Dear Debt Adviser,
My roommate relocated to Washington, D.C., from South Carolina about 20 months ago. Prior to leaving South Carolina, he got laid off from his job. He collected unemployment benefits for a while, but eventually they ran out. To survive, he took out not one, but two payday loans. With no income, he ended up defaulting on these loans.

When he relocated to this area, he immediately got a job with the intention of straightening out all of this. After being on the job about two months the results of his background check came back and the loan defaults showed up, and he was let go. I feel as though he is in a Catch-22 situation. He has a two-bit job now that he hates, but they don’t do background checks. How can he go about clearing this up so he can get more gainful employment? Thanks in advance for your help.
— Yvette

Dear Yvette,
When I was a fraternity pledge at Lambda Chi a number of years ago and I broke a rule, they would tell me, “If you want to play, you have to pay.” This usually involved push-ups or cleaning someone’s revolting room. I never liked that admonition. But it seems to hold true in your friend’s case. He doesn’t need to do any push-ups, but he does need to understand that he is responsible for his actions and that there is a price to be paid for foolishness and breaking his promise.

The first thing your roommate needs to do is pay what he owes on both payday loans. He has a job, albeit not one he would prefer, so he needs to make good on those debts using his current income. Paying the debts will not remove the default from his credit report. But I don’t think that was the major issue in the first place.

Everyone makes mistakes. What matters is that your friend tells prospective employers that he is paying, or has paid, for his mistake and has learned from the process. In my book, “Credit Repair Kit for Dummies,” I explain that credit is often checked as part of the employment process. When he applies for employment in the future, he should find out if they check credit reports as part of the hiring process. Usually it says so right on the employment application. Employers need permission to check your report, so they have to ask somehow. He should have a thought-out and short explanation ready to explain his situation and assure the potential employer that he has learned from the mistake. He should pledge to them that it won’t be a problem going forward and tell them how he will prevent the same from happening in the future.

Speaking of prevention, I urge your friend, you and my readers to put aside money in an emergency savings account. In this tight credit and job market, you do not want to be put into the position of relying on credit, specifically high-priced credit like payday loans, if you lose your job or have any other unexpected large expense. Start saving now, even if you believe you can’t afford it. Cut back somewhere and save something, no matter how small. Put half of your tax refund, pay increases or bonuses into savings as well until you have accumulated six months of living expenses.

Because the job market is so tough right now, your roommate may have to stay in his less-than-desirable job for longer then he would like. While he’s waiting, he needs to pay all credit obligations on time and as agreed. As he found out, his credit report is an important job-hunting tool. And whatever he does, he needs to say no to payday loans. Finally, if he gets frustrated with his situation and the injustice in all this, maybe those push-ups will help relieve his stress after all.

Good luck!

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