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A reader makes 180k but can’t afford groceries – consolidation loan dangers

I had a reader write in with a  story that happens all too often…I myself have been guilty of it at one point.  Its a little thing I like to call “good intentions gone bad.”  So what exactly am I talking about?  Consolidation loans.  Particularly consolidation loans as they relate to budgeting and money habits.  Ive had a few emails along these lines but never someone with so much debt….and so much income.  Here is the reader’s letter:

“Hi Jesse,
I admit I feel kind of weird writing to a guy on the internet that I dont know (but I know a lot about your life at least, does that count?) but I feel like I need to.  I have been reading financial websites for a while and I find you to be the most down to earth and real of most sites.  Some of “huge” financial sites seem sort of idealistic.  Anyway whatever.  I am writing because my wife and I are in a very difficult situation that we take full responsibility for but we do not know what to do from here.   We are both in our early 30s and we both make about 90k per year, so you would think that we are living large, but quite the opposite, we can’t even afford groceries.  See, a few years ago when we both were promoted.  We bought a house here in California for 600k.  Its by no means a mansion, housing is just very expensive here.  Then we went on a vacation that cost about 8k, which we put on credit cards.  It just spiraled out of control from there and we found ourselves with 40k in debt + 30k in student loans.  We did a consolidation loan and got one fixed payment on the 40k at a good rate.  The problem is, we have charged our credit cards back up to about 10k.  Should we get another consolidation loan?  You have everything, houses, a nice car, and now a baby.  We make a lot of money but our minimum payments take up most of our income!  I called some hot line and ended up hanging up because first I felt stupid then after sitting through a fairly humiliating interview they told me they could help at a cost of $20 an hour!  How is that helping, I need $20 for food and gas right now.  We would like to sell our house to get rid of that but housing prices have dropped it I don’t even think we can get out of it what we bought it for.  I have to tell you, Im hopeless right now.  My wife and I fight about money every day.

Thank you for your website, I am depressed when I see your stock picks because I know I will probably never be out of this debt to even try investing in any of them.  But I appreciate it anyway.


PS you can publish this if you want, I know sometimes you tell reader stories.  I guess I can be what not to do.

Before I respond I am going to give a little bit of a primer for anyone who needs it:

Consolidation loans are loans that are supposed to work like this: Take one of these loans out. Pay all of your different credit card debt and other debt down with the loan. Pay one monthly payment with a lower interest than what you were paying before. Its all good then, right?

It’s only a good deal if you create a budget and stop spending. Grant has fallen into the most common trap in with consolidation loans: consolidating and then spending like its business as usual and running the credit cards back up. So now they have their new credit card debt AND their consolidation loan debt.

Getting back on track, here was my response to Grant:


Thanks for writing, I appreciate you taking the time to write in.  There is no shame in talking about money issues, money is still a huge worry for me, especially with all of the things I have going on that you mentioned.  I appreciate the compliments, but Im sure my fiance would tell you I do not always have everything together 🙂  That being said, there are people that subsist on 1/10 of your income so I am glad you realize that this is your responsibility to take care of.

You have one major problem:

You HAVE to alter your spending habits.  That is the only way that anything will change.  Trust me, I know how hard it is.  I still have problems locking down to a budget.  It’s a tough thing to do but it is necessary, especially in your case.  Thats #1.  Cut up every one of those credit cards, right now.  Every consolidation loan in the world can’t stop you from spending more than you earn.  That is your job, and your job alone.

Next step: time for some drastic measures.  The absolute first thing to do is to pay down that credit card balance.  Do you have anything you can sell?  Time to start.  You mentioned gas money, well, when you are in that big of a hole, its time to stop driving if its possible.  You are in “bike 10 miles to work” territory…or public transportation if possible.  Since you do not have kids to worry about yet, you need to go to some extreme measures to get that debt down, especially if you can barely afford groceries.  If you have to get a second job on the weekend doing manual labor even, do it.  I assure you, being burned out from working all the time will be a much better fate than defaulting or filing for bankruptcy.

I want to stress something else too: you sound pretty hopeless, and let me tell you, there is hope.  If there is one thing I have learned in life its that things always get better and there is always hope.  The key is taking charge of your situation and doing whatever is necessary to get the problem fixed.  You can do it.  In fact, send me your paypal address and I will buy you 1 share of stock in one of my picks.

As far as the credit counseling goes, remember, credit counseling is code for “fraud” and is just another thing to siphon money.  Good luck man, if there is anything I can do to help, let me know and keep me updated.  Im sure readers will appreciate your story so I am going to post it, not as an example of what not to do, but to show what can be done.


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