(Just Like) Starting Over

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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