This new edition of Solve Your Money Troubles has been updated by Attorney Amy Loftsgordo.
Facing wage garnishment, car repossession, foreclosure, lawsuits, or collection calls? Solve Your Money Troubles provides you with the legal and practical information you need, plus sample letters and budgeting worksheets, so that you can get out of debt and make a fresh start. Learn how to:
priortize debts and create a budget
understand your options
negotiate with creditors
stop harassment by debt collectors
deal with wage garnishment, car repossession, and foreclosure
reduce student loan payments
know what to expect if a creditor sues you
decide if bankruptcy is right for you
The new edition of Solve Your Money Troubles is updated with changes to federal student loan repayment programs, new foreclosure protections, legal information specific to your state, and the latest legal developments in the world of debt, credit, and bankruptcy.
Attorney Amy Loftsgordon has worked in the areas of debt collection and foreclosure for over ten years. She is the coauthor of Nolo’s The Foreclosure Survival Guide and updates Nolo’s Credit Repair.
“This book is a must-have, even for people who don’t have debt problems.” -Los Angeles Times
“One of the best books you can buy on all aspects of personal debt.” -Michael Pellecchia, Nationally Syndicated Columnist
“This book will give you strength and the skills needed to respond to bill collectors and to rebuild your credit….” -New Orleans Times-Picayune
Robin Leonard is a former attorney who gave up the law to become a rabbi. She is the author of many Nolo books including Solve Your Money Troubles: Debt, Credit & Bankruptcy and Credit Repair. She also helped write How to File for Chapter 7 Bankruptcy and A Legal Guide for Lesbian and Gay Couples.
How Much Do You Earn?.................................................................... 5
How Much Do You Owe?.................................................................... 5
“There can be no freedom or beauty about a home life that depends on borrowing and debt.”
—Henrik Ibsen, Norwegian poet and dramatist, 1828–1906
To successfully plan your strategies with your creditors, you need to come to terms with your total amount of debt. This may make you shudder.
But happily, most credit counselors will tell you that people tend to overestimate their debt burdens.
To figure out your financial situation, you need to compare what you bring in each month with what you owe on your monthly expenses (such as food, housing, and utilities) and your other debts (for example, student loan payments).
Having a ballpark idea of the amount of your income and debt burden is not enough to tackle your debt problem. Getting precise numbers is a crucial part of the process—don’t skip it. In addition to laying out how much you earn and owe, this process will help you prioritize your debts, which will then help you decide which strategies to use to solve your money troubles.
To figure out how much you earn and how much you owe (both in monthly payments and overall), follow the instructions on the next pages and use the worksheets in Appendix D. If you are married or have jointly incurred most of your debts with someone, fill out the worksheets together.
Warning Signs of Debt Trouble
If you have panic attacks when you try to figure out your total debt burden, you’ll feel better if you skip this chapter and come back to it when you are better able to confront the information. Before doing that, however, ask yourself the following questions. If you answer “yes” to any one of them, you are probably in or headed for serious debt trouble:
• Are your credit cards charged to the maximum?
• Do you use one credit card to pay another?
• Are you making only minimum payments on your credit cards while continuing to incur charges?
• Do you skip paying certain bills each month?
• Have creditors closed any accounts on you?
• Have you taken out a debt consolidation loan? Are you considering doing so?
• Have you borrowed money or used your credit cards to pay for groceries, utilities, or other necessities (for reasons other than convenience or to get perks on a credit card)?
• Have you bounced any checks?
• Are collection agencies calling and writing you?
How Much Do You Earn?
Start by figuring out how much you earn each month. Grab a calculator, your pay stubs, and complete Worksheet 1 in Appendix C, by entering your monthly income from each listed source. If you are paid more often than monthly, see the instructions in Worksheet 1 to convert your pay to a monthly amount. If you have income that doesn’t fit into one of these categories, list it as “other.”
How Much Do You Owe?
In Worksheet 2 in Appendix C, you list your debts. Gather the documents that show payments on all your debts, the total amount owed on each debt, and any amount past due, including any interest or fees that have been added. Be as thorough and complete as possible. The completed Worksheet 2 will tell you exactly how much you should be paying each month (to be current on your debts) and how far behind you are. Here’s how to fill it out.
Column 1: Debts and other monthly living expenses. In Column 1, enter the type of debt. Don’t enter a debt more than once. So, for example, if you already deducted from your income in Worksheet 1 a debt that is paid out of your paycheck, such as child support, don’t deduct that same debt again here.
If you are married, you may not be certain which debts are yours and which belong to your spouse. If your marriage is intact and you’re having mutual financial problems, approach your debt problems as a team. That is, enter all your debts in Column 1. If, however, you are separated or recently divorced, or are married but having financial problems of your own, see Chapter 2 for help on figuring out the debts for which you are obligated. If you generally share expenses and maintain a household with someone else, consider combining your income and paying all of your debts with joint funds, regardless of who actually incurred the debt. Enter both partners’ debts in Column 1.
Column 2: Outstanding balance. In Column 2, enter the entire outstanding balance on the debt. For example, if you borrowed $150,000 for a mortgage and still owe $125,000, enter $125,000. If you don’t want to contact the creditor until you are ready to negotiate (and that will only be after you’ve determined how much you can pay), you have a few options. Your latest account statement might list the entire outstanding balance. If not, the creditor’s automated telephone system or online account information might provide the information you need. If you can’t get the balance and you prefer not to talk to the creditor, use your best guess for now.
Columns 3 and 4: Monthly payment and total you are behind. In Columns 3 and 4, enter the amount you currently owe on the debt. If the lender has not established set monthly payments—for example, for a doctor’s bill—enter the entire amount of the debt in Column 4 and leave Column 3 blank. If the debt is one for which you make regular monthly payments—such as your car loan or mortgage—enter the amount of the monthly payment in Column 3 and the full amount you are behind (monthly payment multiplied by the number of missed months, plus any fees or charges that have been added, like over-limit fees or late payment charges) in Column 4.
For credit card, department store, and similar debts, enter the monthly minimum payment in Column 3 and your entire balance in Column 4. But keep in mind that eventually you should make more than the minimum payment on your credit cards. (Chapter 10 discusses the danger of making only minimum payments each month.)
Column 5: Is the debt secured? In Column 5, indicate whether the debt is secured or unsecured. A secured debt is one for which a specific item of property (called “collateral”) guarantees payment. The most common type of secured debt occurs when you sign a credit agreement (sometimes called a security agreement) that allows the creditor to take a particular item of property under certain specified conditions—without suing you first. Examples of conditions that might allow the creditor to take your property include your failure to make a payment, your failure to maintain insurance on the property, or your failure to comply with the payment agreement in some other way. Typically you sign a credit agreement, giving the creditor a security interest in your property when you finance a car purchase; get a mortgage; get a second, third, or additional loan on your home; or buy an appliance or piece of furniture with store credit.
A creditor may also be able to secure its debt without your agreement by filing a lien against your property. This can happen in two circumstances. First, the creditor can file a lien if the law specifically allows for it. An example is a mechanic’s lien—the law specifically states that a worker or material supplier may file a lien against your real property if you or the contractor fail to pay them. Second, a creditor can file a lien against your property if it has sued you and obtained a judgment against you. This is called a judgment lien.
Unsecured debts are typically bank credit card debt; bills owed for utilities, medical, or legal services; student loans; and spousal or child support.
Secured property is usually something very important, like your car or house. Because it can be taken quickly, without the delay of a lawsuit, secured debts are usually a high priority for you to pay.
Specify the collateral the creditor is entitled to grab if you default. (After you have read more about whether a debt is secured or not in Chapter 4, you can come back and review Column 5 to see if you need to make any changes.)
Column 6: What priority is the debt? Leave Column 6 blank until you read Chapter 4. It will help you prioritize the debts.
Add it up. When you’ve entered all your debts in the worksheet, total up Columns 2, 3, and 4. Column 2 represents the total balance of all your debts, even though some of it may not be due now; Column 3 represents the amount you are obligated to pay each month; and Column 4 shows the amount you would have to come up with to get current on all your debts.
Don’t forget your other expenses. None of us have monthly expenses consisting entirely of loan or credit payments. We also have to pay rent and buy groceries, pay for movies and restaurants, buy clothing and household goods, and so on. These other expenses are covered in Chapter 3. Now might be a good time to review the information in Chapter 3’s “Figure Out Where Your Money Goes.” By listing your non-debt-payment expenditures, you will get a more complete picture of your finances.