Oran Hall | A sticky debt situation

QUESTION: I am 31 years old and in need of a real solution for my current financial situation. I owe over a million in students’ loans, loans from friends, relatives and other institutions. I get paid about $85,000 after tax, but, at the end of month, I end up confused after paying bills because I now have less than enough to get to work and survive plus my son is in school, my wife also and I am to complete five modules to attain my degree,  and I am the only one working. 

Trying to get a loan is a stretch because of the students’ loan. I think if I can get a loan consolidation and possibly get onto some income-generating ideas that I have would be great, but I am not too enlightened on my best options so it is quite tedious to begin with. It would be great if you could assist with some direction in this situation.
- Hugh

FINANCIAL ADVISER: There is a serious hole in your budget. The easy solution in such a situation is to increase income, reduce expenses or both. But you are so overextended, it is hard to say there is an easy solution.

On the income side, it seems you may have to act on the income-generating ideas you have in mind. Already working, and with several modules away from completing your degree, it could be challenging to make time to pursue those activities, but, where there is a will, there is a way. It would be good to complete your course as soon as possible as this should improve your chances of earing more.

Perhaps your dear wife may have to find a way to earn some money. Jobs are still not jumping into our laps but she could try to contribute to the family budget. After all, I would love to believe that the troubles of your family are temporary.

You stated that it would be difficult to get a loan because of your students’ loans but nonetheless seem interested in a loan consolidation. A loan consolidation is a loan. Perhaps you mean that you do not see it possible to take on additional debt.

A loan consolidation is not a cure-all. This is just a case in which one loan is secured to replace several. Thus, there is just one repayment on one large debt rather than more than one debt and more than one monthly payment, making it easier to manage your loan.

There is no guarantee that debt consolidation will reduce your monthly payments. In fact, there is no guarantee that you will qualify for such a loan. Lenders must satisfy themselves that you have the capacity and willingness to pay and that you have an acceptable credit score.

Consider also that you will likely need to have collateral to be able to secure a loan to replace the existing loans. Do you have collateral that is acceptable to lending institutions and do you have clear title to any assets that can be used as collateral?

The fact that some of your loans are from private individuals should not necessarily disqualify you from securing a loan for consolidation. Some lenders will require a letter signed and stamped by a Justice of the Peace attesting to the fact that you do have a loan or loans with the private individuals, stating clearly the sum owed.

I do not know the arrangements that you have with the individuals who have lent you money, but it is quite possible that, if they are soft loans, you could end up having a greater burden if you succeed in borrowing from a financial institution to which you have to make monthly principal and interest payments.

There is not much that I know about your current arrangements, but it is possible that there is room to discuss with the individuals who have lent you money if they are willing to give you more time to repay the sums you have borrowed.

By all means, do all you can to ensure that you do not do harm to your credit worthiness lest you encounter serious difficulty in later years to borrow for productive purposes.

 Increasing your family income should be your priority. Engage your wife in a discussion to collectively find ways to work through this challenging situation. Take courage. Do not despair and do all you can to maintain your health. It is critical to your ability to successfully pass through this challenging phase of your life.

- Oran A. Hall, the principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel. 
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