Money Rehab with Nicole Lapin - "My Debt Is Bigger Than My Income. What Should I Do?" (Listener Question)

Episode Date: September 28, 2023

Nicole answers a question from a Money Rehabber whose debt outweighs her income. Her plan to repay her student debt was to pursue a career as a pilot, but flight courses were so expensive she could no... longer continue the program. Nicole gives suggestions for how to tackle the debt once and for all. For the Money Rehab episode with a bankruptcy lawyer, click here: https://link.chtbl.com/BXsfSHGq  For the Money Rehab episode on negotiating the interest rate on your credit card, click here: https://link.chtbl.com/vHRLJoaQ

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Starting point is 00:00:00 I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.
Starting point is 00:00:38 I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself.
Starting point is 00:00:56 Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. You've heard the adage, you've got to spend money to make money, right? Normally this is applied to business, but it's also true with education. There are just some careers with massive money-making potential that come with really big-ticket education costs, like becoming a lawyer or a doctor, for example. But
Starting point is 00:01:31 how the heck are you supposed to spend like a lawyer or a doctor before you actually become one? A money rehabber wrote in with a question on this very topic. She wanted to stay anonymous, so I'm going to call her Tessa, and our producer is going to read her question. Hey, Nicole, here's my question. I went to pilot school in an attempt to have a better paying job. I was unable to finish my commercial license to get a paying pilot job because I could no longer afford flight hours, and now I'm in debt. I have a credit card with $3,900 and 18% interest that I've been trying to pay more than the minimum. I also have a Wells Fargo credit card that maxed out at $18,000 and has gone to a collection agency because I was unable to make payments. I haven't heard from them in over a
Starting point is 00:02:18 year. I also have about $18,000 in federal student loans and have applied for the income-driven repayment plan. I work two seasonal jobs and make about $25,000 a year. I'm applying for better paying jobs, but what else should I do right now to start paying off my debt and fix my credit? I would eventually like to finish my flight training and work as a pilot. Thanks. Tessa, thank you so much for sharing that with me. I know that it's scary to face debt head on, but we are going to figure this out together. I am going to break your question down into two different parts and then break those parts into mini parts because there is a lot to unpack here, sister. First, let's talk about the piloting of it all. I don't know how far
Starting point is 00:03:02 you're along with your flight hours or which program you're actually enrolled in, which does affect this calculus. And I heard you when you said that you were not able to finish your commercial license. But let's talk about what happens if you resume that program. Let's state the obvious. Pilots make good money. According to the U.S. Bureau of Labor Statistics, the average pilot salary in 2022 was over $200,000. labor statistics, the average pilot salary in 2022 was over 200 grand. So it's reasonable to assume that once you become one, you can pay off that debt. Not only that, but most airlines are
Starting point is 00:03:31 desperate for pilots these days and offer their own flight schools, loans, and even scholarships for future pilots. For example, United offers a ton of financial aid to future pilots. I know you're working towards your commercial license, but if you already have your private license, you might be eligible for their commercial training program, which would help you obtain your commercial license. American Airlines also offers something similar. You've picked a career path with a great deal of help available, and I really encourage you to research all options and apply for everything for which you might qualify. But start local. If I were you, I would take some time today to make a few calls. First, I'd call up the small or regional airlines in your area. Most of these
Starting point is 00:04:17 airlines offer tuition reimbursement as part of their hiring packages, or they'll pay for your flight school in exchange for a commitment to work for them for a set number of years. Second, I'd call Women in Aviation International, or WAI, which is an organization that offers a ton of scholarships to women pursuing their pilot's license. Yes, WAI does offer online applications for these scholarships, but I would strongly, strongly suggest that you call up the office first, introduce yourself, let them know you'll be applying, talk yourself up, mention that you would love to be part of the WAI community, how you'd give back, you know, give a little extra personal touch to help your name stand out among the other applicants. If you're open to a total 180, you can also
Starting point is 00:05:03 consider joining the Air Force. Obviously, that is a very complex and personal decision, but there are a lot of funding options available there. Beyond financial aid for training, there are also opportunities for you to get some help with your student loans. For example, you might be eligible for the Air Force College Loan Repayment Program, which helps people with past student loan debt. You might also be eligible for public service loan forgiveness. Not to mention, there are often incentives for hiring veterans, so that could give you a leg up in the future if you wanted to transition from the Air Force into the private sector. But let's zoom out for a second. Even if you aren't able to participate in these programs,
Starting point is 00:05:42 being a pilot is a well-paid job where the return on investment or ROI for going to school is worthwhile. You say you're looking for higher paying jobs, which is awesome, but if you're considering a career pivot, you might also want to invest some time and money into training for whichever other industry you're thinking of entering next. And that means more sunk costs, unfortunately. But as long as you're a good candidate to become a pilot, I don't think there's any reason not to return to school, defer your loans while you're in school, and complete your degree. Now, let's move on to the second part of your question, your debt. It sounds like you've done a great job with the student loan debt by applying for an
Starting point is 00:06:25 income-driven repayment plan. You're going to need to bring that same energy to the Wells Fargo debt that's in collections. The fact that you haven't heard from them in a while is a very good sign for negotiations. It means that they aren't expecting you to ever pay this off, which means you could probably get them to settle for less than the full amount you owe. For your two sources of credit card debt, the first thing I'd recommend is looking into a debt consolidation loan. This is basically a type of loan that smushes all of your debt together and becomes your one-stop-shop type of loan where you can pay off all of the debt you've consolidated in one fell swoop. The benefit of loan consolidation is that typically
Starting point is 00:07:03 you're able to secure a much lower interest rate than what your credit card is offering. 18% Tessa is super high and you could probably do better with a debt consolidation loan. There are even zero interest rate loans or credit cards, but most of these loans remember have to be paid off in a year, which is a pretty accelerated timeline for the amount of debt you're looking at. An important side note here, I would only look at consolidating your credit card debt. You can technically take your federal loans private in a debt consolidation move, but that would make you ineligible for the income-driven repayment plan or any future
Starting point is 00:07:41 federal cancellation, so I would really strongly advise against consolidating your student loans with your credit card debt. If debt consolidation doesn't feel like the right fit for you, then the next option is to address your debt as is. I know you might want to pursue the don't wake the bear strategy, but if debt consolidation doesn't feel like the fit, you should probably call Wells Fargo and track down the company holding your debt. From there, you can negotiate directly with the collections company. You do not need to use a debt settlement company, and many of them out there are scammed, so just no. Do this yourself. Get the collections company to tell you how much you owe them. Get that amount in writing. Reply in writing with a lowball offer, meaning
Starting point is 00:08:25 slightly less than the maximum amount you're able to pay on the debt either in monthly payments or a lump sum. They probably are not going to accept whatever your first offer is, which is why you want to start with a super lowball offer. Again, this company doesn't think right now you're going to pay off this debt at all, so they might be willing to take a lot less if that means they're going to get to pay off this debt at all. So they might be willing to take a lot less if that means they're going to get anything out of this deal at all. Once you explore these options and have your course of action, it's going to be absolutely
Starting point is 00:08:54 critical that you make yourself a killer spreadsheet or calendar reminder system so you stay on track of all of your payments and so that you can also see your progress as you go. And reminder, prioritize paying off the debt with the highest interest rate first. That will shrink the total amount of money that you're going to pay over the lifetime of paying back these loans. There is another option, of course. It is the B word. And I don't mean bitch, which is a perfectly good word. We should all be taking it back. I mean bankruptcy. When it comes to bankruptcy, there is no magical number that will tell you when bankruptcy is your
Starting point is 00:09:30 best option. What matters is the debt to income ratio here. The general rule of thumb here is that when your debts outweigh your assets and income, you are a good candidate for bankruptcy. So Tessa, your situation is that you make $25,000 a year, excluding your student debt, you're sitting on $21,900 of debt. When you add in your student debt, you owe $39,900, which is over a year and a half of income for you. I know that bankruptcy is a big, scary word. We can call it the last resort. But know that it is an option. And if you're taking a moment to think it over, let me just address what you might be wondering. No, I don't have a definitive answer as to whether bankruptcy would impact
Starting point is 00:10:17 your ability to pass a background check to get hired as a commercial pilot. It does seem like it may come up in your interview, and depending on your response and current situation, it could hold you back from some jobs. But those same jobs might also take issue with $18,000 in collections, and that debt also impacts your eligibility for the Air Force. And then of course, I'll remind you that declaring bankruptcy does hurt your credit score and it's a matter of public record. So again, I will emphasize the B card should be plan Z. And I do think, Tessa, you'll be able to get yourself into a good place without going the bankruptcy route. But if you do want to learn more, I've linked an interview I did with a bankruptcy lawyer in the show notes. Let's leave this bankruptcy tough love land for a
Starting point is 00:11:06 second and look at the bigger picture here. Tessa, you are going to be okay. Having debt does not mean you failed, nor does it mean that your journey to financial freedom is permanently derailed. The fact that college tuition is so freaking expensive in this country isn't your fault. In the very, very first episode of this podcast, I said that the biggest financial problem is the one you don't admit you have. Tessa, when you sent me your question, you took the first step toward a brighter financial future. And it's not going to be easy. I'm not going to lie. It's not always going to be fun. But man, you are going to be so proud when you get to the other side. And I'll always be here, always rooting you on. For today's tip, you can take straight to the bank. Call your credit card
Starting point is 00:11:53 company and ask them to lower the APR on your credit card. This is a trick to slow down the snowball effect of your credit card debt. If you want some pointers on this conversation, I've got you. Check out the link in the show notes for an episode where I actually give you the script on how to have this talk with your credit card company. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start, or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't
Starting point is 00:12:45 have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.
Starting point is 00:13:23 Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.

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