Question:
Dear Steve,
I want to avoid filing bankruptcy!
My current financial situation is so stressful that I am constantly dealing with severe anxiety, nausea and extreme highs and lows. There is no doubt it is hurting my ability in my sales career which then effects my compensation, since I am a commission-only sales rep.
I have multiple student loans. My Federal are already consolidated but my private are not. I also have high credit card and medical bill debt from my time in college and had an emergency surgery just after my dad was laid off from his job leaving me uninsured.
I have questions and get even more anxious and upset when I try to get the right and smart answers with so much bad information out there.
Instead of having 12 different people to pay each month and accruing interest on all, I would like just a few payments. I want to consolidate my credit card/medical bill/student loans somehow. My thought is that if I can do this, I can then pay off some of the accounts that are in collections so I can improve my credit score -- it's not good!
I have no clue with my credit score -- high 500, if I'll even be able to do that. Can you help me?!
Thanks so much for your time!
Answer:
Dear Anonymous Friend,
First off, I'd like to extend a preemptive big hug to you. I know you are stressed out beyond all measures right now, but this can be alright in the near future.
We need to look at your situation for what it is: two issues. It is normal for people to internalize their financial problems but in reality money troubles are just math. It's more of the emotional trauma and whipping we give ourselves that is the real enemy.
This emotional component is what leads people to do excessive things. Over the years I've had clients who were on the verge of suicide, died of heart attacks, cut themselves, and one who went off to be an escort rather than face the math.
The perception that problem debt exists leads to amplifying our underlying emotional traits. A recent study by a UK group found "9 out of 10 of those in problem debt felt that their financial difficulties had made their mental health problem(s) worse."
And the level of debt that triggers these emotional responses is different for each person. I remember once I held a sobbing man in my arms who was considering suicide over $3,000 of credit card debt, and not long after I spoke to a man who was nonchalant about $300,000 of credit card debt. The number doesn't matter, it's how it impacts you that matters.
From what you've shared, it sounds as if the stress and worry about the debt has created a situation where my first recommendation would not be to deal with the debt but to talk to your physician or mental health professional and let's get the anxiety under control. Until we can manage those issues, you will not be able to make good choices about dealing with the debt.
The stress and pressures of debt actually create a situation I call Financial PTSD. Financial PTSD is the byproduct of traumatic stress. There are all sorts of moments that can cause traumatic stress, but we only seem to hear about those incurred in war. You can learn more about Financial PTSD here.
Your initial statement that you want to avoid bankruptcy concerns me. It is a fear that puts the only legal tool you have at your disposal off the table. But as I've said before, "In my experience, once people are generally feeling blue, hopeless, or depressed about their financial situation, it is not a huge step for some to be scared or afraid about bankruptcy and contemplate suicide to deal with their situation. I've seen more people with student loan debt reach out to me and express their frustration and desire to kill themselves over their debt. It's a tragedy."
The good news here is once you tackle the emotional component and we then move on to address the debt, you will find the sales, optimism and enthusiasm for the future will return. Sales made through inspiration are easier to come by than through desperation.
Think about this process like the triage that occurs in a battlefield hospital or emergency room. If you come in with a bleeding artery or a broken bone, one of those issues deserves immediate attention first. The broken bone can wait a bit to be set and will heal just fine. The same is true for your situation. The emotional component needs to be addressed first and then the debt issues can be fixed and will heal better than before.
But you absolutely must not take bankruptcy off the table. For most people, it is the fastest and least expensive way to deal with problem debt. The fear people generally have about bankruptcy is entirely based on assumptions and myths. All of those myths are false and when people learn the truth about bankruptcy they are astonished. I think you should read "So You Are Going to File Bankruptcy. That's Good News. Congratulations." Besides, people who file bankruptcy do better financially than those that don't. I know that sounds counterintuitive but read this.
Once we deal with everything, you will emerge better than before. Your money problems will be under control, you will feel better, you can easily rebuild your credit and maybe best of all, you'll be back and fully engaged in a positive life.
This article by Steve Rhode first appeared on Get Out of Debt and was distributed by the Personal Finance Syndication Network.