Dear Liz: I am 54 and my wife is 49. Because of a career change I made four years ago and my wife's layoff, we have run up $50,000 in credit card debt and $61,000 on a home equity line of credit. In addition, our home is worth at least $40,000 less than what we owe on it. I have tried twice for a loan modification but was turned down. We had a late payment one month, so the bank will not consider a refinance for at least a year. We are current on everything, but just barely. We have no savings because we use all our income for bills. We have a child in college and another who is a junior in high school preparing for college. I feel like a hamster on a treadmill just waiting for a total financial collapse and certainly have no hope of ever retiring. In addition, I totally hate my job and its industry and feel like I'm in living hell. I have an MBA but think I may need more training to make me more competitive in the job market. Any suggestions?
Answer: Clearly you can't afford your life. The fact that you incurred debt to switch to a career field you now hate indicates that you're prone to making rash decisions. So the most important thing is that you thoroughly research your options before making your next step.
Contact a housing counselor approved by the Housing and Urban Development Department to discuss your loan modification options. You can get referrals from http://www.hud.gov. The modification process is so torturous and complex it can really pay to have an experienced hand guide you, but you shouldn't pay thousands of dollars to an attorney or other "expert" when you can get low-cost or even free advice from a HUD-approved housing counselor.
If you can't get a modification and your home costs are eating up more than 30% of your monthly income, seriously consider a short sale so you can move to a more affordable place. Here you will want an attorney's help, because short-sale negotiations can be tough and the lender can keep you on the hook for the remaining debt if your agreement isn't worded properly.
You'll need to have a talk with your children as well. This will be difficult, but if you aren't saving sufficiently for retirement, you can't afford to help them with education costs. Your kids can get a college education on their own by working and using federal student loans, but they may need to switch to cheaper schools.
Think long and hard before you borrow any more money, for job training or anything else. A session with a career counselor could help you define other jobs you could get with your existing credentials. If you do need more training, get it the most cost-effective way possible. Nonprofit community colleges offer inexpensive courses at night that would allow you to keep your day job.
Although you don't think you'll ever be able to retire, at some point you won't be able to continue working. Your priority should be to pay off your debt and build up your retirement savings so that you have more to live on than Social Security checks. Everything that doesn't serve those goals has to be discarded, as difficult and painful as that may be.
Dear Liz: You just saved me $69! Eleven months after I was treated at a health clinic — where I paid the bill in full — I received a bill for $69. Because I have read so much from you on debt collection scams and zombie debt, I refrained from paying it. Before reading all your columns, I would have paid it without question, to save my credit score and avoid a headache. Instead I called the clinic's billing department, with a receipt from last May that said my balance was zero. The billing representative told me that I do not owe anything and to disregard the new bill. It may not be a lot of money to most people, but it is money, and I am grateful to you for erasing biases taught to me as a child that have cost me in the past.
Answer: You're not quite done yet. If you're contacted by a debt collection agency, you need to send a copy of the proof you paid the bill to the agency, along with a letter saying that you don't owe the debt and that reporting the debt to the credit bureaus would be a violation of fair credit reporting and debt collecting laws.
If the debt collector insists on reporting the debt to the credit bureaus, it could affect your scores. Continue monitoring your credit reports and be ready to dispute the bogus collection account if it appears. You may be able to sue the debt collector if it persists in reporting a false debt. You can find more information at DebtCollectionAnswers.com.
Liz Weston is the author of "The 10 Commandments of Money: Survive and Thrive in the New Economy." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.