Dear Debt Adviser,
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I could really use your help. I'm 50, I was recently divorced, and I walked away with nothing. It's my fault, I did not plan accordingly. It gets worse: I lost my job, so I've been out of work for six months and living on credit. My credit score was once 780. Now, I'm afraid to look. I owe $25,000 from my credit cards and another $20,000 for my son's student loans. I also have a car payment. I'm in serious delinquency and have been dealing with the possibility of repossession, creditor calls, etc. I really feel my life is ruined. The good news is I will be starting a job Monday. So here's my question: Should I file for bankruptcy, proceed with debt settlement or find another debt program?
Dear Mike, My first piece of advice is not to look back or ruminate on things you can't change. You'll be much better off focusing on your finances so you can enjoy your next 50 years.
You've already fixed one of your biggest problems: You've secured a job. Using credit to keep your head above water while you are looking can be a smart strategy provided you keep your minimum payments up to date while you are job hunting. This can protect your cash reserves while keeping your credit report clean during the job application process. It sounds like you ran out of credit before you got your new job. You have the job now, so let's get you fiscally fit again!
Hopefully your new job gives you the financial means to make some progress on your bills. And don't worry about getting credit again. You should be well on your way to improving your situation and becoming creditworthy in about two to three years. Remember, your credit report is a snapshot of your current financial life. Once you begin to improve your credit report, your credit score will follow.
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I want you to start with a plan -- a comprehensive, customized, flexible plan. First, determine your fixed living expenses. Next, figure out what you need to pay to save your car from repossession. Then, find out what you need to pay to satisfy your other creditors.
To help you decide the best course of action, I recommend you contact a nonprofit credit counseling agency that's affiliated with either the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Your certified credit counselor will help you review your expenses, income and assets. After you have completed a thorough financial review, your counselor will make recommendations on how to proceed.
As long as you have enough income to pay what you owe, I wouldn't file for bankruptcy. It probably won't make the student loans go away. Settlements may work instead. But if you decide to go this route, do it yourself and be sure to get all settlement agreements in writing before you send your payment(s).
At 50, it is time to begin saving aggressively. My recommendation is to keep just enough money in your checking account to handle your living expenses. Then, use direct deposits to funnel all the rest of your income into savings and investment accounts. Roll your retirement funds into an IRA and begin looking at moderate to conservative investment strategies. Chances are it won't be the great investments you pick that will determine your retirement future, but the losers you avoid!
Copyright 2013, Bankrate Inc.