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Second mortgage turns into debt
nightmare
Dear Dollar Diva,
A few years ago, my wife and I took out a second mortgage to pay
off our credit card debt. We never stopped using the credit cards
and are now worse off than ever. We not only have the second mortgage,
but once again we've run up $10,000 in credit card debt.
We make about $100,000 a year but can't seem to make
ends meet. I'm 36 years old and am starting to worry about retirement.
What can I do to get out from under this pile of debt? Is filing
for bankruptcy the answer?
Steve
Dear Steve,
In a recent story, "Loan
Consolidation: No!" the Diva reminded readers why they
should keep their cotton-pickin' paws off their nest eggs. When
living beyond your means is the problem, changing spending behavior
is the solution; not tapping home equity.
Getting out of debt is a slow, steady, one-day-at-a-time
process; there's no magic pill and no quick fix.
Getting out of debt
Your debt burden keeps growing because you spend more than you earn.
Here's how to turn the tide:
1. Swear
off debt: If the pull to use plastic is too strong to resist,
get help. Try Debtors
Anonymous, a 12-step program fashioned after Alcoholics Anonymous.
It encourages and supports abstinence from unsecured debt -- one
day at a time.
2. Stop burning
cash: Put yourself on an austerity program. For solid tips
on saving money, read the Diva's "Paying
down your credit cards: a 10-step plan."
3. Bring in
more money: Find a new job. Work overtime. Moonlight. Sell
stuff you don't need. Encourage kids to work. Take in a boarder.
4. Take your
head out of the sand: Have these financial facts at your
fingertips and update the data each month:
- Cash flow:
Know what came in vs. what went out each month.
- Net worth: Subtract
what you owe from what you own (home, car, investments, savings).
Compare the numbers with prior periods, and figure
out ways to improve them. Post the numbers on your refrigerator,
so you'll be reminded to think about them every day.
Consumer Credit Counseling
Services
If you've tried everything, but simply cannot get rid of the debt
by yourself, consider contacting Consumer Credit Counseling Services
(CCCS). This nonprofit organization offers counseling, education
and debt-management services to overzealous consumers who have more
debt than money.
For more on CCCS and what it does, read the Diva's
"What
to expect in credit counseling."
Bankruptcy
CCCS counseling is usually the last stop before filing for bankruptcy,
and it's voluntary. If you believe it will take more than one lifetime
to pay off your debts, you can go directly to bankruptcy court for
relief.
Expect this to change in 2002 when the pending Bankruptcy
Reform Bill is passed. Credit counseling will still be the last
stop before filing for Chapter 7 or 11 bankruptcy, but it will be
mandatory. You'll have to meet with a credit counselor before you're
able to tell your troubles to a judge.
-- Posted: Sept. 27, 2001
 DOROTHY
ROSEN has a master's degree in finance, with a specialization in
accounting, from the Kellogg Graduate School at Northwestern University
in Evanston, Ill. Rosen has more than 15 years of experience in
the financial arena, serving in Illinois and Florida as a certified
public accountant, financial consultant, expert witness and educator.
She is owner of Dorothy Rosen, CPA, a public accounting firm that
serves individuals and small businesses.
-- Posted: Sept. 27, 2001 |
