debt

Retired veteran wants to honor his debts

Steve BucciQuestionDear Debt Adviser,
I have credit card debt I want to pay off. My credit is not that great. I'm a retiree, and my own bank won't give me a loan to pay off this debt. Is there a personal loan program through the U.S. Department of Veterans Affairs that I can apply for so I can pay this off? I am having a hard time trying to make ends meet.
-- Richard

AnswerDear Richard,
Your self-description tells me a number of important things about you. You have debt. You have bad credit. You have yet to resolve either issue -- but you have retired, anyway. My initial assessment: I believe you have put off getting your financial house in order long enough. Let's get started.

To answer your VA question first, I am not aware of a VA loan product other than home loans. However, you could contact your regional benefits office. They can be found at va.gov. Speak with someone to find out what is offered. If you are a retired member of the Navy you could contact the Navy-Marine Corps Relief Society, a private, nonprofit charitable organization, and speak to a budget counselor. The counselor will review your monthly expenses with you and make recommendations for improving your monthly cash flow. You can find a location near you at nmcrs.org. The NMCRS offers interest-free loans or grants for emergency needs. I'm not sure if your situation would qualify as an emergency need, but you could contact them and determine what assistance is available to you.

Even though you are a retiree, you still need a spending plan based on goals. I suggest you give some serious thought to envisioning the next phases of your life. Describe to yourself what you want for the next year or two. Think about your goals for your life three to five years out. Then consider what you want your retirement to look like from five to 10 years from now.

This will be the basis for your goals. And these goals will serve as the catalyst for a real spending plan to get you there. When you do your spending plan, if you find that you can afford your basic living expenses, but not the payments on your credit card debt, your next stop might be a credit counselor. A nonprofit accredited credit counseling agency may be able to help you with a spending plan. The agency also may get you better repayment terms, including lower interest rates if your situation warrants it. They are usually free and can be accessed in person, over the phone or via the Internet. The websites for the National Foundation for Credit Counseling or The Association of Independent Consumer Credit Counseling Agencies are good places to start.

One thing to remember is that you are not paying off your debt if you end up with a new loan. You are simply shifting the debt to what you hope is a less expensive loan with smaller monthly payments. In contrast, a credit counseling agency's debt management plan is not a new loan. Rather, it's a restructuring of what debt you already have outstanding.

If you find after reviewing your budget with a professional counselor that you simply cannot afford to keep paying your credit card debt, you have a couple of options. First, decide if you have any means to increase your monthly income. If you are physically able and willing, you might consider a part-time job. Or if you own your home and have adequate equity, you might consider a home equity line of credit, called a HELOC, or a reverse mortgage. You can research the pros and cons of reverse mortgages on the website of the U.S. Department of Housing and Urban Development.

Second, you could contact a bankruptcy attorney and research your legal options. The attorney can educate you on the advantages and disadvantages of bankruptcy protection. I know you state you want to pay what you owe. But if you can't afford to make the payments and don't have the means to increase your income, you may not have any other choice than bankruptcy. Remember: Bankruptcy protection is there for a reason.

Finally, you need to be sure that your budget is sustainable and you are able to meet all of your other monthly obligations once you either pay off the credit card debt or file for bankruptcy. With your goal of handling your debt behind you, you can next focus on your other important goals, like enjoying your retirement.

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