Can you really get out of massive debt?

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rockstar
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Joined: Mon Feb 03, 2020 5:51 pm

Re: Can you really get out of massive debt?

Post by rockstar »

Maverick3320 wrote: Sun Feb 02, 2025 11:28 am
rockstar wrote: Thu Jan 30, 2025 4:24 pm I see a couple of options.

* Look for jobs that will qualify the OP for loan forgiveness.

* Find a much better paying job.

* Move to another country and default. Credit scores are country specific.

This loan amount is egregious. I wouldn’t feel any obligation to pay it back.
You wouldn't feel obligated to pay back a loan that you signed for stating you understood the terms?
Nope.

And businesses walk away from debt all the time too. I guess because I’ve worn both hats that I think this way.
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slippinsurlies
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Joined: Thu Apr 07, 2022 11:18 pm
Location: Mainland US

Re: Can you really get out of massive debt?

Post by slippinsurlies »

rockstar wrote: Mon Feb 03, 2025 9:40 am
Maverick3320 wrote: Sun Feb 02, 2025 11:28 am

You wouldn't feel obligated to pay back a loan that you signed for stating you understood the terms?
Nope.

And businesses walk away from debt all the time too. I guess because I’ve worn both hats that I think this way.
Well. That’s unethical.
“Don’t do something. Just stand there.” -Jack Bogle
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inittowinit
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Joined: Thu Jul 05, 2012 6:37 pm

Re: Can you really get out of massive debt?

Post by inittowinit »

I am a CFP who previously spent several years specifically helping hundreds of people to get out of debt, including people with debt loads the size of your friend's.

Here is my summary of the available debt relief options:

(0) Determine whether you are "judgment proof" (i.e., even if a creditor successfully sued you over a debt and received a court judgment, they would be unable to enforce a writ of execution/garnishment due to your income level and/or sources). If judgment-proof, inform your creditors of this fact and take no further action. If sued, respond to the lawsuit in a timely manner with the help of an in-state debt collection defense attorney or a self-help resource like SoloSuit or Upsolve. Your credit will suffer from taking this approach, possibly indefinitely depending on whether or not a creditor receives and renews a court judgment that appears on your credit report.

(1) Adjust income and/or spending, and pay off debt via the "debt snowball/debt avalanche" method. Expect your credit to slowly improve over the duration of the plan.

(2) Negotiate lower interest rates and/or monthly payments with individual creditors, and proceed with (1).

(3) Refinance and/or balance transfer for a better rate, and proceed with (1). Only possible if you have a sufficiently high credit score or access to alternative sources of credit (family, friends, etc.).

(4) Enroll in a debt management plan through a credit counseling agency to reduce interest rates and monthly payments, and proceed with (1). Entails some credit damage over the duration of the plan, but typically results in a stronger credit score by the end of the plan (3-5 years later).

(5) Negotiate partial debt forgiveness directly with your creditors. You can typically get a reduction of 20-75% of the total balance owed (I have helped people do this for thousands of debts with dozens of creditors large and small, it is a standard option available from most lenders, collectors, and debt buyers). There are third party companies that will offer to do this service for you, but I generally recommend avoiding them as they typically charge significant fees and do not structure settlements with your best interests in mind. Most creditors only propose/accept settlements when a debt is charged off, so you must incur significant credit damage before this option becomes available. Once you repay the settlement and your balance is forgiven, your credit can typically recover within 6-18 months, depending on the credit-building steps you take post-settlement. You will owe federal and possibly state income taxes on the balance of any forgiven debt in excess of $600.

(6) File bankruptcy (hopefully Chapter 7, but you may be stuck with Chapter 13). Chapter 7 will effectively eliminate all unsecured debts within 3-4 months (except most student loans). Chapter 13 results in a 3-5 year payment plan supervised by a court-appointed trustee. Something like 98% of Chapter 7 bankruptcies are successfully discharged within 4 months of filing, and ~93% of Chapter 7 discharges result in the debtor not having to liquidate any assets. Only ~30% of Chapter 13 bankruptcies are seen through to completion. Hire a bankruptcy attorney or use self-help resources like Upsolve.org to guide you through bankruptcy. Successfully filing bankruptcy will foreclose the option to do so again for several years by law (eg, you can only get a chapter 7 discharge every 8 years). Your credit can begin to recover 6-18 months from discharge depending on the steps you take to rebuild your credit.

Additional options exist, but they are far more specialized and likely too niche to be included on a list intended for general audiences.


There are generally four factors to consider in selecting an option from this list:

(a) Time - How quickly do you want the process to be?

(b) Credit Impact - Do you have a strong need for a certain credit score at a specific point in time in the future? E.g., to access housing, employment, education, etc.

(c) Financial Impact - How much money do you want to save / are you willing to spend to get out of debt? What level of debt service expense are you able to bear on a monthly basis?

(d) Emotional/Psychological Impact - How well can you handle the emotional and psychological requirements of each option? E.g., will you be able to stick with a debt snowball plan and deprive yourself of comforts for the time needed to complete it; will you be able to steel yourself enough to negotiate with your creditors by phone; etc.
AlaskaTeach
Posts: 352
Joined: Fri May 27, 2022 8:51 pm

Re: Can you really get out of massive debt?

Post by AlaskaTeach »

Miriam2 wrote: Mon Feb 03, 2025 1:05 am
AlaskaTeach wrote: Mon Feb 03, 2025 12:18 am I Just thought of another little thing to help with motivation. I challenged my younger son to pay off his student loans a couple of years ago, copied Dave Ramsey's "401dave" matching program. I told my son that for a specific period of time, I think it was six months or so, I would match 50 cents on the dollar his loan payments. Only condition was he had to show me statements. I was never so happy to write a $2500+ check as I was that day around the first of the year. It helped him see progress and I am pretty sure he has nearly paid off his loans. He should have them paid off, as he lives with his Aunt for $0, but he helps with utility bills and maintenance.
In addition to paying off his loans, by living with his aunt - I'm assuming rent free in exchange for maintenance - he can now use his rent-free paycheck to front-load his 401(k) to the max possible with each paycheck until he's maxed out his 401(k) for that year, then turn his sights to his IRA and max that out in a few months or so, plus quickly backdoor convert it to a Roth, and in a few years I'll bet he has $100,000 packed away for retirement, ready to compound up for 30 years or more :D

Some advice from Charlie Munger - “The first $100,000 is a b*tch, but you gotta do it.”
https://www.fourpillarfreedom.com/charl ... is-a-bitch

Love that quote from Charlie. He was right for 99% of the population, but not me. My household 100k came too easy, during the 1990s. I never knew it when we went over the 100k mark, but I sure knew it when we crashed under it, and then we had to cross it for the 2nd time.

So, for me the time between hitting the first 100k and getting to the 2nd 100k was an eternity, probably 23 years! But the time between the 200k mark and the 300k mark was about 8 months! We are talking serious motivation, when you live in rural Alaska and there is basically nothing to spend money on, and you are hyper focused on saving for retirement.

Back to the son. I offered to buy him a year's subscription to Investor's Business Daily or Money Magazine and he declined both. I am going to offer him your suggestion at some point. I front loaded my 457b contributions for probably the first time in 2023, and it was absolutely golden!!



:D
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