Richard wrote to me at GetOutOfDebt.org and asked me the question below. If you have a question you’d like to ask, just visit GetOutOfDebt.org to contact me. “Dear Steve, I keep hearing about free money from the government to pay off my debt. How can I get some of that money so I can get ride of my credit card debt? Is there a government fund that can help me get out of credit card debt? Richard” Richard, Over the years I’ve been asked this time and time again. People have sworn to me that government money is available to pay off debt but all the stories I have heard have all been from people that have heard it is available rather than a single person that has ever received money from the government to pay off debt. Even the premise that a government entity would give you money specifically to pay off debt is preposterous. The government can’t even pay their own bills. The only exception to this is that I have had clients that took out student loans and had money left over and used some of that to pay off bills. That was not free money. It might have come from the government but it was supposed to be used for college expenses and not debt reduction. Free money to get out of debt would not be money that has to be paid back so the claims of free government to get out of debt are just urban myths and nothing else. The closest real thing that comes to that would be bankruptcy since it is a legal process sanctioned by the government and eliminates your debt. Thanks for your question. Steve Other Related Articles to Read San Wants To Know “We Need Some Way To Pay Off Our Debts” Donna Writes and Asks “What Is The Best Way To Become Debt Free The Fastest?” Jax Is Looking to Refinance An Has Some Questions “I Have Three Degrees But I’m Broke And Miserable” Crys Writes In And Asks “We’ve Been to Credit Counseling But Should We File For Bankruptcy?”

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Theresa wrote to me through the GetOutOfDebt.org site and asked for feedback and advice. You can see her question below. If you have a question about how to get out of debt, just visit GetOutOfDebt.org and ask, my help and advice are totally free. “Dear Steve, I have $75,000 in school loans and I have one job bringing in $360 per week after taxes and another job where I make $150 per week after taxes. My car payment is $251, rent is $600, utilities are $130, Food is $80, and water is $45. I have a 401(k) with $6,000. Help me. I feel borderline and broke. I relocated ten months ago from New Jersey. After acquiring three degrees I still can’t find a job to match my qualifications. I feel broke and miserable. Help! Theresa” Dearest Theresa, I certainly feel the pain and frustration that is coming through your electronic correspondence. Working hard to get three degrees and achieving great things in education always seems like it should pay off, but sadly it doesn’t always. I recently wrote about this in “ Is Going to College Really A Smart Financial Move? “. I don’t know what your degrees are in and the student loans are not my first worry here since they are probably government backed student loans and you’ll have to pay them come hell or high water. Let’s Look At Student Loan Options First You did not mention what your student loan payments are and if your loans are on hold or in forbearance. If they are then they are just sitting there, ticking away, with the balances getting bigger due to growing interest being added to the amount of your loan. The Department of Education offers a little known program called ICR (Income Contingent Repayment) that is worth investigating. This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your Adjusted Gross Income (AGI), family size, and the total amount of your Direct Loans. To participate in the ICR Plan, you must sign a form that permits the Internal Revenue Service to provide information about your income to the U.S. Department of Education. This information will be used to recalculate your monthly payment, adjusted annually based on the updated information. This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse’s income if you’re married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of: the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or your monthly discretionary income* multiplied by 20%. If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized. The maximum repayment period is 25 years. If you make payments under the standard or 12-year extended plan and then switch to the ICR plan, time under the former plan counts toward your 25-year repayment period. Time spent in other plans or in deferment or forbearance does not count toward the 25 years . If you haven’t fully repaid your loans after 25 years under this plan, the unpaid portion will be discharged. You will, however, have to pay taxes on the amount that is discharged. Let’s Look At Your Debt The figures you gave me indicate that your problem isn’t the typical too much credit card debt. Your monthly obligations and payment amounts seem reasonable, except for your monthly food budget . Really, only $80 a month for food? There isn’t much to trim or cut in the expense category. The Real Issue - Under Employment Theresa, the critical issue of your “broke and miserable” situation is that you are underemployed rather than unemployed. Now it is very easy for me to tell you to go out and get a better paying job, saying that does not make it happen automatically and there could certainly be some underlying issues that are holding you back from doing that. Once case in particular stands out as an example. I once had a client that was working the night shift at Walmart for years. She was just barely getting by. As we talked about why she had not tried to look for a better job she finally let it slip, “I am ashamed of my feet”. She felt her feet were too big and she did not want to go on an interview where she felt someone might make a comment or judge her by the size of her feet. Once we talked through that issue she developed the confidence to at least go try an interview. She got the new job making 50% more and it solved her money troubles. I’m wondering Theresa if you have an issue that is holding you back from looking for a new job? Getting a new job is not fun or easy. It often involves a lot of rejection and when you are already feeling borderline, broke and miserable the last thing you want to pursue is rejection. But if you can face the process mentally prepared for rejection then it makes it a bit easier. In fact, I would adopt the approach that each ‘no’ that you get is a good thing because it means you are one rejection closer to getting to the ‘yes’. To help I’ve put together this job bank page with links to help. I have always found that the secret is to make a job of getting a job. What I mean is that you have to approach it like a project. You need to use your educational skills, project management abilities and communication skills to diligently hunt for more income. Another issue that comes out in your email is one of self-worth or self-esteem. It sounds like you’ve been down for so long that up is impossible to set your aim on. In your search for more income I don’t want you to find a third job, I want you to find a higher paying primary job. Even if you don’t think you deserve more than what you have right now, trust me, you do. And I could tell you all sorts of mumbo jumbo that I believe in but let me distill it to say that as long as you feel you are not worthy to have a higher paying job, you’re not. Theresa, bankruptcy , credit counseling , debt settlement and all the rest of the tools to use in problem debt situations will not help you, only increasing your income will. And I did not forget about your $6,000 in 401(k) money. It’s just that unless we tackle those underlying issues that are holding you back, if you tap that cash, it will just be gone and the problem won’t be any more resolved than it is today. Don’t touch that 401(k). Big hug. Steve Other Related Articles to Read America’s Job Bank - Find a Job Now Crys Writes In And Asks “We’ve Been to Credit Counseling But Should We File For Bankruptcy?” David Writes In “I’m About To Lose My House” Worried Sick Asks “Am I Worrying Myself Sick About My Financial Future?” Steve Writes In “I Want to Cash Out My 401(k) And Pay Off Debt.”

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Crys wrote to me through the GetOutOfDebt.org site and asked me for help. If you have a question you’d like to ask, write me for free by visiting GetOutOfDebt.org “Dear Steve Hi! I am a piano teacher, and due the bad economy have very few students, even though I am used to having plenty. We just moved because we could no longer afford where we lived. We gave up our house in a deed in lieu of foreclosure. My husband took a cut in pay. We owe about $400 per month on credit cards, and owe a total of about $12,000. I also owe about $22,000 in student loans. Those will start next month, increasing our $400 to $620 or so with the loans. We barely have enough money at the end of the month to pay rent and other living expenses. We make roughly $1,500 a month. This is not good. We have talked to credit counseling, and they have us paying about $320 to them and they will pay the credit cards. But we still are short. Our bills now, including food and gas, average about $1650. Obviously, we fall short. We have a 7 month old baby who needs things, and we can’t afford it. Should we file for bankruptcy?” Dearest Crys, Here is a big virtual hug for you to help you through today. The stress of what you are living through surely is intense. I still remember what it was like when I lived through it. I’m struggling to answer your question because there is so much to say. Your situation typifies the kind of bind that many good people are facing. Your income is down through no fault of your own, you already made hard choices and downsized your living arrangements, you’ve got student loans looking for payments and you can’t hang on. I used to run a credit counseling organization. Things were a lot different back then but I do understand the inside of the credit counseling industry. You went to visit credit counseling and they put you on a payment plan but they probably should not have done that. Credit counseling today makes money not by giving the best advice, but by putting people into repayment plans. They get a percentage of the money they collect ‘donated’ to them by the banks. This is the same arrangement that debt collectors have with the banks. Credit counselors are incentivized to put you into a debt management plan , unless people go into one and make their payments the credit counseling group does not make money. But they must make money to stay in business or they won’t be around to help people. It is a corrupted vicious circle with opposing motives. Credit counselors do not put together a repayment plan that is affordable and best for you. They instead tell you what creditors will accept when you are working with a credit counselor. Ultimately the better solution is to take what money you can afford to repay each month and divide that among your creditors based on the percentage of debt you owe each. Let’s say you owe one Visa card an amount that is equal to 25% of your total debt. If we were going to be fair to all parties then that Visa card should get 25% of the available money you can afford to pay each month. That’s not the way credit counseling works. And furthermore, credit counselors do not ‘negotiate’ with your lenders, they are told by the lenders what your payment will be. Based on what you’ve shared with me, thank you, it sounds like what you can really afford to pay after the student loans kick in is around $100 per month. You need to use more money to pay for the student loans but you can’t cut the budget so close that you’ve allocated every single dollar for repayment. You need to leave some room in your budget for fun and emergency savings. Unless you budget in some fun it is highly unlikely that you will be able to live month-to-month for the next 5 to 7 years in a credit counseling program. You, like most, will fail along that path and all the funds you struggled to pay each month, until the plan fails will be wasted. It won’t eliminate your debt. I’m absolutely not being cynical here, just honest and real. You asked if you should go bankrupt, absolutely. You should go see a bankruptcy attorney for a free bankruptcy review and if you walk out of that office knowing that bankruptcy is for you, then file bankruptcy as soon as possible. I would strongly advise you to meet with the bankruptcy lawyer before you make any more payment to the credit counseling group. I’ve slammed credit counseling pretty hard in this answer but there is still a time when credit counseling can be beneficial, that’s when you need to bridge a short term gap before your income will return and you can resume your regular payments. In this economy and without any real hope that piano playing and paying students are going to return in droves, holding out for more income right now would probably be a mistake. Go file bankruptcy and then come back and share with us your experience. Super big hug. Steve Other Related Articles to Read Scott Writes Me and Asks For Help - “We Are Behind And Overwhelmed” Eleven Real Things You Should Do to Survive a Bad Economy Emily Wants to Know “I’m Pregnant And Got My Hours Cut. What Do I Do?” Daniel Writes In - “How Can I Get Out of Credit Card Debt?” Brenda Writes The Squirrel Asking For Advice. Is She Nuts!

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If you're new here, you may want to subscribe to my RSS feed right now, before you forget, to get the latest posts. Thanks for visiting! Ever since hearing about this story I’ve had all sorts of opinions about it. Funny, shock wasn’t one of them. A California Sacramento State ...[Read More]

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Don’t laugh at the title. Going to college is one of those things that is beaten into many of us from a very young age. We are programmed that we must go to college to succeed, but is that really a valid belief to have? The cost of a college education does nothing but go up, up, up. And more ...[Read More]

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A recent article “Looming Credit Debt Threatens Students” caught my eye. The article focused on the dangers of credit cards on campus and the debt faced by many university and college students. And while the article focused on the evils of credit cards on campus, it is again another ...[Read More]

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