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Posted 12/19/2002


















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The Basics
Dear debtor: Lose the 'party on' attitude
It's time to wise up. Your credit-card debt is a bad deal, and the sooner you realize it, the better.
By Liz Pulliam Weston

Question: I am not happy reading articles like "3 keys to defeating debt now." Columnists like you are always saying how bad debt is and how we should save and invest instead of buying things.
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I have a beautiful apartment furnished with things I never would have been able to afford had I not charged them. So what that I pay more for these things over time? Didn't you ever hear the phrase, "You can't take it with you"? Shouldn't we enjoy the time we have now and not harp on the "future" and the need to put everything away?

Don't make everyone miserable by saying debt is like the devil. I don't disagree with you that some people do go overboard in their charging. But please, don't generalize in your statements about credit-card debt.

Answer: Sorry to upset you so, dear. But you wouldn't really care what I had to say if there weren't a small voice somewhere inside of you telling you there's something wrong with your "party on" attitude.

You're absolutely right that we need to have some balance. It's sad indeed when people are so focused on the future that they don't have any fun in the present.

But sadder still are people who are chained to jobs they hate because they need to pay the bills for their overspending. Or those who hit their 40s or 50s and realize they're going to have to work for decades more because they were so focused on buying "beautiful" stuff rather than putting something away.

You're probably young and can't imagine yourself concerned about such things. But most of us do live long enough to grow old, and trust me -- it's better to have money when you're old than to have debt.

Of course, you don't even have to think about the future to realize what a bad deal credit-card debt is. Every dollar you send to a credit-card company to pay interest is a dollar you don't have to spend right now on something more fun. Even if your credit-card rates are relatively low -- say, 9.9% -- you're still sending more than $800 a year to a credit-card company to maintain the typical $8,000 balance. That's a new PC, a great leather jacket or two discount tickets to Paris. I'd much rather have those things than credit-card bills.

Ahoy! If you're sinking in debt, sell the boat
Q: I have about $10,000 of credit-card debt right now that hasn't been paid in about five months. I have the same amount due in old student loans. I am not currently employed. I live on my own sailboat, which has a value of about $25,000. The rent for the boat slip is $270 a month. I have considered bankruptcy, but I am not sure that it is necessary. I don't have creditors bothering me very often as I am usually unavailable. Can you please advise if it is best to keep my unpaid debts or file bankruptcy? I am aware that a bankruptcy will not clear my student loans. My concern is if I can lose my boat, leaving me homeless. I appreciate any advice you can offer.

A: Filing bankruptcy at this point would be pretty absurd. You don't owe that much, you're not being hounded by creditors and, as you know, you almost certainly can't get rid of half your debt -- your student loans -- in bankruptcy court.

But clinging to the boat is pretty absurd, too. You have an asset that could get you out of this hole overnight. By selling it, you could pay off your debt, get a fresh start and begin rehabilitating your credit rating.

If you wanted to keep your boat and file for bankruptcy, you'd likely have to opt for Chapter 13, which requires you repay some or all of your debt, rather than Chapter 7, which allows you to wipe out most unsecured debts (like credit cards). Since you're not employed, I can't imagine your being able to come up with a repayment plan that would impress a judge -- again, not without selling the darned boat.

So your first priority, whether or not you decide to keep the boat, has to be getting a job. It doesn't have to be a great job. Just get anything that will allow you to make your slip payments (or your rent if you relocate to dry land) and start chipping away at your credit-card debt. You would only need to send in about $250 a month to get your balance paid off within three years, assuming you stop using the cards. You should also contact your student lenders and see what options are available to help you get started on paying off that debt.

Of course, you may discover that your credit-card accounts have been turned over to collection agencies. They're not going to be all that delighted with accepting payments over time. Most would prefer some kind of lump sum settlement, even if it's just 50 cents to 75 cents on the dollar. You'd have a lot more negotiating power if you'd sell the boat. In return for the settlement, you could demand that the agency report your debt as "satisfied in full," which could help your credit standing.

Living dockside is romantic, but romance is a luxury when you're unemployed and in debt.



Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She is on maternity leave until March 2003.