Advice Needed regarding debt - Update - see below

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Meme
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Joined: Tue Jan 09, 2018 2:59 pm

Advice Needed regarding debt - Update - see below

Post by Meme » Fri May 22, 2020 6:37 pm

I hope the members can provide some advice regarding my niece’s debt.

She makes about $31,000 a year and is 33 years old.

Her debts are as follows:

Credit card 1 = 11508
Credit Card 2 = 1300 - in collections
Credit Card 3 = 7368 - in collections

Roommate has judgement - 2900

Car Loan - 11,370 - current on payments

Old Car Loan - 2900 - in collections

Student Loans

#1 - 5051 in collections
#2 - 61,000 - deferred
#3 - 10,000 unk status

She lives in North Carolina and today we contacted NFCC.org for credit counseling. Today we focused on credit card debt. They can consolidate those loans and she would pay 352 a month for 5 years. And those cards would be paid off in full.

We will discuss student loans with them on Tuesday.

To make this work, we would as a family pay off her car loan (11,370) to free up the current 240 car payment.

The old car loan and student loan in collections were contacted today and they offered a settlement, a 1000 discount for each loan if paid in full within 60 days.

We would as a family need to address those loans but not sure if we want her credit report to show a settled amount vs. paid in full.

So we have a couple of questions.

Should we explore bankruptcy for the credit cards? I understand that will be on her credit report for 7 years but I think the accounts with a settled amount will also show up for 7 years.

I understand the student loans would not be discharged in bankruptcy.

I’m at a loss on how to help her. She has made many poor decisions and it all came to a head this week when her mom, my sister, died earlier this week from cancer.

Thank you for your help. I have no experience with this type of situation and want to point her in the right direction.



I wanted to update you on how my niece will move forward with her debt. She did share information with her dad regarding her accounts in collection and she agreed to pick up a side hustle. With the exception of her rent, utilities and debt payment, she will use cash envelope system to pay her expenses.

She started the side gig on Wednesday (instacart) and I have offered to match her earnings up to $150 a month. Her goal is to cover her car loan and I want to support her in this goal.

Between her dad and her mom’s estate, there will be enough money to cover the loans in collection and she will qualify for the debt management program for her large credit card balance.

The student loans will be addressed in the future. The debt management program will help her with that and agree that she needs to take small steps in order to succeed.

My sister provided a tremendous amount of support to her and my BIL was not fully aware of the extent of the problems. He has been very supportive because he can see how shattered she is by the loss of her mom.

I am cautiously optimistic that she will succeed and I thank you all for your advice.

And finally, the hospice program which cared for my sister is wonderful, they have arranged grief counseling for my niece and that will begin next week.
Last edited by Meme on Fri Jun 05, 2020 3:42 pm, edited 1 time in total.

tbone555
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Re: Advice Needed regarding debt

Post by tbone555 » Fri May 22, 2020 7:08 pm

Meme wrote:
Fri May 22, 2020 6:37 pm
I hope the members can provide some advice regarding my niece’s debt.

She makes about $31,000 a year and is 33 years old.

Her debts are as follows:

Credit card 1 = 11508
Credit Card 2 = 1300 - in collections
Credit Card 3 = 7368 - in collections

Roommate has judgement - 2900

Car Loan - 11,370 - current on payments

Old Car Loan - 2900 - in collections

Student Loans

#1 - 5051 in collections
#2 - 61,000 - deferred
#3 - 10,000 unk status

She lives in North Carolina and today we contacted NFCC.org for credit counseling. Today we focused on credit card debt. They can consolidate those loans and she would pay 352 a month for 5 years. And those cards would be paid off in full.

We will discuss student loans with them on Tuesday.

To make this work, we would as a family pay off her car loan (11,370) to free up the current 240 car payment.

The old car loan and student loan in collections were contacted today and they offered a settlement, a 1000 discount for each loan if paid in full within 60 days.

We would as a family need to address those loans but not sure if we want her credit report to show a settled amount vs. paid in full.

So we have a couple of questions.

Should we explore bankruptcy for the credit cards? I understand that will be on her credit report for 7 years but I think the accounts with a settled amount will also show up for 7 years.

I understand the student loans would not be discharged in bankruptcy.

I’m at a loss on how to help her. She has made many poor decisions and it all came to a head this week when her mom, my sister, died earlier this week from cancer.

Thank you for your help. I have no experience with this type of situation and want to point her in the right direction.
I am so sorry for your loss and commend you for trying to help your niece.

Has your niece expressed a willingness to change her behaviours? I worry that you will help her and she will be right back in financial trouble in a couple of years. Will helping her out our your financial future at risk?

tashnewbie
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Re: Advice Needed regarding debt

Post by tashnewbie » Fri May 22, 2020 7:16 pm

Sorry for your loss.

I agree with above poster - does your niece recognize that she has to make changes in her financial behaviors? If she’s not willing to change, nothing you all do to help her will last and she’ll put herself back in a similar situation.

What did she go to school for? Is she working in the field she got a degree in?

Topic Author
Meme
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Re: Advice Needed regarding debt

Post by Meme » Fri May 22, 2020 7:31 pm

Thank you for your replies.

She has been reluctant to share the extent of her issues and over the past 3 months we have been learning the extent of the problem.

This past weekend she was going to share the information regarding the accounts in collection but recognized that my sister was too sick to discuss the problems with her. On Wednesday we learned about most of the debt.

Her degree is a liberal arts degree, she is working in a medical office as an office manager.

I can’t believe we are considering bankruptcy but I’m not sure what else to do.

She has been listening to Dave Ramsey for the past 2 months. We are strongly suggesting a second job and she has 1 credit card with a very low limit, under $1000 and in view of her poor credit score, I don’t think she will get any other cards.

While we recognize that she is an adult, she has made poor decisions and we are in the mindset to trust but verify her future decisions. She has given us access to her credit profile and to the credit counselor she spoke with today.

Thanks again for your advice.

finite_difference
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Re: Advice Needed regarding debt

Post by finite_difference » Fri May 22, 2020 7:33 pm

I think it’s really tough if you’re earning $31k/yr. Can you help her get on a career path? (If she’s just starting out then that salary may make sense at the beginning of a career path.)
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: Advice Needed regarding debt

Post by Vanguard Fan 1367 » Fri May 22, 2020 7:45 pm

I also am sorry for your loss. The student loan thing challenges several people that I know.

I hope that your niece will learn from this and do better in the future. I am glad she listens to Dave Ramsey.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

tashnewbie
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Re: Advice Needed regarding debt

Post by tashnewbie » Fri May 22, 2020 7:48 pm

finite_difference wrote:
Fri May 22, 2020 7:33 pm
I think it’s really tough if you’re earning $31k/yr. Can you help her get on a career path? (If she’s just starting out then that salary may make sense at the beginning of a career path.)
Yeah, even with a general liberal arts degree, assuming she has at least 10 years of post-college work experience, I’d think she should be at least in the $40k range. I was an administrative assistant in NC for a few years after college and understand those positions don’t have huge salaries. Hopefully Dave Ramsey will at least get her to understand the importance of not over-leveraging yourself, living below your means, and saving the surplus.

Bankruptcy might be her best or only option. She’s still got to get a plan for the student loans though. Will she inherit anything from her mother?

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arcticpineapplecorp.
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Re: Advice Needed regarding debt

Post by arcticpineapplecorp. » Fri May 22, 2020 8:06 pm

I'd say for the most part let the credit counselor do the heavy lifting. That's what they're getting paid for. Let them consolidate. See if they can help regarding the debt in collections/how to settle, etc. See if they can clean up her credit. See if they think it's time to claim bankruptcy.

Regarding the student loans, has she looked into REPAYE (an income driven repayment plan)? Depending on the type of loans she took, she may get affordable monthly payments and be considered current. whatever is left on the loan after 20 years is discharged. But that amount written off, would be counted as taxable income to her in the year the debt remaining is cancelled. The link below explains the program and what types of loans are covered (and there are other income contingent programs as well if she doesn't qualify for REPAYE for some reason).

https://studentaid.gov/manage-loans/rep ... ome-driven

Here's an example. If they use 150% FPIG that's $19,140 (annual). Anything above that is considered discretionary. So if she makes $33,000 and $19,140 is the poverty level, the rest $13,860 is countable. Here's the good news. REPAYE requires 10% of discretionary income as repayment. What's that? $1386. A year. Yes, she'd only be required to pay $115.50 a month on the loans that qualify under the REPAYE program (for 20 years, but is subject to annual review to determine if the payments would increase/decrease with changes in income).

Obviously she will not get those student loans paid off in 20 years paying only $115.50 a month. The amount unpaid that's written off would be considered taxable income at that time. A lot can change in 20 years. Her situation can improve. And if it doesn't? Worst case scenario, have her attempt a structured settlement with the IRS for the taxes owed on the student debt forgiven.

The alternative is not pretty. It's default. And the thing is, if she defaults, they will garnish her social security later in life.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

sd323232
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Re: Advice Needed regarding debt

Post by sd323232 » Fri May 22, 2020 8:21 pm

Meme wrote:
Fri May 22, 2020 7:31 pm
Thank you for your replies.

She has been reluctant to share the extent of her issues and over the past 3 months we have been learning the extent of the problem.

This past weekend she was going to share the information regarding the accounts in collection but recognized that my sister was too sick to discuss the problems with her. On Wednesday we learned about most of the debt.

Her degree is a liberal arts degree, she is working in a medical office as an office manager.

I can’t believe we are considering bankruptcy but I’m not sure what else to do.

She has been listening to Dave Ramsey for the past 2 months. We are strongly suggesting a second job and she has 1 credit card with a very low limit, under $1000 and in view of her poor credit score, I don’t think she will get any other cards.

While we recognize that she is an adult, she has made poor decisions and we are in the mindset to trust but verify her future decisions. She has given us access to her credit profile and to the credit counselor she spoke with today.

Thanks again for your advice.
She has been reluctant.... Thats your answer. Please dont force it on her change. People need to make decision for themselves. If you are gonna force her to change and become boglehead, its just not gonna work. They dont see finances the way we do. What may look like so obvious to u, make not be the way she sees it. Thats why my advice here, stay out of this situation, there is nothing you can do.

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arcticpineapplecorp.
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Re: Advice Needed regarding debt

Post by arcticpineapplecorp. » Fri May 22, 2020 8:36 pm

be careful paying her car loan. Not saying not to do it. But if it frees up $240 a month for her to throw towards the credit cards, can you guarntee she'll actually do that and not increase her spending by $240 a month? If you can't trust her 100% then if you make this agreement, you have to have her pay the $240 she would have paid toward the car loan TO YOU. Then you can take that and pay her credit card.

Or just put $240 towards her credit card and have her keep paying the car loan. 6 of one, half dozen of the other.

Also it's not your bankruptcy, it's her's ("I can't believe we're considering bankruptcy"). Make sure you remember she made her bed.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

WolfgangPauli
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Re: Advice Needed regarding debt

Post by WolfgangPauli » Fri May 22, 2020 8:42 pm

Meme wrote:
Fri May 22, 2020 6:37 pm
I hope the members can provide some advice regarding my niece’s debt.

She makes about $31,000 a year and is 33 years old.

Her debts are as follows:

Credit card 1 = 11508
Credit Card 2 = 1300 - in collections
Credit Card 3 = 7368 - in collections

Roommate has judgement - 2900

Car Loan - 11,370 - current on payments

Old Car Loan - 2900 - in collections

Student Loans

#1 - 5051 in collections
#2 - 61,000 - deferred
#3 - 10,000 unk status

She lives in North Carolina and today we contacted NFCC.org for credit counseling. Today we focused on credit card debt. They can consolidate those loans and she would pay 352 a month for 5 years. And those cards would be paid off in full.

We will discuss student loans with them on Tuesday.

To make this work, we would as a family pay off her car loan (11,370) to free up the current 240 car payment.

The old car loan and student loan in collections were contacted today and they offered a settlement, a 1000 discount for each loan if paid in full within 60 days.

We would as a family need to address those loans but not sure if we want her credit report to show a settled amount vs. paid in full.

So we have a couple of questions.

Should we explore bankruptcy for the credit cards? I understand that will be on her credit report for 7 years but I think the accounts with a settled amount will also show up for 7 years.

I understand the student loans would not be discharged in bankruptcy.

I’m at a loss on how to help her. She has made many poor decisions and it all came to a head this week when her mom, my sister, died earlier this week from cancer.

Thank you for your help. I have no experience with this type of situation and want to point her in the right direction.
I am very sorry for your loss. Honestly, this is why bankruptcy exists. Unless she is able to dramatically increase her income (Highly unlikely to the level needed) she will never get out of this and she will be constantly working just to pay off previous poor decisions.

I highly recommend you walk her through bankruptcy and start over. Hopefully she has learned.
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com

Topic Author
Meme
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Joined: Tue Jan 09, 2018 2:59 pm

Re: Advice Needed regarding debt

Post by Meme » Fri May 22, 2020 9:33 pm

Thanks for all the input.

I will look into the student loan repayment program.

Bankruptcy may be the option, when it was suggested to her, she stated she wanted to pay her bills. Commendable but not realistic.

Bankruptcy will be on her credit for 7 years and if we “settle” the small student loan, that will also show up on her credit for 7 years. Does it make sense to coordinate these actions together so the 7 year time period coincides with each - bankruptcy and settlement?

If she did file bankruptcy, what would happen to the car? Would it be repossessed or should that loan be paid off before she files for bankruptcy?

Regarding her mom’s estate, I believe she will receive $15,000. And we could use that money to pay off car loan.

In the past, both her mom and dad have helped her but with a scattershot approach, they never had a real clear idea of the extent of the problem. Again, the cancer issue was the overwhelming priority in their home.

My sister had stage 4 cancer for over 9 years, the disease took a toll on her entire family but my niece has had a very hard time and turned to mindless spending to deal with her reality. I’m hopeful that she can change and my family wants to support her and give her options to deal with this mess.

Can I guarantee that she has learned from this? I can’t, but I want to give her the opportunity to get on the right track.

Thanks again for your thoughtful suggestions.

magicrat
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Re: Advice Needed regarding debt

Post by magicrat » Fri May 22, 2020 9:47 pm

Meme wrote:
Fri May 22, 2020 7:31 pm
we are in the mindset to trust but verify her future decisions.
Who exactly is we? Has your niece asked you to trust but verify her future decisions? If not, you are way out of bounds.

aristotelian
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Re: Advice Needed regarding debt

Post by aristotelian » Fri May 22, 2020 9:50 pm

Can she add a side job while looking for a higher paying full time job? Delivering for Amazon or one of the grocery delivery services? Bagging groceries? Child care/tutoring? Anything to add some income. The more she can take responsibility herself the better. At that income level, she can only cut costs so much. She will make a lot more progress with more income coming in.

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cchrissyy
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Re: Advice Needed regarding debt

Post by cchrissyy » Fri May 22, 2020 11:18 pm

Im sorry for your lost and this extra worry.

I don't think bankruptcy fits this situation.
It won't help the student loans and it won't get rid of the car loan assuming she's keeping the car.

It only would help the credit cards and they're not worth it. She can pay them off with a plan from the credit counseling people.

tashnewbie
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Re: Advice Needed regarding debt

Post by tashnewbie » Sat May 23, 2020 12:33 pm

As I read through the thread and others’ comments, I think there is a lot of hope for your niece’s situation, *IF* she is willing to make major behavioral changes.

Bankruptcy may not be advisable or inevitable. As one comment above said, it’d really only give her relief on the CCs. If she filed for bankruptcy, the company that holds the car note would probably seek relief from the bankruptcy automatic stay to repossess the car, and the court would probably grant it. So if she wants to keep the car, it’ll need to be paid off or at least brought current, before she files for bankruptcy.

I think if she can get her CCs on a payment plan with the assistance of the credit counselor, get on an income-based student loan repayment plan, and use the amount she’ll inherit to pay off the car, she should be able to cover her regular expenses and her debt with her current income. If I were her, I’d at least investigate these options first and see if I could afford the debt repayment amount. If not, then bankruptcy or increasing income are the only options.

I do think she should also be focusing on increasing her income regardless, either through her main job or adding side hustles, to give her more flexibility to save and do other things. What part of NC does she live in? If she’s in RTP, Charlotte or even Greensboro, I’d think she should be making more than $31k as an office manager of a medical practice. In 2010, after 4 years, I was making $45k as an admin assistant in Chapel Hill, and I don’t think I was all that special (but my boss may have been generous). I think she can definitely make more doing the same kind of work she’s currently doing, especially if she’s not tied to a particular area. Good luck to her and your family!

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Nate79
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Re: Advice Needed regarding debt

Post by Nate79 » Sat May 23, 2020 12:43 pm

Dave Ramsey. She should keep listening to him but after 2 months she should know how to do this. No, bankrupcy will not help her situation.

codfish
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Re: Advice Needed regarding debt

Post by codfish » Sat May 23, 2020 8:25 pm

This is really a difficult situation, and she is in a very scary situation. This will be extremely hard to get out from under, regardless of the path taken.

Nobody has suggested selling the car and buying a $2,000 car with cash, but that’s what Dave Ramsey would recommend. She will need to make some uncomfortable lifestyle changes to get out of this, including ridding herself of a car she can not afford.

I’d also recommend she cut up the one credit card she still has. She can not continue to drive herself into more debt.

Continue having her listen to Dave Ramsey, and have her read a book or two on getting out of debt. Best of luck.

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Re: Advice Needed regarding debt

Post by Vanguard Fan 1367 » Sat May 23, 2020 10:05 pm

Dave also recommends beans and rice and rice and beans.

My parents grew up during the depression and taught us kids how to live on a tight budget. That can help when tight money happens!
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

DonIce
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Re: Advice Needed regarding debt

Post by DonIce » Sat May 23, 2020 10:23 pm

Seems like a person that can't handle budgeting/finances and especially not credit cards. Unless there are extenuating circumstances we don't know about. Like perhaps she put her life on hold and maxed out her loans to help her mom near the end or something?

Anyway, as others have said, if this is just a garden variety case of someone not knowing how to control their finances, you won't be able to help unless she have specifically come to you, asking not just for money/help, but specifically asking for your intervention/control in her financial life. Because that seems to be what you are talking about, and if it hasn't been specifically asked for, you don't have the right or power to do it. And if you try anyway it will only put your relationship with this person into the same state as her finances...

Also, forget about worrying about her credit report. The worse her credit score is, the better, it means she'll be able to access less debt later. And with all those collections the credit score is garbage already so may as well just do bankruptcy if it gets some of the loans discharged.

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btq96r
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Re: Advice Needed regarding debt

Post by btq96r » Sat May 23, 2020 10:55 pm

codfish wrote:
Sat May 23, 2020 8:25 pm
Nobody has suggested selling the car and buying a $2,000 car with cash, but that’s what Dave Ramsey would recommend. She will need to make some uncomfortable lifestyle changes to get out of this, including ridding herself of a car she can not afford.
This is the cold hard truth about getting out of debt...it takes self-sacrifice. If she's not willing to make some drastic lifestyle changes, it's not going to work. The pattern will repeat until she finds herself nearing retirement age with nothing to keep her sustained except Social Security. She front loaded a level comfort in her 20s by financing it via debt, and I'm sure the cancer battle your sister went through was a contributing factor...but now it's time to pay the piper.

Dispute the debts in collections with the credit bureaus and see if they have their paperwork in order. It doesn't add to the debts, and could wipe some out. For the ones that are validated, keep reengaging the reduced offers to pay off until they're offering pennies on the dollar. Tell them how bad off she is, and they'll get the message they have little choice if they want a dime.

She needs a 2nd job. Medical offices are daytime hours, so she could be waiting tables or making pizzas a few nights a week and on weekends. Every cent that 2nd job brings in should go to paying off debts.

The car suggestion codfish made is solid. She needs something dependable with four wheels that doesn't let in rain. Everything else after that is a luxury, and luxuries are not for her until this is fixed.

Vacations, nope. Dining out, nope. Homemade dinner options...chicken thighs and pork instead of chicken breasts and steak. Rice, beans, and all the cheap options that still provide nutrients. Lunches are leftovers from the dinners, and breakfast should be just as draconian. Tell her to learn to love spices and seasonings...they'll help the flavor profile.

Does she have any kids herself? This is going to sound crass, but motherhood is not something she's financially ready for if there isn't already a kid in the picture.

You're doing the right thing by the memory of your sister. This girl is family, and as long as she's willing to accept responsibility for climbing out of the hole she dug, you should support her and motivate her. I'd hold off on the financial support until she's demonstrated a record of commitment to getting her financial life in order, and even then phase it in.
Moderation is for Canadians.

dgnative
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Re: Advice Needed regarding debt

Post by dgnative » Sun May 24, 2020 7:08 am

simply said

If you __Have_ to pay for it with a _Credit Card_ you _Can not afford it.

Was in a similar but not as bad position.

makingmistakes
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Re: Advice Needed regarding debt

Post by makingmistakes » Sun May 24, 2020 7:23 am

sd323232 wrote:
Fri May 22, 2020 8:21 pm
Meme wrote:
Fri May 22, 2020 7:31 pm
Thank you for your replies.

She has been reluctant to share the extent of her issues and over the past 3 months we have been learning the extent of the problem.

This past weekend she was going to share the information regarding the accounts in collection but recognized that my sister was too sick to discuss the problems with her. On Wednesday we learned about most of the debt.

Her degree is a liberal arts degree, she is working in a medical office as an office manager.

I can’t believe we are considering bankruptcy but I’m not sure what else to do.

She has been listening to Dave Ramsey for the past 2 months. We are strongly suggesting a second job and she has 1 credit card with a very low limit, under $1000 and in view of her poor credit score, I don’t think she will get any other cards.

While we recognize that she is an adult, she has made poor decisions and we are in the mindset to trust but verify her future decisions. She has given us access to her credit profile and to the credit counselor she spoke with today.

Thanks again for your advice.
She has been reluctant.... Thats your answer. Please dont force it on her change. People need to make decision for themselves. If you are gonna force her to change and become boglehead, its just not gonna work. They dont see finances the way we do. What may look like so obvious to u, make not be the way she sees it. Thats why my advice here, stay out of this situation, there is nothing you can do.
Totally disagree. While you shouldn’t enable continued poor decisions, you should be commended for trying to help her. Most of that help should be in the form of educating her and encouraging her.

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Nate79
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Re: Advice Needed regarding debt

Post by Nate79 » Sun May 24, 2020 7:25 am

It's really sad to see someone who spent $76k+ on an education to make $31k. Is there anything she can do to increase her income?

tashnewbie
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Re: Advice Needed regarding debt

Post by tashnewbie » Sun May 24, 2020 8:52 am

Nate79 wrote:
Sun May 24, 2020 7:25 am
It's really sad to see someone who spent $76k+ on an education to make $31k. Is there anything she can do to increase her income?
It is indeed. She needs to find some new opportunities, even if it requires moving (as long as it makes sense based on COL in each area).

delamer
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Re: Advice Needed regarding debt

Post by delamer » Sun May 24, 2020 9:32 am

Your niece and the rest of your family have been through a lot over the last 9 years. I am sorry about your sister.

In light of that, it is very generous of you all to pay off the loan for her current car. But honestly, I’d leave the rest of the decisions to her and the credit counselors. Except that I’d probably insist that she pay back her roommate as a tradeoff for the car help; it is just ethically wrong to stiff someone in your personal circle. But, overall, it is time for her to deal with these matters as the adult she is.

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Thrifty Femme
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Re: Advice Needed regarding debt

Post by Thrifty Femme » Sun May 24, 2020 9:37 am

I'm sorry for your loss. Consider mentioning this website to your niece, so that she can take the initiative herself. Good luck.

sd323232
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Re: Advice Needed regarding debt

Post by sd323232 » Sun May 24, 2020 10:43 am

makingmistakes wrote:
Sun May 24, 2020 7:23 am
sd323232 wrote:
Fri May 22, 2020 8:21 pm
Meme wrote:
Fri May 22, 2020 7:31 pm
Thank you for your replies.

She has been reluctant to share the extent of her issues and over the past 3 months we have been learning the extent of the problem.

This past weekend she was going to share the information regarding the accounts in collection but recognized that my sister was too sick to discuss the problems with her. On Wednesday we learned about most of the debt.

Her degree is a liberal arts degree, she is working in a medical office as an office manager.

I can’t believe we are considering bankruptcy but I’m not sure what else to do.

She has been listening to Dave Ramsey for the past 2 months. We are strongly suggesting a second job and she has 1 credit card with a very low limit, under $1000 and in view of her poor credit score, I don’t think she will get any other cards.

While we recognize that she is an adult, she has made poor decisions and we are in the mindset to trust but verify her future decisions. She has given us access to her credit profile and to the credit counselor she spoke with today.

Thanks again for your advice.
She has been reluctant.... Thats your answer. Please dont force it on her change. People need to make decision for themselves. If you are gonna force her to change and become boglehead, its just not gonna work. They dont see finances the way we do. What may look like so obvious to u, make not be the way she sees it. Thats why my advice here, stay out of this situation, there is nothing you can do.
Totally disagree. While you shouldn’t enable continued poor decisions, you should be commended for trying to help her. Most of that help should be in the form of educating her and encouraging her.
You cant enforce help. You cant force someone to do want you want them to do even if its for their own good. Thats why drug/alcohol rehabs are voluntary, you cant force an addict to go into rehab.

BarbBrooklyn
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Re: Advice Needed regarding debt

Post by BarbBrooklyn » Sun May 24, 2020 10:54 am

At the risk of venturing into the non-financial realm of things, I am also wondering why she has such a low paying job.

Is this low level clinical depression? The need to have a job that was extremely flexible because of her mom's illness?

Perceived need to stay close to home?

I'm thinking about a friend who has had stage 4 cancer for several years; her adult child has also had cancer as a child; this young person graduated from a liberal arts school and is making high 5 figures currently and starting law school next year.

Perception (and parental permission to spread your wings) is everything.

Your niece certainly needs financial guidance but she also needs to find out why she doesn't value herself. Therapy is an investment.

Many years ago, when I perceived myself as a person who only deserved to make just above minimum wage despite an Ivy League education, a mental health professional asked me what my strengths were. "A great memory and the ability to solve problems", I replied.

She said to me "someone is going to pay you a lot of money for those skills; you need to find out how" And I did.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

BogleTaxPro
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Re: Advice Needed regarding debt

Post by BogleTaxPro » Sun May 24, 2020 11:22 am

Even though you didn't ask this, I think it's worth documenting as you'll probably have another shock next year...and so will a lot of other people. Sigh.

For any debts that are forgiven or settled, your niece may receive a form 1099-C from the lender next year. This is Cancellation of Debt Income. Yes, the IRS considers the amount of debt that you didn't pay as income. But don't panic! There is an exclusion if you were insolvent (that is, debts greater than assets) at the time the debt was forgiven/settled...and it sounds like this may apply in this case. How do you prove this to the IRS? You'll fill out an insolvency worksheet (see https://www.irs.gov/pub/irs-pdf/p4681.pdf) to document the value of your assets and debts at the time of debt forgiveness, but you'll keep that worksheet in your files. You'll then file a form 982 with your return (https://www.irs.gov/pub/irs-pdf/f982.pdf) to request the exclusion.

This is not a simple tax topic (it's actually taught in our intermediate classes), so you may want to consult a tax professional for that return if you do get any 1099-C's (and you may not).

Please note that this advice is for Federal tax purposes. Your state may or may not treat the cancellation of debt in the same way. I practice in the state of California and we do conform to this.

FrankTheViking
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Re: Advice Needed regarding debt

Post by FrankTheViking » Sun May 24, 2020 11:29 am

Nate79 wrote:
Sat May 23, 2020 12:43 pm
Dave Ramsey. She should keep listening to him but after 2 months she should know how to do this. No, bankrupcy will not help her situation.
+1.
I would strongly recommend buying her a copy of Total Money Makeover. There's nothing in there revolutionary that you can't get just from listening but having a solid, material book that you can hold in your hand has a certain emotional element to it. It will become more "real" so to speak.
No EF. 80% Total U.S. / 20% Total International. 100% equity. Is there a gun to your head? Is there a tiger in the room? No? What's the problem?

Saving$
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Re: Advice Needed regarding debt

Post by Saving$ » Sun May 24, 2020 7:01 pm

Condolences on the loss of your sister, and to your niece on the loss of her mother.

Given your sister just passed last week, I wonder if your and / or your niece's enthusiasm for addressing this issue is part of your grieving process, in that people often seek to throw themselves into other issues. Nothing wrong with that but important to be aware of.

All the other posters advice about letting the NFCC give your niece advice and leaving it up to her to follow it is spot on.
You cannot buy her way out of this - she has to learn. The nice thing is it sounds like she (at this point) wants to work her way out of it, which is great.

Things you CAN do:
1. Offer to pay for her to attend Dave Ramsey's Financial Peace University. She needs to figure out which group she will join, she needs to sign up, etc. Your only involvement would be to pay for the class after she does all the legwork.
2. Be a support system. She would need that anyway in climbing out of this debt, but will need it even more given the recent death of her mother. Friends may invite her to go out on the town, but she can't afford to do that, but she will need distractions. Invite her to spend time with you and your family if you are nearby. Model low and no cost activities for her to become familiar with, so she can try to suggest those activities to her friends. Call her, check on her, don't make the calls all about her finances but rather just about her life, work, etc. What is she doing to improve her skills, advance at work, etc. If she wants to talk about the finances, be willing to listen and ask questions.
3. DO NOT start paying for things or bailing her out. If she shows you evidence that she if making progress on her own, you may wish to send her a grocery store gift card as a pick me up, etc.
4. Perhaps you are willing to let her live with you to save money. Charge her rent, and if you want, put the rent in a separate account and offer to use it to pay off some debt after she moves out, and if all went well. Don't tell her about this plan until you decide to go through with it.
5. Encourage her to budget, and if appropriate, tell her how you budget. There is NO WAY for her to get out of this unless she has a complete handle on what is coming and what is going out. People are usually surprised by how much they spend.

Further, if you do consider paying for anything, it should NOT be for the car she currently has. People will do extraordinary things to make their car payments that they won't do to pay other obligations.

Katietsu
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Re: Advice Needed regarding debt

Post by Katietsu » Sun May 24, 2020 8:08 pm

I am sorry for all your family is going through. I do not think your niece’s situation looks unusual. I think it probably is unusual for many participants of this forum. This forum is also very heavy on the put on your big girls pants and handle your responsibilities when it comes to finances. So Zi expect the answers here may have a different leaning than if you asked the same question on a different forum.

I do not think she and you should make any commitments yet.

I think there needs to be a better understanding of all the elements before you make a commitment to any one. I would help your niece find out who to contact and what questions to ask. Then your niece can make the calls and do the research. You can then be a sounding board in deciding how to move forward.

-I would stop paying all the credit cards and old car loan for now. Keep up the car payment since it is secured and you definitely want to avoid it being repossessed.
-Investigate the options on each student loan. Are they private or federal? Do they need rehabilitated to enter an IBR payment plan? Was the school a for profit school that might make the loan qualify to be forgiven ? Could even be worth paying $200 for a student loan counselor if she is still unclear as to best option. Private student loans are usually a number one priority in my opinion.
-I would get a consult about bankruptcy. I would not worry about her credit score. She will probably get back to more businesses lending her money sooner if she uses bankruptcy. If she spends a few years being responsible, she has shown reliability and will have a lower debt to income ratio than without bankruptcy. Plus, she will not be eligible for a second bankruptcy so the new creditor is actually in a better position. I know it does not seem right but I have seen it.
-Since listening to Dave Ramsey is something she has related to, I would pay for her to receive the full course.
-Her salary actually puts her in the upper half of salaries in this country albeit not on this forum. But maybe she could consider looking for a better salary in the future. If she can get a job with something like an educational institution or not for profit hospital, she might qualify to have her student loans forgiven under PSLF. I must say that those suggesting looking for a higher paid medical office manager position or getting a part time waitress job, seem to have momentarily forgotten about the pandemic with furloughed physicians and literally millions of unemployed hospitality workers.
-Good luck. I think you can provide support without enabling her. I would not offer money now. But I would be prepared to give funds if I saw commitment in actions not words from the niece. And if I saw a place where it could be a blessing and not a crutch.

bayview
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Re: Advice Needed regarding debt

Post by bayview » Sun May 24, 2020 9:04 pm

Katietsu wrote:
Sun May 24, 2020 8:08 pm
... But I would be prepared to give funds if I saw commitment in actions not words from the niece. And if I saw a place where it could be a blessing and not a crutch.
What a great phrase. Two, actually. Thank you.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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mmmodem
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Re: Advice Needed regarding debt

Post by mmmodem » Sun May 24, 2020 9:19 pm

I think you’re concentrating too much on her credit score. With credit like that anything she does to settle her debt will only improve it. I’m willing to bet if she calls in to Dave Ramsey or takes his Financial Peace University course, he will say:

1. No bankruptcy
2. Sell car, buy a clunker
3. Settle the debt
4. Make more money
5. Debt snowball

Everything besides the $60k student loans can be paid off in 2-3 years if she goes rice and beans. I would not pay off the car loan. That’s enabling. I reiterate, ignore her credit score. Anything she does to pay off debt will improve it.

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TechGuy365
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Re: Advice Needed regarding debt

Post by TechGuy365 » Sun May 24, 2020 9:30 pm

What mmmodem said above. Also, David Ramsey may not be popular here for investments, but his Debt Snowball method has worked for many people and may work for her too - I'm sure she has heard of it.

https://www.daveramsey.com/blog/how-the ... thod-works

Step 1: List your debts from smallest to largest regardless of interest rate.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.

The thinking is that while she may have higher interest rate in some debts, paying off small debts will give her a sense of accomplishment and a psychological boost. "The problem with your money is not your math. It’s the person in the mirror."

Katietsu
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Re: Advice Needed regarding debt

Post by Katietsu » Sun May 24, 2020 11:43 pm

She has $113k of debt on a $31k salary at who knows what interest rate. This is not just a matter of beans and rice and buckle down. A thoughtful analysis is appropriate before anyone gets another dollar besides the car loan.

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Elsebet
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Re: Advice Needed regarding debt

Post by Elsebet » Mon May 25, 2020 10:22 am

Around 2004 or so I ran up a pile of credit card debt and was paying for both a small mortgage and rent along with car/student loans, all on one average income while my boyfriend (now husband) was looking for a job. It was one of the most stressful 2 years of my life paying that debt off. There were a few months I had to call the student loan company and ask them to wait a few days because my checking account was too low to pay the monthly debt.

It was a valuable lesson and we didn't get any help paying it off. I now abhor debt, have an emergency fund, and live well below my means because of that experience. While it hurts to see a family member struggle I think there is a lot of value in digging yourself out of a hole like this rather than have family members get rid of the problem for you. Nothing teaches you a lesson like firsthand experience.

I think she should work with the credit counselor and use any money she gets from an inheritance toward the debt. I would help her establish a budget and help with finding a higher income job, but I would not pay the debt off unless it was a signed loan. Perhaps pay some of the debt off for holidays/birthdays as a gift?
"...the man who adapts himself to his slender means and makes himself wealthy on a little sum, is the truly rich man..." ~Seneca

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BolderBoy
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Re: Advice Needed regarding debt

Post by BolderBoy » Mon May 25, 2020 2:01 pm

btq96r wrote:
Sat May 23, 2020 10:55 pm
She needs a 2nd job. Medical offices are daytime hours, so she could be waiting tables or making pizzas a few nights a week and on weekends. Every cent that 2nd job brings in should go to paying off debts.
+1. I don't see any viable solution that doesn't include a 2nd job + the motivation to pay off the debts.

Try to avoid the bankruptcy path if possible.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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Re: Advice Needed regarding debt

Post by Vanguard Fan 1367 » Mon May 25, 2020 3:02 pm

Katietsu wrote:
Sun May 24, 2020 8:08 pm
I am sorry for all your family is going through. I do not think your niece’s situation looks unusual. I think it probably is unusual for many participants of this forum. This forum is also very heavy on the put on your big girls pants and handle your responsibilities when it comes to finances. So Zi expect the answers here may have a different leaning than if you asked the same question on a different forum.
I have 2 loved ones in overwhelming student loan situations. The wife and I take the advice to take one day at a time. We help a little but both of them can survive today with the loans in forbearance (the amount paid is less than the annual interest so the amount keeps increasing). Hopefully in the future something can work out. With the current laws no one is going to jail but you do read of people getting their Social Security garnished. I know that a lot of people are in that mess. We shall see what happens in 25 to 35 years when it is time to collect Social Security.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

Katietsu
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Re: Advice Needed regarding debt

Post by Katietsu » Mon May 25, 2020 11:01 pm

Vanguard Fan 1367 wrote:
Mon May 25, 2020 3:02 pm
Katietsu wrote:
Sun May 24, 2020 8:08 pm
I am sorry for all your family is going through. I do not think your niece’s situation looks unusual. I think it probably is unusual for many participants of this forum. This forum is also very heavy on the put on your big girls pants and handle your responsibilities when it comes to finances. So Zi expect the answers here may have a different leaning than if you asked the same question on a different forum.
I have 2 loved ones in overwhelming student loan situations. The wife and I take the advice to take one day at a time. We help a little but both of them can survive today with the loans in forbearance (the amount paid is less than the annual interest so the amount keeps increasing). Hopefully in the future something can work out. With the current laws no one is going to jail but you do read of people getting their Social Security garnished. I know that a lot of people are in that mess. We shall see what happens in 25 to 35 years when it is time to collect Social Security.
Sometimes that is all you can do. Though, sometimes it is even worse because there are better options out there that the person just did not know about. I have two family members that were set up on a plan to pay about $250 per month which is less than their standard repayment plan. However, their IBR (income based repayment) payments would have been even less and would have counted towards eventual loan forgiveness, one even would have qualified for PSLF (public student loan forgiveness). Unfortunately, you can not expect the student loan people to offer you the best payment plan. You need to really study it yourself or pay a student loan advisor to point you in the right direction. Too bad it is this way.

protagonist
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Re: Advice Needed regarding debt

Post by protagonist » Mon May 25, 2020 11:17 pm

arcticpineapplecorp. wrote:
Fri May 22, 2020 8:36 pm
be careful paying her car loan. Not saying not to do it. But if it frees up $240 a month for her to throw towards the credit cards, can you guarntee she'll actually do that and not increase her spending by $240 a month?
My thoughts as well. If you (OP) do feel like helping her pay her debts is a good idea (and you do seem committed), the CC debt is probably much more onerous than the auto loan....much higher interest rate.
You might also make your assistance contingent on her giving up her credit cards. If she doesn't make her car payments in the future there is at least the tangible threat of them taking the car, which may provide greater incentive for her to pay than more "abstract" CC debt.
Just giving money with no conditions may not be the best policy when dealing with somebody known to be financially irresponsible.

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arcticpineapplecorp.
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Re: Advice Needed regarding debt

Post by arcticpineapplecorp. » Tue May 26, 2020 7:06 am

protagonist wrote:
Mon May 25, 2020 11:17 pm
arcticpineapplecorp. wrote:
Fri May 22, 2020 8:36 pm
be careful paying her car loan. Not saying not to do it. But if it frees up $240 a month for her to throw towards the credit cards, can you guarntee she'll actually do that and not increase her spending by $240 a month?
My thoughts as well. If you (OP) do feel like helping her pay her debts is a good idea (and you do seem committed), the CC debt is probably much more onerous than the auto loan....much higher interest rate.
You might also make your assistance contingent on her giving up her credit cards. If she doesn't make her car payments in the future there is at least the tangible threat of them taking the car, which may provide greater incentive for her to pay than more "abstract" CC debt.
Just giving money with no conditions may not be the best policy when dealing with somebody known to be financially irresponsible.
excellent points and very good explanation. couldn't have said it better.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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