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Steve Bucci, the Bankrate.com Debt AdviserDon't use future money for past debt

Dear Debt Adviser,
I was laid off from my job a year and a half ago. I got another job but it doesn't pay as much. My husband and I are not able to keep up with our debt now. We have talked with a counselor but unless my husband finds a part-time job, there is no help. Neither one of us is hardly able to work a second job as we are both in our late fifties. We have used some of our retirement money to try to keep up with our bills, and I have worked as much overtime at my job as I can. What is your advice?
-- Dianne

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Dear Dianne,
It's not a solution, but it might help to know that you are not alone. A recent AARP Bulletin poll revealed that 53 percent of workers age 40 and over, and 30 percent of retirees, see their current level of debt as a problem. Many of these folks are one layoff or unexpected large expense away from where you are today.

I want you to stop for a minute and consider what you have been doing. When you accumulated debt, you were, in effect, saying "I need money today, so I'll borrow it from tomorrow's earnings." When the money from "tomorrow's earnings" failed to materialize, you made the same mistake again, this time with your retirement future. My first bit of advice is to stop using money earmarked for a future purpose to settle past expenses. You are going to need it later. Secondly, if you haven't stopped charging, stop now.

From a practical standpoint, working overtime as long as it is available is smart. If you qualify for time and a half, that will help even more. If earning extra income proves to be too difficult, I suggest you generate some cash by cutting expenses.

For most of us, the bulk of our monthly expenses is for shelter and transportation. At your ages, you and your husband might consider downsizing your home. If you are a homeowner, then you could use a portion of the proceeds of the sale of your current home to pay off your debt.

Transportation is the next area where you might be able to cut back. If you own two vehicles, consider downsizing or selling one. Savings on insurance, gas and a possible loan payment could add hundreds of dollars per month to be used for debt payments. Getting from point A to point B does not require a new vehicle or one with the most comfortable ride.

Another thing you said leads me to suggest an additional type of solution for you: A little over a year ago my dad passed away at 86. Sitting behind me at the wake were a row of 90-plus-year-old guys he used to work out with who just kept saying that he was so young. Diane, if your age is the reason you feel you, or your husband, are not able to work a second job, then there might be more here than meets the eye. Debt can be a depressing prospect, and it is a short step from there to helplessness and hopelessness. This can drain the energy out of an Energizer Bunny if you're not aware of it.

I am in your age bracket, and I know I feel the best when I am active and have something to look forward to. I'd suggest a second round of credit counseling with a traditional credit counselor. Tell the credit counselor you want a budgeting session and ask for someone skilled in that area. 

If none of the above recommendations work, you may consider contacting a bankruptcy attorney. I would use this as a last solution because I think you have something systemically wrong with your finances and a bankruptcy might only resolve a symptom, not the cause.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of "Credit Repair Kit for Dummies." Visit MMI for additional debt advice, or to ask a question of the Debt Adviser go to the "Ask the Experts" and select "debt" as the topic.

Bankrate.com's corrections policy -- Posted: Sept. 8, 2006
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