Polly is 25 and single. She has almost $80,000 in debt, $60,000 of which is student loans. The rest is credit card debt. Polly makes $40,000 gross a year working full time, and she has a part time job where she grosses another $10,000. She has no savings and no emergency fund.Usually I try not to spout off some deep advice based on incomplete information, but I was Polly three years ago.
She’s about to get a $5,000.00 tax refund, which she is planning on using to pay off 2 credit cards and start an emergency fund of $3,000.
Polly can’t decide what to pay off next. She has contacted her credit card companies and cannot get her interest rate lowered nor does she qualify for a debt consolidation loan. She’s currently spending 15% of her income on debt repayment.
You can look at the math. You can choose which debts to pay, put the loans on hardship deferral, pick up a few more hours at work, but those are band-aid solutions.
The truth is her job sucks. She has an expensive education, and I hope it's in something useful. Even if it isn't, I hope she has an alumni network. She needs a new job.
Polly needs to go to every industry networking event. She needs to talk to alumni, she needs to call up old bosses, mentors, anyone. She needs a new job. Maybe not today, but soon, and these things take time.
Ideally, the job Polly needs is high compensation with lots of travel. These kinds of jobs often come up in my networking because people with kids don't like that much travel. Sounds good for Polly because she could further reduce her expenses.
My technical answer to Polly is to pay down the credit cards with every penny, including her emergency fund, so her credit is good enough to get non-rip-off cards or credit union loans or something. The student loans can wait. But this won't help unless she uses her education to its potential.
8 comments:
LOVE the answer.
What I didn't like about some answers is that a lot of people think she should just go bankrupt because she isn't able to clear it reasonably in 5 years.
For me, I take the Ramsey stance on this. I think that if you took the money out you should pay it back. Period. Even if it takes 8 years.
Oh and Gail posted her 'answer' to it on her blog.
Fabulously Broke in the City
Just a girl trying to find a balance between being a Shopaholic and a Saver...
It really isn't that easy to find a new job - I got lucky with mine, but I have a friend in the entertainment industry who gets paid mid-thirties, is 25 years old, and this is her second job. She networks all the time, has been on so many interviews (for better-paying positions) but yet comes up empty-handed. Having gone to school in Malibu, she babysat kids of industry bigwigs. She's smart and has a double-major. I think she'll eventually get what she wants because she works hard, but I just think your answer is a bit too general (granted, the case info was incomplete). Plus, sometimes getting a higher paying job isn't a remedy - some people go into further debt the more money they earn because they think they have all this money to spend now, but still have the old mindset when it comes to debt.
I didn't say it was easy to get a new job. I said it was hard, but Polly doesn't have a choice. She has to get a new job.
I understand entry level positions are tough-- like I said, I was Polly -- but you have to keep moving.
The thing about networking is that it takes time. Sometimes your job search takes months, maybe years, to come back around. But she MUST be out there trying all the time, even if it looks like it isn't working.
She's not bankrupt. She just needs a better job.
I agree with your answer 110%. At this point, NONE of her options are going to be "easy." She made the choice to incur the debt so she should hold herself accountable for paying it back.
Bankruptcy is simply a tunnel vision band-aid to a larger problem. Not only will the $60k in student loans remain, but so will the poor behavior that led to the other debt. Unless she has suffered serious health problems and major medical bills, which I doubt at 25, paying back the other $20k the hard way will teach her lifelong lessons.
If she has long term vision and is determined to turn her financial life around, a better paying job is certainly the answer. Besides, she needs to put that $60k education to work!
hey, a little of topic, but i was wondering if you could tell me how to install the debt meter on blogger. Like in a real specific way. I know i have to copy some html but i dont know what line to start from or what line to insert it into in my page.
thanks Bunch
Hmm well if she can't consolidate theres a good chance they aren't federal loans but private which are no better then credit card debt.
Definately need more info.
A 25 yr old single person bringing home $50000 a year should be doing just fine. While her pay in relation to her degree costs is low, her actual pay is not. I don't disagree she should look for something better paying but I think the bigger problem is where the hell is her money going?
If she got a 5000 refund she gave Uncle Sam a 5000 interest free loan for a year.
The FIRST step should be fixing her tax withholdings.
Definitely network your ass off! That's the way to get going.
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