Debbie is $57,000 in debt, and needs advice …

Hi Krystal,

I am so glad to have found someone who was/is in the same boat as me. Well, my boat is sinking fast, I think – my debt is pretty bad.

This is what happened and how I am coping. A year and a bit ago, I decided to start working on a project that makes me extremely happy but requires funding to accomplish what I set out to do. I borrowed money from a family member to get it going, in hopes that funding would pull through in some shape or form. I also charged lots of expenses to my 2 credit cards and took out extra on a loan. For over a year, I’ve been filling out application forms for funding and/or trying to get sponsorship opportunities, with no luck.

I had people involved in the project who believed in it, but in the end, I was the one taking the risks, I quit my job at one point and worked on it for 4 months, without an income. I even had this one partner say “borrow as much as you can and I’ll get you the money you need,” he ended up pulling out 6 months ago and brought no money to the project.

I’m back to work now and have been struggling to keep up with the calls from the creditors. It’s terribly upsetting when after, a long stressful day at work, there are people calling and demanding to be paid or they are taking me to court. I have only paid off a tiny bit of what I owe my family member and she has even emailed me because she wants to discuss my inability to pay her back. It’s bogging me down and I definitely don’t want to disappoint her, and I definitely don’t want to be sued. I continue to believe in this project but I have to put it all on hold until I sort my terrible mess.

I had gone to a credit counsellor about 8 months ago – they said I could declare bankruptcy – but of course – that’s 7 years of hell! I don’t feel that I want to write off my debt, I have to take responsibility. Also, they said that since I owe money to that family member, that I would have to declare bankruptcy with her as well – NOT an option! The other option is the consumer letter, which is a 45 day process to get creditors to agree to let you pay off a percentage of what you owe. This will only affect my credit for 3 to 4 years. But the credit counsellor has to know everything that is going on with your finances… ugh.

This is what it looks like in terms of what I owe. It’s a lot, so please don’t judge!

$25,000 (family member)
$2,000 (small personal loans)
$11,000 (credit cards)
$7,000 (Citi loan)
$12,000 (student loans)
$550/month (rent)

My salary is $50,000/year. I don’t know what to do, I figure I can catch up in a month or two, after the personal loans are cleared but the creditors are riding me, constantly.

Oh yeah, it’s not that I’m being wasteful either. I have been biking to work to save on bus fare, I try to get groceries so I don’t go out for lunch at work, and I don’t lavish myself with material things.

Do you have any advice for me?

I’m a mess right now, I can barely stay focussed.

Thanks,

Debbie Debt

My response:
Debbie, I know what it feels like to have creditors breathing down your neck. I think you are very mature wanting to own up to your debt and take responsibility for your actions. That’s a huge step to take, and you’ve already done it!

First thing’s first, I think you should sit down with that family member and work out a repayment schedule. Show her that you are responsible and you want to work this out! Debt to family can get ugly, but just keep the lines of communication open, and I know she’ll appreciate it. Maybe you could offer to pay her X amount until you’ve cleared away some of your other debts. And then you can re-visit the amount you’re paying her and think about bumping up the payment amounts after a while.

If you want those creditors to stop hounding you, perhaps the best thing to do is go through debt consolidation – where you speak with a credit counselor and they roll all your debt (minus the personal debt to your family) into one lump sum, generally with a lower interest rate. The creditors will stop hounding you, and you only need to make one payment to the credit counselor, instead of to each individual account. I don’t know your entire financial situation, and I am not an expert in the topic of credit consolidation, but this might be a good option for you.

If you don’t want to get a consolidation, or that’s not really an option for you, there are other ways. Dave Ramsey’s “snowball” method has been blogged about to death. That’s where you pay your smallest debt first, and them when you’ve paid it off, you apply that amount to your next smallest debt, and so on. It’s supposed to give you a mental boost to see that you are in fact making a difference towards your debt. I personally prefer the method of paying down your debt which has the highest interest rate first. Mathematically speaking, that’s the best route to go. But it’ll only work if you can keep your motivation up and not get discouraged along the way.

Your rent is fairly cheap, and you make a decent salary, so I know you can do this! If you find you’re cutting it too close, maybe you can take on a part-time job? I found that extra $200-300/month to be just what I needed to pad my monthly income. The debt looks really intimidating at first, but you can’t let it consume your life. I think that once you get on a debt repayment schedule, life will be so much easier for you to handle.

For me, when I was going through a similar situation, I found the beginning process to be the most stressful – figuring out what the heck I was going to do, and cementing a plan to help get myself out of the situation. Once I really sat down and analyzed it (and after the initial freak-out), I took a step back from it all and realized that I could do it. It was going to be hard, but it was my own fault I was in the situation to begin with, so I was prepared for it. Along the way, I read a ton of other PF blogs to gain inspiration from, and that got me started on making my own. I think it would be wonderful for you to start your own PF blog (if you haven’t already), to keep yourself accountable for your spending. I would love to keep updated on your progress to becoming debt free. It’s nice to get words of encouragement from people who understand where you’re coming from.

I’ve never been in a position to give much advice before on debt, so I hope I’ve helped in some way, Debbie. If any of my readers out there have any advice for Debbie, please take the time to leave a comment. I’m sure most of us can relate to her story in one way or another.