Dear Debt Adviser,
I am a faithful reader of Bankrate and I trust your advice. I just don’t know where to begin. I am 40 years old and tired of living in debt. During my marriage, all of the bills were in my name –mortgage, utilities, loans, etc. It’s a mistake I won’t make again!
My parents purchased the home that I am living in after my divorce. I would like to purchase this house from my parents and do some other stuff. The previous house finally fell off my credit, but I have a lot of other debt. This debt was incurred because I lost my job, and I made poor decisions. How do I sort through everything? Where do I begin?
I have a college fund for my oldest child, and I have a baby for whom I would like to start a college fund. I get bonds taken out, and I save some in a Christmas Club (account), which I use for emergency money. I also put a little away in a retirement fund.
— Hopeless in Pa.
I would say you have more reasons to be hopeful than hopeless. You have your health, a caring family and a job. That’s three more reasons to get up in the morning than a lot of people have!
Plus, you are doing many things right financially; you just don’t know it. You are saving for emergencies, putting aside money for retirement and preparing for your oldest child’s education. In addition, you accepted help when you needed it from your parents and are working to improve your financial situation.
Feeling hopeless and overwhelmed by your debt obligations can come from not having a plan that will get your debts behind you by a certain date. It can also stem from what my colleague, financial psychologist Dr. Brad Klontz, calls “scripting.” His latest book, “Wired for Wealth” helps people examine their early beliefs around money and whether or not those beliefs are serving them well.
Klontz has found that you can have millions in the bank but not feel justified spending the money to get your teeth fixed. Or you may have no money in the bank but spend beyond your means using credit, and you don’t save anything. You seem to be somewhere in the middle but not happy about it. I suggest that you go to your local library (sorry, Brad) and check out a free copy of the book to see if it offers any insights.
If a debt management plan is what you need, here are the major parts I want you to include. First, account for all your income, not just your take-home pay. For example, are you overwithholding by having too much in tax taken from your paycheck? If you received a tax refund of more than $1,000, it’s likely. Next, make a list of all your expenses. Then, make a list of all your debts. Listing them and totaling them can make them less overwhelming.
If you want or need help to do this, you can get it for free. A reputable, accredited nonprofit credit repair company can help you organize your thoughts and come up with your best course of action, based on your income and how much you owe.
You don’t appear to need a workout plan, just what I call an action plan that has a beginning and an end. A counselor can help you review your budget, develop an action plan and give you all your options, including speaking to an attorney if that might be helpful. A good attorney can help with debt settlement or a bankruptcy, if your debt level and circumstances warrant such severe action.
Purchasing your home from your parents sounds like a great goal. However, I’d like to see you integrate it with your other goals and a get-out-of-debt plan before you go too far down that road.