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Deeply in love and deep in debt
Dear Debt Adviser:
I am seriously in debt from an outstanding car
loan, credit card (not bad), student loans and a few other small
amounts. The total amount is high due to my student loan (about
$25,000). I cannot get a credit card unless at a very high rate
and my car loan is through a family member's name. I am about to
get married in four months and my soon-to-be wife has outstanding
credit. Would it be advisable for me to file for bankruptcy before
I get married or ride out the storm for a few years into my marriage?
Thank you for your advice!
Tony
Dear Tony:
Whoa, Tony! Slow down a bit.
Bankruptcy is the place you end at, not where you
begin. Let's take this one step at a time.
Because you are getting married soon, you and your
fiancee should sit down together and have a serious talk about your
finances.
Money is one of the top five things about which married
couples fight. Start off your marriage communicating honestly about
what each of your attitudes is about money. You may be a spender,
she a saver. Discuss financial influences, opinions and beliefs
regarding money. The time you spend talking about this now will
save you huge amounts of time arguing about it later.
In addition, as you are the one bringing debt into
the marriage, you need to know how much you owe and have a plan
about how you will pay it off. Make paying off your debt one of
your first financial goals.
Begin by creating a spending plan. Write down your
monthly expenses including: rent or mortgage; car payment; utilities;
student loan payment; credit card payments; food; gas; and all other
expenses (including your upcoming wedding). Once you know how much
you spend each month, compare that figure to your income for the
month. If your expenses are more than your income, you need to cut
spending.
Include in your plan a way to reduce your debt load
as quickly as possible. This may mean giving up some extras now,
but you will benefit in the long run by paying off your debts faster
and paying less in interest charges. Another thing to consider is
that with today's low interest rates, you may be able to consolidate
your student loans, effectively refinancing them at rock-bottom
rates.
It goes without saying, but I'm going to say it anyway:
Do not buy anything else on your credit cards. Your goal is to pay
down your debt, and you cannot do that very effectively if you are
continuing to add to your balances.
Consider bankruptcy only after exhausting all other
alternatives. Your situation sounds like it would be a better idea
to face the situation and pay off those debts. Normally, student
loans do not discharge in a bankruptcy and the amount outstanding
on the car loan will still be there. It sounds like too little gain
for the pain involved in a bankruptcy. A chapter 7 filing will be
on your record for 10 years and will also affect your ability to
get insurance, security clearances, jobs, promotions and access
credit at market rates for a long time.
One thing that may help during this time of tightening
your belt and paying off debt is to get together with your fiancee
and write down your long-term financial goals. These may include
planning for a new home, starting a family, going on vacation, building
an emergency savings fund or saving for retirement. Knowing that
you will be able to reach these goals after you have gotten yourselves
out of debt will make it easier to sacrifice to make those payments
now.
Continue to use your spending plan after you have
paid down your debt. Plan for major purchases and try to avoid spending
future earnings on consumable purchases.
Congratulations on your upcoming wedding!
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
-- Updated: Jan. 13, 2004
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