When do you just give up? I’m at the point where I really don’t know if I should go on trying to pay my credit card bills. They are out of control, and I can’t pay the minimum. Even when I can, the next month I can’t. I’m robbing Peter to pay Paul, and every month the amount that I owe them is growing.
I can’t sleep and can barely eat. I’m so stressed out that I cracked a tooth last night. I hate not being able to make it, and feel like the world’s worst loser. I was downsized at work and went from making pretty good money to making half of my old salary. What I make barely covers my bills. I even sold my other car that my teenage daughter was driving to work, and now she’s sharing a ride. I’m desperate, Erica. I’m a single mom just trying to make it, and I’m just not. – Marybeth
You have to look at your financial situation with total objectivity. It’s normal to be emotional, but it’s not helping matters. It’s even taking a toll on your health, and expensive dental work will only add to your misery. So here’s what I want you to do. Take a deep breath and:
- Find out what you have to work with. Write down your monthly after-tax income. If your daughter is contributing to the household, add that in, too.
- List and prioritize your expenses. Review everything you spend your money on in a month. Then include all the expenses that come up occasionally. Arrange them from most to least important.
- Subtract your expenses from your income. When you do, you’ll gain some clarity on where you stand. You may not have enough to send your creditors, but what’s most critical is that you can pay all or most of those at the top range of your expense list. If you can’t, start making hard choices that will allow you to make ends meet.
Now contemplate the future. Will it change much? I’m talking real prospects here. Because if you don’t have enough cash to go toward your debt now and the likelihood of having more later is slim, get ready to cut your losses.
Chapter 7 bankruptcy is an option that you should at least consider. This is the legal process that lets people who genuinely can’t afford to pay their unsecured debts (like credit card debt) discharge them in court.
Yes, bankruptcy is serious and there are repercussions. It’s just about the worst thing you can do to your credit rating. The notice will remain on your credit report for 10 years, and anyone pulling your report will see it and can judge you negatively. If you want to finance something like a car or a home or get another credit card, the interest rate and terms will be unfavorable for a couple of years. On the up side, though, discharging your obligations can free up funds so you can meet your essentials without stress. No more cracked teeth.
Do not make this decision without going over all the numbers with a professional first, however. Visit a credit counseling agency and see what they say. With the detailed list of income and expenses that you made in hand, the session will be efficient and illuminating. What’s more, there is a possibility that your counselor can help you trim your budget to such a degree that you can afford to make the minimum payments.
If that’s the case, you may be able to use the agency’s debt management program. These plans help borrowers in distress pay what they owe to the agency, which then pays the creditors. The advantage is a lowered interest rate and a support system that keeps you in line to be debt-free in five years or less. Unlike a bankruptcy (and contrary to common lore), these payment plans have no derogatory effect on a credit score — and can actually help it. Counseling is free, so it’s worth a try.
Lastly, Marybeth, if you do declare bankruptcy, try to not think of it as “giving up.” When you’ve tried your best, explored the various ways to get ahead and have chosen the most logical one, you can feel good that you’re doing the right thing.