouldn’t worry about whether Bankruptcy is a moral option. Bankruptcy only exists for people who really cannot pay for some reason. Being irresponsible with your debts and wanting to have them disappear is not the same thing! Guarding your honor, especially in financial obligations is more important in so many ways than taking the route that looks like a quicker path to freedom, even though it may be legal. Declaring bankruptcy when there does exist a way to pay may seem innocent, but if you really think about it, you’re defrauding the people who lent you money. You can fire back by saying that they charged you an unfair amount of interest, as some people have said, but let’s not neglect the fact that the user has agreed to all these terms. Just because the companies have done things to protect themselves from people who declare bankruptcy doesn’t make it alright. It’s a bit like a person who drives without insurance just because the other people on the road have uninsured motorist coverage.

  14. Brent says:

    It’s called integrity. That banker must have none.

    As far as what Amy said. The money was not hers when she spent it, and she knew the terms up front. She needs to stand up and be good for her debts.

  15. !wanda says:

    If it were me, I’d try to repay the debts.

    However, don’t feel so sorry for the credit card companies. According to a recent paper tracking families after bankruptcy, right after bankruptcy, families receive more than double the average number of new credit offers per month; many of these offers reference the bankruptcy. “While not every lender will accept a “profligate” bankrupt as a customer, debtors report being overwhelmed after bankruptcy with a variety of credit solicitations from many sources. … Despite their disparagement of the character of bankrupt families, lenders actively solicit them as future customers.” (from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1004276&download=yes)
    Regardless of what you do, live frugally and be careful about not running up more debt.

  16. Joanne Reed says:

    1.If you are a teacher, focus on getting the teaching job so you can get benefits. 2.Additionally, start your own business cleaning houses, landscaping, painting, walking dogs or anything that your area needs that you can do without a big investment. You need to work and work hard to dig yourself out of this.
    3. Credit counseling services might be able to help you stabilize your payments.
    4. Either become someone’s housemate, or take on a room mate. You need to split living expenses right now.
    It is hard but it can be don…good luck.

  17. Molly says:

    One thought…there are several parts of the country (Texas for one)that are just screaming for teachers, relocation might be worth your while. Also, if you get a teaching job in a rural/needy area and work there for a period of time (not sure exactly, but a few years), the government will forgive a percentage of student loans if you have them.

  18. Rob in Madrid says:

    In Canada you are allowed to make a proposal to creditors which in which they agree to write off a portion of the debt (usually 50%) and the debtor agrees to pay off the balance. This achieves something that bankruptcy can’t. Owning up to your debts, and making an effort to pay them off. My brother in law is doing that and it has forced to deal with there financial issues they’ve avoided their whole life.

  19. loretta says:

    Why does everyone assume that bankruptcy means walking away from one’s debts?

    After a bad marriage/bad business decisions left me hounded by creditors, threatened with garnishment, and $30k in the hole, I filed for bankruptcy. Against the advice of my attorney (who told me that I qualified for Chapter 7, the “erase” method), I filed for Chapter 13, and spent three extremely lean years repaying my creditors. It has been seven years since then, and my credit score is again excellent; I’ve bought a house and financed a car at great rates.

    If the morality of doing the right thing is important to you, there is a way to escape the hell-hound collectors and do the right thing.

  20. loretta says:

    Oh, and I now use credit cards extremely cautiously, pay off the balance every month, live below my means, and give thanks that I’ve learned the difference between a want and a need!

  21. Delores says:

    Just recently, I filed for Chapter 7. I tried to avoid filing. See, here’s what happened. I had been buying, renovating and selling houses. Just one a year for the past several years. But then I broke my own rule and bought two. So I had these two houses to renovate, plus my primary residence — three house notes. On paper, all looked well, until I ran into serious repairs on the two houses, which was not in the budget, a crooked contractor who I ended up going to court with (and the lawyer fees), and a slow-down in the real estate market. I looked up and the money was running out. I had deadlines on the investment loans, pressure from all sides. I sold my primary residence to get the equity to continue work on the other two properties and keep up with my bills. Problems persisted. I moved into one of the semi-renovated houses and continued to work on the other house. I ran out of money. I put the other house on the market, and it stayed there for nine months — not one offer. I hit rock bottom. I took a job that paid less than I made 20 years ago, but it allowed me to keep up with the mortgage and some of the expenses on the house I moved into. I just couldn’t pay anything else. When I appeared in court for my bankruptcy filing, the clerk asked about the money from the sale of my former residence. I explained all the above — that I used the proceeds to try to pay bills and complete the renovation on one of the properties. Meanwhile, the house I moved into is still not completely repaired, but I figured I could live with it. I am current on the residence I occupy. The payments on the 2nd house are over 4 months in arrears, although for some reason the bank has never started any proceedings. (I did keep them informed of my situation)

    I was required to show income for the past 6 months, and that dollar amount passed the mean test. But now, the clerk is requiring me to submit bank statements for the money I received from the sale of my primary residence, which happened within the past 12 months. Would that sale prevent me from being allowed to file? If I can’t file, I still don’t have the income to pay all my bills. Creditors would probably file judgements against me, but from what I understand, if there’s no income for them to garnishee, and no realistic slow pay plan, there’s not much more they can do. So again, my question is would the profit from the sale of my former residence stop everything, even though I can document that I used that profit to pay bills and keep up with two mortgage payments?

    I have been stressed to the max over this. Friends say I should have kept the proceeds from the sale of my former residence and just let the creditors file their judgements. But it was never my intention not to pay, so that wasn’t a viable option for me. So here I am, in my fifties, broke with a credit score in the toilet and afraid that I won’t be allowed a “fresh start.”

  22. silly willy says:

    Some of you just dont listen. SHE HAS NO MONEY! Do any of you comprehend the interest on 35K per month on top of her other base expenses. She doesnt have the money for a lawyer to file bankruptcy. The bankers advice was great. Let it go into collection. Pay off that student loan so the government isnt hounding you for eternity for it, AND I MEAN ETERNITY + FEES. Change your phone number a few times as needed to minimize harrassment. Keep a backup credit card for emergencies and live cheap. Oh and they will embarrass you at work a few times to humiliate you. Thats normal. Do some house cleaning for cash on the side and try to get a teaching job again. You have no choice girl…..

  23. Kelly says:

    Yay! I’m not alone. Seriously. I am going to be 29 in one month, with my first baby arriving in four months. I come from a middle…sometimes upper middle class home, and spent the last ten years getting into a SERIOUS amount of unsecured credit card debt. I live in one of the most expenisve places to live in the country and that definetly took it’s toll. After college, I moved out a couple of times, got cold feet, and moved back home. I was depressed from my own demons, and used credit cards to buy clothes and dumb things to try to fill the void. I went out to dinner every night, always had new cars, and jeans that celebrities wore…but I still lived with my parents. I have always held a job, although definetly didn’t have the salary to back it up. I was young and STUPID. I admit it. I made a mistake. A couple of years ago, I tried to get out from under the mess I was in. About $20K in debt, with a $400 per month car payment, and a $40K per year salary…and yes…a cellphone, and little subscriptions to things…you name it. I scaled back. I stopped buying things. What happened was that I couldn’t “scale back” enough. A few months ago, I sat there…pregnant…wanting so badly to be normal. Depressed, miserable, and feeling like I ruined my entire life. This whole “debt” thing plagued me for years. While my friends were getting married, reproducing, and buying houses, I was trying to budget…and I couldn’t even remotly move out like a normal 26 year old girl could. The signs started to show. I didn’t have money to do anything. My clothes, hair, teeth, car, were a wreck, and buying a new pair of shoes was considered “spluging” for me. I developed a ton of anxiety, and lost myself in the entire process. I felt like a shell of a human being. A complete failure. And I was a failure. I looked at myself and said…”How can this attractive, intelligent, educated woman turn out this way?” I never did drugs, or had any major health issue, or lost any glamorus job. I was just a loser.
    So….I am currently filing for bankruptcy. I learned my lesson. Yeah, some may say it’s dishonerable. Some may look down on you. But honestly, your mental and physical health is much more important than debt. Life is too short to spend 75% of it living in desperate misery all because you made some dumb purchases back in your twenties. It’s simply ludicruis to NOT file for bankruptcy at that point. Sure you may not be able to get credit, or purchase a home or a nice car for a few years. But to be honest, that’s a good thing. Being forced to live off of what you actually EARN is surprisingly alot less stressful. And in 5 years you will probably be in a BETTER situation. Financially, mentally, etc, then you would be if you were still digging yourself out of the red in order to get to $0, which is nothing anyway. Once you file for bankruptcy, whatever money you make is yours to do what you want with…save it…pay cash for something…whatever. It’s not going to a credit card company. Plus, you can use this opportunity to start over.

    Starting over is actually very exciting and fun. Yeah, I have no money now, but I didn’t before either. And at least now I can start to rebuild my life instead of WAIT to rebuild my life until I got out of debt…which probably would have NEVER happened.

    I do believe that it should be a last resort. I tried for YEARS to get out, and simply could not. I tried asking for 0% credit cards, personal loans, the whole nine. Even though my credit was good…I had too much of it, and no one would give it to me. I also don’t have a rich uncle to fork over the cash either. And my life was seriously deteriorating because of it. Bankruptcy was the best way for me. And I am thankful it exists.

    So…weigh all of your options, and if bankruptcy becomes the answer…don’t feel bad. Be happy, and take some credit counseling courses and start saving the right way. You’ll only thank yourself later.

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