Solve Your Money Troubles: Strategies to Get Out of Debt and Stay That Way

By Amy Loftsgordon and Cara O'Neill

Struggling with debt? Find solutions here.

Conquering overwhelming debt starts with understanding your options. Solve Your Money Troubles gives you the tools you need to get your finances back on track. Learn how to:

•  stop debt collector harassment cold

•  negotiate down your debt with creditors

•  reduce your student loan payments, and

•  create a healthy financial plan that you can live with.

Solve Your Money Troubles helps you handle the big issues, too. Find out how to:

•  stop a wage garnishment from leaving you penniless

•  get your car back after a repossession

•  prevent a foreclosure by applying for a loss mitigation program

•  respond to an action if you get sued, and

•  decide if it’s time to wipe the slate clean by filing for bankruptcy.

In addition to up-to-date legal information, you’ll find practical tools, such as sample creditor letters and budgeting worksheets. 

• Language: English
• Publisher: NOLO
• Release date: Jul 1, 2023
• ISBN: 9781413330908

Amy Loftsgordon

Amy Loftsgordon is a legal editor and writer at Nolo, focusing on foreclosure, debt management, and personal finance. She edits several Nolo books and is also the coauthor of The Foreclosure Survival Guide and Solve Your Money Troubles. Before joining Nolo, Amy worked in the areas of foreclosure and debt collections for over 15 years. Her broad experience includes helping people fight collection actions and enforcing debtors’ rights under the Fair Debt Collection Practices Act and other laws. As part of a national settlement involving the mortgage industry, she has also reviewed servicer records to uncover extensive credit reporting errors. Amy received a B.A. from the University of Southern California and a law degree from the University of Denver Sturm College of Law. She is licensed to practice law in Colorado.

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CHAPTER

1

How Much Do You Owe?

How Much Do You Earn?

How Much Do You Owe?

To successfully plan strategies with your creditors, you need to come to terms with how much you owe. Before making changes, you’ll want to develop a realistic financial picture—even if you find this uncomfortable—because it’s an important step. Getting precise numbers allows you to prioritize your debts and decide the best way to solve your money troubles.

You’ll start by comparing how much you earn each month to your monthly expenses for food, housing, utilities, credit cards, and student loans.

But you don’t have to do this on your own. We’ll help you determine how much you earn and what you owe. Follow the instructions on the next pages and use the online worksheets. If you’re married or pay bills with someone, fill out the worksheets together.

You’ll find the worksheets mentioned throughout this book on the online companion page at:

www.nolo.com/back-of-book/MT.html

Warning Signs of Debt Trouble

If you’re reading this book, it’s likely that you’re ready to tackle your debt. (If you find yourself getting anxious when determining your total debt burden, consider coming back to this chapter later.) You’ll start by asking yourself the following questions, and any yes answer will verify what you already know—that you’re likely in trouble and it’s time to make some changes.

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 of your accounts?

Have you taken out a debt consolidation loan or 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 recently?

Are debt collectors calling or writing you?

How Much Do You Earn?

You’ll start by determining how much income you make each month using the first online worksheet—Worksheet 1. After getting a calculator and your paycheck stubs, unemployment stubs, and other earning statements, you’ll be ready to enter the monthly amount from each source. If you are paid more often than monthly, use the instructions on Worksheet 1 to convert your earnings to a monthly amount. If you have income that doesn’t fit into one of the categories, list it as other.

How Much Do You Owe?

The next step is listing your debts on Worksheet 2. Prepare by gathering all your bills, payments, payment books, and other documents showing your monthly obligations and the total amount you owe. Don’t forget past-due notices and added interest or fees because it’s essential to be as thorough and complete as possible. Once finished, Worksheet 2 will reveal how far behind you are on your debts and how much you must pay each month to remain current. Here’s how to fill it out.

Column 1: Debts and other monthly living expenses. Enter each debt once. For example, if you listed child support as a paycheck deduction on Worksheet 1, don’t list it again here.

If you’re married, you might not know which debts are yours and which belong to your spouse. If your marriage is intact and you have joint financial problems, enter all obligations in Column 1. (If you’re separated or divorcing, consult with a family law attorney to determine which debts you’re obligated to pay.) If you share a household with someone else, consider combining incomes and paying all debts with joint funds (although sometimes this can cause more problems). Enter both partners’ debts in Column 1.

Column 2: Outstanding balance. In Column 2, enter the entire outstanding debt balance. For example, if you borrowed $350,000 for a mortgage and still owe $125,000, enter $125,000. Your latest account statement should list your outstanding debt balance. If not, the creditor’s automated phone system or online account information will provide the necessary information. Use your best guess if you can’t get the balance and prefer not to talk to the creditor.

Columns 3 and 4: Monthly payment and total past due amount. In Columns 3 and 4, enter the amount currently owed on the debt. If the lender hasn’t established set monthly payments—for example, for a doctor’s bill—enter the entire balance due in Column 4 and leave Column 3 blank. For debts you regularly pay—like a car loan or mortgage—enter the monthly payment in Column 3 and the past-due amount (missed monthly payments plus added fees) in Column 4.

For credit cards, department stores, and similar debts, enter the monthly minimum payment in Column 3 and your entire balance in Column 4. But keep in mind that you’ll want to make more than the minimum payments on your credit cards in the future. (Chapter 9 discusses the danger of paying only the monthly amount required.)

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 or security) guarantees payment. The most common type of secured debt occurs when you sign a credit or security agreement allowing the creditor to take property under certain conditions without suing you. For example, the creditor might be able to take your property if you don’t make a payment or fail to maintain property insurance.

Typically, you sign a credit agreement giving the creditor a security interest in the property purchased when you finance a car or take out a first or junior mortgage. Security interests might also apply when you buy an appliance, furniture, jewelry, or a computer with store credit.

However, a creditor doesn’t always need your permission to secure a debt. In two circumstances, a creditor can secure its debt without your agreement by filing a lien against your property. First, the creditor can file a lien if the law allows it. For instance, a mechanic’s lien lets a worker or material supplier file a lien against your real property if you or the contractor fail to pay. Second, a creditor can file a judgment lien against your property after suing you and obtaining a money judgment for the amount you owe.

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 significant and costly, like your car or house. Because the creditor can quickly take the collateral property without filing a lawsuit in many cases, secured debts typically have a high payment priority. If you want to keep the property, make the payment.

You’ll want to list the collateral the creditor is entitled to take if you default on the debt—it’s usually the property you purchased with the loan. (After reading more about secured debts in Chapter 3, you can come back and review whether you need to make changes to Column 5.)

Column 6: What priority is the debt? Leave Column 6 blank until you read Chapter 3. It will help you determine which debts are more important to pay than others.

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 those not due now. Column 3 represents your monthly payments, and Column 4 is the amount you need to get current on all your debts.

RELATED TOPIC

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. Chapter 2 covers these expenses, but now might be a good time to review that information. Listing monthly living expenses will give you a complete picture of your finances and help you determine how much you have left to repay debts.

CHAPTER

2

Create a Budget and Control Spending

Figure Out Where Your Money Goes

Make a Spending Plan

Create Good Spending Habits and Avoid Financial Pitfalls

Creating a budget is an essential step when it comes to controlling your spending. You’ll review all of your income sources, living expenses, debts, and savings to figure out the best way to spend your money—and where you can cut back. While it might not be an enjoyable task, this process will allow you to develop a plan to distribute the money you do have.

If you’d prefer not to create a budget yourself, contact a nonprofit debt counseling agency. These organizations primarily help people negotiate with creditors, but they can also help you set up a budget at no cost or for a small fee. (See Chapter 16 for information about finding a reliable debt counselor.)

Figure Out Where Your Money Goes

Before creating a budget limiting your spending, take some time to figure out exactly how much you currently spend. To do this, use online Worksheet 5: Daily Expenses.

Here’s how to use the form:

The goal is to record your expenditures for two months. Make eight copies of the form—you can download a copy at www.nolo.com/back-of-book/MT.html. (You can also transfer the information to an app on your phone, tablet, or computer—use whichever system you’re most likely to access daily.) You’ll track expenses for a couple of months to ensure your budget isn’t based on a week or two of unusually high or low expenses. If you are married or live with someone with whom you share expenses, you should each record your expenditures.

Select a day to begin recording your expenses (Sunday works well for most people).

Record the starting date in the blank at the top of one copy of the form.

Keep that week’s form with you or available on your device.

Record every expense you pay by cash or cash equivalent. Cash equivalent means check, ATM or debit card, peer-to-peer (P2P) payments, or automatic bank withdrawal. Be sure to include bank fees. Also, don’t forget savings and investments, such as deposits into savings accounts, certificates of deposit, or money market accounts, or purchases of investments such as stocks or bonds. (Unless it’s a retirement account, you’ll likely want to ease off of these expenditures until your finances are back on track).

Don’t record expenses you charge on a credit card. Your goal is to get a picture of where your cash goes each week. When you pay on a credit card balance, list the items your payment covered as an expense on your sheet.

EXAMPLE: On Sunday night, you pay your weekly bills and make a $450 payment toward your $1,000 credit card bill. The $1,000 includes a $500 balance from the previous month, a $350 airline ticket, a few restaurant meals, and accrued interest. On your daily expenditures form for Sunday, list $450 in the second column. In the first column, identify related expenses—for example, the plane ticket and one restaurant meal—and attribute some of it to interest. In this example, you must look at your previous months’ credit card statements.

6.Repeat this process with another copy of the form at the end of the week. Go back to Step 3.

7.Include occasional expenses, such as $200 for your child’s math tutor, $10 for a birthday gift, or a $20 donation to a local charity. Also include monthly payments such as your rent or mortgage; student loans; credit card payments; car payments; insurance payments; utilities, phones and cell phones, internet and streaming services; and other recurring expenses.

8.Once you’ve tracked expenses for eight weeks, list on any form under the category Other Expenditures seasonal, annual, semiannual, or quarterly expenses you incur but did not pay during your two-month recording period. The most common are property taxes, car registration fees, tax preparation fees, and insurance payments. But others exist. For example, if you record expenses in the winter months, don’t forget summer expenses such as camp fees for your children or pool maintenance. Similarly, if you do this exercise in the summer, be sure to account for your annual holiday gift expenses. Think broadly and be thorough.

Be tough-minded—if you omit any money, your picture of how much you spend and your budget will be inaccurate.

At the end of two months, review Worksheet 5. Are you surprised at the dollar total or at the number of items you purchased? Are you impulsively spending your money, or do you tend to spend it on the same types of things?

Make a Spending Plan

After you’ve kept track of your expenses for two months and have figured out your income (using Worksheet 1 from Chapter 1), you’re ready to create a spending plan or budget. Your two goals in making a spending plan are to get control over how you spend your money so you can use it for the things you really want rather than overspending on impulse buys, and to start saving money—an essential part of getting your finances under control and eventually rebuilding your credit.

To make and use a monthly budget, follow these steps:

Make several copies of Worksheet 6: Monthly Budget. (Keep in mind that you don’t have to use a paper version of this form. For some people, it will be easier to use a spreadsheet on a smartphone, tablet, or laptop.) Making a budget you can live with is a process of trial and error. You might have to draft a few plans before you get it right.

Get out Worksheet 1: Monthly Income (from Chapter 1) and Worksheet 5: Daily Expenses.

Review the expenses listed on Worksheet 6. As you’ll see, they are divided into common categories, such as home expenses, food, and transportation. If you don’t have any expenses in a particular category, you can cross it out or leave it blank. If you have a type of expense that isn’t listed on the form, add that category to a blank line.

In the first column (labeled Projected), list your average actual monthly expenses in each category. Calculate these amounts by adding together your actual expenses for the two months you tracked, then dividing the total by two. If you have seasonal, annual, or quarterly expenses, include a monthly amount for those as well. For example, if you pay $3,600 in property taxes for the year, you should list a projected expense of $300 per month ($3,600 ÷ 12) in this category.

Add up all projected monthly expenses and enter the total on the Total Expenses line at the bottom of the Projected column.

Enter your projected monthly income (from Worksheet 1) below your projected total expenses.

Compare your projected income to your projected expenses. If you spend more than you earn, you’ll either have to earn more or spend less to make ends meet. Unless you’re anticipating a big raise, planning to take on a second job, or selling valuable assets, you’ll probably have to lower your expenses. Review each category to look for ways to cut costs. Rather than cutting out an entire category, look for expenses you can reduce slightly without depriving yourself of items or services you need. For example, you might be willing to forgo one restaurant meal per month, subscribe to a less expensive streaming service, or spend less on clothing. (See Chapter 4 for ways to cut expenses.)

Return to your budget and enter your adjustments. When finished, add the new figures for a new total expense amount. If it’s less than your income, your budget is complete. If not, go back and try to find other places to cut back.

Label the remaining columns with the months of the year. Unless you prepared your budget on the first of the month, start with next month. During the month, keep track of and update your expenses in each category.

At the end of the month, total up how much you spent. How did you do? Are you close to your projected figures? If not, go back and make changes to keep the numbers balanced.

Check your figures periodically to help you keep track of how you’re doing. Don’t think of your budget as etched in stone. If you do, you’ll only find yourself frustrated if you spend more on an item than you’ve budgeted. Instead, use your budget as a guide. If you continuously overspend in one area, change the projected amount for that category and find another place to cut. A budget is just a tool to help you recognize what you can afford and where your money is going.

Are You a Compulsive Spender?

Habitual overspending can be just as hard to overcome as excessive gambling or drinking. If you think you might be a compulsive spender, you’ll need to get a handle on your spending habits.

Debtors Anonymous, a 12-step support program similar to Alcoholics Anonymous, has programs nationwide. You can also attend meetings over the phone or online. For local meetings and other information, visit www.debtorsanonymous.org or call 800-421-2383.

Create Good Spending Habits and Avoid Financial Pitfalls

The following suggestions should help you stay out of financial trouble. If you have a family, everyone should participate—no one can do all the work alone. It’s a good idea to make sure your spouse or partner and children understand that the family is having financial difficulties and agree to work together. Here are the steps that will lead to recovery:

Create a realistic budget and stick to it. Periodically check your budget and readjust your figures and spending habits.

Don’t impulse buy. When you see something in a store or online you hadn’t planned to buy, don’t purchase it immediately. Take time to think it over. It’s unlikely you’ll end up buying it.

Avoid sales. Buying a $500 item on sale for $400 isn’t a $100 savings if you don’t need it. It’s spending $400 unnecessarily.

Get medical insurance. Even a stopgap policy with a large deductible can help if a medical crisis comes up. You can’t avoid medical emergencies, but living without medical insurance is an invitation to financial ruin.

Charge items only if you can afford to pay for them now. If you don’t currently have the cash, don’t charge based on future income—sometimes future income doesn’t materialize. A good general rule is not to buy anything on credit that won’t exist when the statement arrives (such as meals, groceries, or movie tickets).

Live without credit for a while. Credit counselors often advise paying cash to cut your spending. Even if you don’t spend less, you will likely still save by not having the cost of carrying a balance on the cards.

Avoid large rent or house payments. Obligate yourself only for what you can afford now, and increase your mortgage payments only as your income increases. If you’re married or living with a partner and both of you are working, keep the payments low enough that you can handle them even if one of you loses your job. Consider refinancing your house if you can qualify for a lower interest rate and reduce your payment. Another possibility is to ask your mortgage lender to modify your existing loan to make the payments more affordable. (See Chapter 7 for information on refinancing and other strategies for dealing with high mortgage payments.)

Avoid cosigning or guaranteeing a loan for someone. Your signature obligates you as if you were the primary borrower. You can’t be sure that the other person will pay.

Avoid joint obligations with people who have questionable spending habits—even a spouse or partner. If you incur a joint debt, you’re probably liable for it all if the other person defaults.

Don’t make high-risk investments. Opt for certificates of deposit, money market funds, and government bonds over speculative real estate, risky stocks, and junk bonds.

CHAPTER

3

Prioritizing Your Debts

Secured and Unsecured Debts

Secured Debts

Unsecured Debts

High-Priority Debts

Medium-Priority Debts

Low-Priority Debts

Review Your Worksheets

Some debts are more important than others. This chapter helps you to prioritize your debts and decide which ones are essential to pay and which you can ignore for a while.

Often, creditors with low-priority debts will be pushing the hardest for repayment. But paying the noisiest creditors might not be in your best interest. Instead, base your payoff decisions on the consequences of not paying a debt. If they’re severe, paying the debt is essential. If they aren’t, payment is a lower priority. Repayment of secured debts is almost always a top priority because if you don’t pay, you could lose valuable property, like your car or home. Also, if the lender can’t sell the property for the amount you owe, you could still be liable for some of the debt.

If You’re Considering Bankruptcy

If you’re considering bankruptcy, read Chapter 13 before making any debt payments. It doesn’t make sense to pay debts you could eliminate or discharge in bankruptcy. Also, be aware of your spending before filing for bankruptcy. You might remain responsible for some credit purchases made during the 90 days before filing for bankruptcy. Also, the court could cancel payments benefiting a relative or business associate made up to a year before filing. When this happens, your relative or associate must return the funds to the bankruptcy court.

Secured and Unsecured Debts

Legally, debts fall into two primary categories: secured or unsecured. Before you can prioritize your debt, you need to understand the difference because the consequences of not paying secured debt differ tremendously from those of not paying unsecured debt.

Here’s a quick explanation of the differences: If you don’t pay a secured debt, you lose property quickly—usually your house or car. If you don’t pay an unsecured debt, your creditor must sue you before taking property.

Secured Debts

A secured debt means that a specific item of property, sometimes called collateral or security, guarantees payment of the debt. If you don’t pay, most states let the creditor take the collateral without first suing you and getting a court judgment. The creditor might not even have to give you notice before taking the property. If you’ve ever had a car repossessed when you failed to make a loan payment, you already know how secured debts work. Here are more examples.

Mortgages or home equity loans. Real estate purchased with a mortgage loan usually serves as security for the loan. If you don’t pay, the lender can foreclose on the property. If it’s a home equity loan, the lender can foreclose even if you used the money for something besides your home.

Loans for cars or other vehicles. When you take out a vehicle loan, you voluntarily agree to use the vehicle as security. If you don’t pay, the lender can repossess the vehicle.

Store charges with a security agreement. When you buy furniture or a major appliance using a store credit card, you often agree that the purchased item will serve as collateral. The seller can take the property if you don’t pay back the loan. However, most store purchases are unsecured—so check your credit agreement or receipt to verify whether the purchase created a secured or unsecured debt. Also, even if the debt is secured, you don’t have to let the creditor into your home to get the property without a court order. So, practically speaking, you’re unlikely to lose this kind of secured property when it is inside your home.

Personal loans from finance companies. Sometimes borrowers pledge personal property, such as furniture or electronic equipment, as security. Federal law lets certain creditors use household goods like an appliance, television, or jewelry as collateral when the item was purchased with the credit extended to the buyer. It also applies when the creditor takes possession of the goods when making the loan. (16 C.F.R. §§ 444.1, 444.2.)

A creditor might also be able to secure its debt without your agreement by filing a lien against your property. This can happen in certain circumstances where a law specifically allows for it. It can also occur when a creditor files a lien against your property after it has sued you and obtained a judgment against you. Here are some examples:

Lawsuit judgments against you. If someone sues you and wins a money judgment, a judicial lien can be placed on your real estate (or, in many states, on other property as well). The creditor could foreclose and force the property’s sale, but that’s uncommon unless your property has significant equity because it’s expensive. Instead, the creditor usually waits until you sell the property and the escrow company pays the lien from the sales proceeds.

Liens created by law. For example, someone who works on your house and doesn’t get paid can place a lien on your home without going to court. This type of lien is called a mechanic’s or materialman’s lien. A homeowners’ association can get a lien on your home in some states if you don’t pay your association dues. Although these creditors might foreclose (force a sale and get paid from the proceeds), they usually wait to get paid until you sell the property.

Tax liens. Federal, state, and local governments can place liens on your property if you owe delinquent taxes.

Unsecured Debts

An unsecured debt is one that collateral doesn’t secure. For example, when you charge clothing on your credit card, the clothes aren’t collateral for the debt. So if you don’t pay voluntarily, the bank that issued the credit card must sue you and try to collect what it’s owed.

Most debts that are unsecured include the following:

credit card purchases or cash advances

gasoline and department store card charges, unless the agreement you signed to open the account contained a security agreement

loans from friends and relatives

student loans

alimony and child support

medical, dental, legal, or other bills for professional services

rent

utility bills

church or synagogue dues, and

union dues.

Look back at Worksheet 2, Column 5 now and see if you need to make any changes indicating whether the debt is secured and, if secured, list the security. You might need to review the documents you signed when you got the credit to see if they say anything about a security interest in any property. To learn more about credit contracts and loan terms, read Chapter 9.

High-Priority Debts

You could face serious, even life-threatening consequences if you don’t pay a high-priority debt. Usually, the most important debts are those secured by collateral you want to keep, such as your house. However, an unsecured debt might also be essential.

Even if you don’t hear from these creditors, don’t assume they won’t collect their debts. Because secured collectors have such a powerful weapon (they can seize the collateral if you stop making payments), they don’t need to hound you like collectors with lower-priority debts do.

EXAMPLE: Josh is taking an experimental heart medication for which his health insurance only pays 50%. His outstanding bill to his pharmacist is currently $350. This is an unsecured debt, but if he doesn’t pay it, he won’t be able to get the prescription refilled there. Because he has a poor credit history, he probably couldn’t get credit elsewhere. Unless Josh can find other assistance, such as subsidized prescription benefits, this debt is high-priority.

Other high-priority debts are described below.

Rent. Paying for a place to live is essential. Unless you know you will move and have a new place to live, make paying your rent a top priority. If necessary, ask your landlord for a temporary rent reduction. Explain your financial problems, including when you can resume making full payments. Other alternatives include moving into a less-expensive unit the landlord owns, doing repairs, or providing services in return for reduced rent. In any of these cases, be sure you get written confirmation of your agreement from your landlord. (See Chapter 5 for sample language you can use to confirm an agreement with a landlord.)

CAUTION

Carefully consider the pros and cons before you sell your house. Your house might be worth more in six months or a year than it is today. Selling it could deprive you of an asset that could make you money over time and lock you out of the housing market once you’re back on your feet. On the other hand, if you bought your house with little or nothing down, you have no equity in it, and your mortgage payment is growing (perhaps due to an adjustable interest rate), it might not make sense to try to keep the house. Before you decide, see Chapter 5 and Chapter 7 for alternatives to consider if you are behind on your mortgage or an equity loan.

Mortgage. Home mortgages, home equity loans, and home equity lines of credit are secured by your home. If you can’t pay, you could lose your home in foreclosure. If you’re a homeowner in financial trouble, consider looking for a roommate to help with the mortgage. You might be able to negotiate reduced payments or qualify for a mortgage reduction. (See Chapter 7 for information about working something out with your mortgage lender.) Although the usual rule is to treat your secured debts as a top priority, it’s not always the best option for loans on your home. Be sure to consider other alternatives.

You could:

sell the house and use the proceeds to pay your creditors and rent a place to live

try to arrange a short sale if your home is worth less than the loans on it

ask the lender to accept a deed in lieu of foreclosure, or

stop making mortgage payments while the creditor completes the foreclosure process. (See Chapter 7 for more information about how to deal with mortgage or equity loan payments you can’t afford or to learn about foreclosure.)

Utility bills. Being without gas, electricity, heating oil, water, or a phone is dangerous. You might not have to pay parts of your phone bill to keep basic service (see Chapter 2). For ways to reduce your utility bills, see Chapter 4.

Car payments. If you need your car to keep your job, make the payments. If you don’t, consider selling it to avoid repossession, which will inevitably occur if you fall behind on the payments. You might be able to use the money to buy a cheaper car. If you sell the vehicle, but the sales amount falls short of what you owe your lender, you will have to make up any difference in most cases. If you don’t sell the vehicle and it’s repossessed, the lender will sell it at a fraction of its value, and the difference you owe will probably be even more significant. (See Chapter 6 for more information.)

If you lease your car, you can’t just sell it. Instead, you must call the leasing company and arrange to end the lease early. You will have to pay any past-due payments and an early termination penalty (which can be considerable), but at least you will be out from under the monthly lease payments.

Don’t even consider transferring the car to someone who promises to make the monthly payments for you. Such a transfer almost certainly will violate your purchase contract or lease and probably is illegal. And if the business or person who takes the car doesn’t make the payments, you’ll be responsible for the resulting default on the loan, which will become part of your credit record.

In deciding whether to hold onto the car, consider the amount of your monthly insurance payment, which you’ll have to keep current if you keep the car. Lenders usually consider failure to maintain insurance a default event that can lead to repossession. Also, the lender can obtain insurance to protect its interest in the car, which usually is very expensive, and hold you responsible for the premiums.

Other secured loans. Secured debts, you’ll recall, are linked to specific items of property, such as a house or car. In addition, debts on boats, RVs, and expensive electronic gear are likely to be secured. If you don’t repay the debt, most states let the creditor take the property without first suing you and getting a court judgment. If you don’t care if the property is taken, don’t worry too much about missing a payment or two. If the property is something you can’t live without, and you think the creditor will take it, you’ll need to keep that debt current. Or try to work out a compromise with the creditor. (See Chapter 5.) Remember: If you bought the boat, RV, or home theater system using your equity line or a second mortgage, missing a payment is just like missing a mortgage payment—you could wind up losing your house.

Unpaid taxes. If the IRS is about to take your paycheck, bank account, house, or other property, negotiate a repayment plan immediately. You have the right to an installment agreement if all of the following are true:

You owe $10,000 or less.

You’ve paid your income tax and filed returns on time for the past five years.

You haven’t entered into an installment agreement with the IRS during that period.

The IRS determines that you can’t pay the full amount of tax you owe when it’s due.

You agree to pay the full amount within three years and comply with the tax laws while the agreement is in effect. (See IRS Form 9465, Installment Agreement Request, available at www.irs.gov.)

Even if the amount you owe exceeds $10,000, or it will take you more than three years to pay, or you’ve defaulted on an agreement with the IRS in the past, the IRS might still be willing to negotiate a payment plan if you can convince the agency that you’ll stick with it (although you might have to pay a fee, along with interest and penalties). If you owe less than $50,000, you can file an online application to set up an installment plan. (For tips on negotiating a compromise for taxes owed, see Chapter 5, Income Taxes.)

RESOURCE

More information on tax negotiation. The best resource available to help you deal with the IRS is Stand Up to the IRS, by Frederick W. Daily and Stephen Fishman (Nolo).

Medium-Priority Debts

Some debts fall into a middle ground. Not paying them won’t cause dire consequences in your personal life but could prove painful nonetheless. In deciding whether to pay these debts, consider your relationship with the creditor—is this person a friend, valued family member, someone you depend on? You’ll naturally want to honor those debts if you can. Also, consider whether the creditor has begun collection efforts. You might be tempted to ignore a creditor who has contacted you for the first time but will want to deal with the one who is about to get a judgment against you. On the other hand, it might be easier to negotiate terms of payment earlier in the process. And you might be able to reduce some of these priority debts. (See Chapter 5.)

Here are some types of debts that might be of medium priority for many people. But depending on your particular situation, some of these might be high or low priority for you.

Car insurance. In some states, you can lose your driver’s license if you drive without insurance. Also, lenders that finance car sales usually consider failing to maintain insurance to be a default. That can lead either to a lender’s buying insurance that is often much more expensive than what you could find and charging you for it or repossessing your vehicle. After you let your insurance lapse, getting car insurance will probably cost more than keeping your existing insurance current. For ways to lower the cost of your car insurance, see Chapter 4, Reducing Insurance Policy Premiums.

Medical insurance. Especially if you are under a physician’s care, you’ll want to continue making payments on your medical insurance.

If you have medical insurance through work and you lose your job, you’ll probably be able to keep your insurance coverage for at least 18 months and, in some cases, 36 months (extended coverage is referred to as COBRA), but you will have to pay the whole premium plus 2% to compensate your ex-employer for continuing to handle the coverage.

For details about COBRA, go to the Department of Labor’s website at www.dol.gov (run a search for COBRA and follow the link).

Or you can sign up for health insurance coverage under the Affordable Care Act.

In a few situations, such as losing your job-based coverage, getting married, or having a baby, you might qualify for a special enrollment period that will allow you to enroll outside the annual open enrollment period. (For details, go to www.healthcare.gov.)

Homeowners’ insurance. If you don’t keep up your homeowners’ insurance, your lender could treat this as a default on the loan and start foreclosure. More likely, however, the lender will just buy insurance, sometimes at a much higher cost than your current insurance, and charge you that additional amount as part of your mortgage payment.

Federal Student Loan Payment Suspension During the COVID-19 Pandemic

In late 2022, the Biden Administration announced that the U.S. Department of Education would extend the ongoing suspension of most federal student loan payments while its student loan debt cancellation program (see Chapter 10) is tied up in the courts. Payments will resume 60 days after the debt cancellation program is implemented, 60 days after the lawsuits are resolved, or 60 days after June 30, 2023, if the program has not been implemented and the litigation has not been resolved by then.

The suspension applies to Federal Direct Loans and Federal Family Education Loans (FFELs), but

Reviews for Solve Your Money Troubles

[wendallyn · Rating: 4 out of 5 stars]

Nolo Press is already a trusted name in my household- they publish great "do it yourself" guides to many of life's issues. "Solve Your Money Troubles: Debt, Credit & Bankruptcy" is a great practical guide to understanding your credit, debt, and helps you plan how to dig yourself out of a hole. If you are stuck in the credit rut, read this book before spending hundreds or thousands on a bankruptcy attorney- you need to know your options and the consequences of your decision. I would recommend this guide to anyone who wants to gain understanding of their financial picture and learn how to manage their money more effectively. You can create a financial plan for yourself and your family, and get rid of the fear and torment of money problems.

[sweans · Rating: 5 out of 5 stars]

Nolo books are always thorough and tell you exactly what you need to know. This one is no different. I always recommend them to library patrons when we have one a the topic they are searching for.I received a copy of this in the early reviewer program.

[sherylcalmes · Rating: 4 out of 5 stars]

I found this to be a very helpful book for anyone who is trying to get control over their finances. The sample memos and worksheets are very useful. Very good sound advice. I would recommend to anyone to better understand your credit and how to protect it.