Molly’s Money: Dealing with Debt

August 9, 2012·

You guys, thank you again – all of you – SO much on all the support, comments, emails, texts, calls, EVERYTHING in response to my post last week about being Debt Free.

It seems I’ve struck a chord and that there are A LOT of you who are in need of some help, guidance, information, advice, etc.

I am still in the process of replying to all of your messages and comments – so if you asked a question, emailed, or commented – I PROMISE you WILL get a response. I just had no idea how many I’d get and I got a little overwhelmed.

Needless to say, SO many of you asked for a series on Money – or said YES you’d love to read some posts about finance. SO, with that being said, I added a section in the menu above called “MONEY” – this section is going to house all of my posts about, well, money. Duh.

Right now I’m looking at doing a post about once a week – maybe Thursdays, maybe Tuesdays. I don’t know. I haven’t totally decided yet. I definitely have enough questions from you guys to last me a while. So if you have a question, DEFINITELY email me and I will do my best to answer it here on the blog.

With all that being said, the two MOST COMMON questions I got in regards to my post were questions about “Dealing with Debt” i.e. debt consolidation, debt settlement, even bankruptcy. The second most common question I got was about tithing and my story with regards to that. I’m definitely going to address that soon – but today I’m going to address the TYPES of Debt, and the different ways people deal with debt – e.g. Debt Consolidation, Debt Settlement, and Bankruptcy – you know, so ultimately, you can GET OUT of debt.

Okay, so you have different TYPES of debt – I mean, in the end, it’s all debt, it’s all money we owe someone, but there are various TYPES of debt and ways to deal with it:

  • STUDENT LOAN DEBT – You know, the money you borrowed to go to school
  • CREDIT CARD DEBT – You know, the money you spent on those plastic things to buy things like movie tickets, pretty purses, and too many packs of gum
  • ASSET DEBT (e.g. Mortgage) – You know, this is the debt that is an ASSET to you as in you hope to one day sell whatever it is and you will make money off of it – e.g. your house.
  • DECREASED VALUE DEBT (e.g. Your car) – This is a loan taken out for something that will, presumably, decrease in value (e.g. your car, a boat, a motorcycle)

[THE DEALERS] – i.e. Ways to get out of debt


Before you resort to any of the other options that I mention below, you need to figure out if you have a DEBT problem, or a SPENDING problem. Many times, it’s the latter.

Take a look at your money. Develop a budget. Figure out what bills HAVE to be paid each month, how much you’re making, and compare the two. If you’re OWE MORE money than you’re bringing in, you have a DEBT problem. But, if it’s just that you’re SPENDING more money than you’re bringing in, then you have a SPENDING problem.

If it’s a spending problem, then what you need to do is figure out what areas you’re, literally, spending too much money in, CUT BACK on those areas.

I will have another post soon about how to create a budget, managing monthly expenses, etc. But in the meantime, you need to figure out if your debt issues are serious or if they’re just poor habits.

[DEBT CONSOLIDATION (through a REPUTABLE organization)]

This is the route I went. DO NOT, and I mean, DO NOT confuse debt CONSOLIDATION with debt SETTLEMENT. I will address the latter here in a second, but DO NOT confuse the two. You will see A LOT of settlement companies try and make you think they are debt CONSOLIDATION companies. They are not.


Debt consolidation is, quite literally, CONSOLIDATING YOUR DEBT. Usually, this is only done in one particular debt area though.

[CREDIT CARD DEBT CONSOLIDATION] For example, you would typically consolidate your CREDIT CARD DEBT separately from STUDENT LOAN debt.

I consolidated my CREDIT CARD debt through an organization called NovaDebt. They are a non-profit organization out of New Jersey.

Basically, here is what NovaDebt did for me:

  1. They ran my credit report
  2. Totaled my debt (not a pretty number)
  3. Contacted all of my creditors
  4. Negotiated my interest rates down as low as they would go
  5. Put me on a pay-off plan
  6. I paid NovaDebt directly – that’s only ONE check a month versus five or six checks a month to different creditors
  7. They paid my creditors for me
  8. They charge me a monthly maintenance fee of like $30 or something.

So, the only part that makes NovaDebt money is my maintenance fee.

Now, there are SOME that will say companies like NovaDebt are useless and I could have negotiated my interest rates with my creditors.

And that is true.

However, a company like NovaDebt is working in my best interest to get my interest rates down – they are also a professional organization and creditors are MORE LIKELY to be willing to negotiate with a company like NovaDebt that has a reputation for clients getting out of debt and paying what they owe, VERSUS working with me, someone who could barely make the payments and they weren’t sure if they’d ever see all the money I owed them.

For example, on one credit card, I was paying 24% interest on it every month. NovaDebt negotiated that interest down to 1%. That, ultimately, saved me A LOT of money in the long run. On a few cards, they even got it down to 0%. I highly doubt I would have negotiated an interest rate of 0% on my own.

So, for me, the $30 a month maintenance fee was worth it.

Also, the thing that was really helpful for me to see was the pay-off plan. With NovaDebt’s negotiated rates, my pay-off plan was a little over five years. Now, I really buckled down and paid EXTRA a lot each month, so I was able to do it in under four years.

However, if I hadn’t had gone through NovaDebt, and say I would have cut up my cards and just paid the minimum balance on my cards, with interest, it would have taken me 45 years to pay off my debt.

That number scared the C-R-A-P out of me. 45 years. That’s a long time.

[STUDENT LOAN DEBT CONSOLIDATION] Now, this is a little different in that there are a lot of tax breaks and some things offered for student loan debt.

  • DO NOT take a loan out to pay off your loans. This should be common sense, but you actually have no idea how many people I have heard of that got a loan from a bank to pay off their loans. WORST IDEA EVER. Seriously. Just don’t do it.
  • Talk to someone at your university / school in the finance office. Many times individual schools will have banks that they work with that are student-loan friendly – in that, they know some resources to help you pay off your loans, work programs to help you pay them off, etc. I know someone right now who is working and his company is helping him to pay off his loans while he works – he found this opportunity through his school.
  • While you’re talking to that person in the finance office at your school, talk to them about tax questions. I know a lot of students or post-students who aren’t fully aware of some of the tax breaks that are available. Some student loan payments are tax-deductible. There are also tax deductions on student loan interest. I am not a CPA, but, if you ask the right person, you can get good advice.
  • Work with a BBB accredited company to consolidate your student loan debt. There are organizations, like NovaDebt, for the student loan debt world who will work with you to consolidate your debt and put you on a manageable plan. The Student Loan Network and NextStudent are good places to start. I’ve also heard mixed reviews of Wells Fargo – if any of you have worked with Wells Fargo, sound off in the comments below.

[DEBT SETTLEMENT] This is a biggie. If you read nothing else today, know that DEBT SETTLEMENT IS BAD. BAD. BAD. BAD.
When you see / hear commercials for DEBT SETTLEMENT, you need to point at the TV  / radio and say NO. NO. NO!


Debt settlement is a sneaky way of companies literally SETTLING your debt for you… but what this means is they CUT your debt in half.

Now, that sounds great, but that does HORRIBLE things for your credit report AND creditors can STILL come after you later for the rest of their money.

For example, if you’re $20,000 in debt, a debt settlement company might settle your debt for $10,000. That means you only pay $10,000 of what you actually owe. Well, other than putting a HUGE mark on your credit report, the creditors can also come after you five, 10, 20 years later and make you pay the rest.

They can and they will.

With debt consolidation, you are literally paying off EVERY cent you owe to your creditors. When I finished paying off my debt, it restored my credit and my creditors will never bother me again.

Yes, it wasn’t easy, BUT, I’m done. Debt settlement will HAUNT you. TRUST ME.

So, what have we learned here? SAY NO TO DEBT SETTLEMENT.

[BANKRUPTCY] Some of you have asked me, “When is it okay or when should I file for bankruptcy?”

My short answer is NEVER file for bankruptcy… if you can help it. You will know if you need to file for bankruptcy. Trust me. You will know. But bankruptcy is an ABSOLUTE last resort.

Bankruptcy stays with you. For a LONG time. Like, seven years. And even then, it’s tough to get rid of it after that.

I would say though that bankruptcy ALMOST might be a better option than debt settlement though. Almost. I’m not sure. They’re both not great options.

If you are working and you have SOME money coming in, you CAN consolidate your debt at a level where you can manage it and pay if off. TRUST me. It can be done.


Okay, so I know this was a crazy long post, but it’s an important one and I think good to get out of the way off the top since it’s SUCH a common question.

But in short here are the highlights:

  • FIRST, you need to figure out if you have a DEBT problem or a SPENDING problem
  • Debt consolidation is the way to go when you’re in a lot of debt
  • Debt settlement is BAD
  • Bankruptcy is BAD

Questions? Sound off. Let me know. Got an issue you need an answer to? Let me know. I wanna help!