Just a few minutes into my talk with Alice*, an unmarried 45-year-old New Yorker who has a solid job working for the city, she told me, "I am embarrassed." Despite making nearly $60,000 a year, Alice has no emergency savings. Worse yet, she owes $25,000 in old credit card bills, $8,000 in bank loans, and $11,000 on a pension advance. She often can't pay the full $1,294 monthly rent for her studio apartment and must ask her mother for help. "My financial problems are contributing to my overall unhappiness," she confided. "I need a plan."

It's Not About the Money

My first job was to help Alice understand that, actually, it's her unhappiness that's causing her debt. She's unfulfilled in important aspects of her life—namely, the lack of a significant other and a satisfying job. It's a simple fact: We tend to spend more when we feel less-than. "Fear, shame and anger are obstacles to wealth," I told her. "You should be hopeful, not hopeless."

Pushed to the Limit

Alice lived at home with her widowed mother until four years ago, when she was able to find a reasonably priced apartment nearby. She went from paying $500 a month toward shared living expenses to owing nearly three times that amount in rent. Yet while housing eats up almost half her income, Alice rarely denies herself life's little pleasures. Each month she shells out about $165 on personal care expenses like mani-pedis and massages, as well as another $210 on cable TV and concert and theater tickets. Plus, more than $4,000 of her debt is owed on store credit cards, which tend to charge high interest rates. Her monthly expenses—including the $1,300 minimum due on her credit cards and loans taken out to cover her frequent shortfalls—are $1,500 more than her take-home pay.

Move Back to Go Forward

I flagged a few changes in Alice's spending habits that would save her about $500 a month. Specifically, she could ditch her grooming and entertainment expenses, plus the $160 she puts toward clothing purchases. Those things may satisfy her in the short term, but their expense only contributes to her suffocating debt. Alice assured me that she's committed to reining in her spending. But even after making the cuts we discussed, she'll still come up far short of what she needs to pay her bills, let alone start saving. So I delivered my drastic plan: I want her to move back home. She can't maintain her own place and get on track with her financial goals.

Because Alice is on the verge of defaulting on her debt payments, I also suggested that she apply for Chapter 7 bankruptcy. (Debtors must prove they have insufficient income to pay off their debts.) That step will wipe out credit card and bank loan obligations that now cost her about $900 a month. Bankruptcy isn't an easy escape; Alice will likely be denied credit for several years. But if she follows my advice, she could set aside at least $1,200 a month. Assuming a 4 percent rate of return over 20 years, she could accumulate more than $440,000 for retirement. That would serve as a great complement to the $2,700 a month she stands to collect from Social Security and a pension when she retires.

Making It Happen

More than anything, I want Alice to focus on the long-term payoff of making extensive financial changes: achieving control—and contentment—in her life. I reminded her that her sadness and sense of powerlessness are intertwined. "I hear you, Suze," she told me through tears. I closed our conversation by sharing my heartfelt belief: "You can turn everything around. You just have to love yourself enough to make it happen."

Suze Orman's latest book is The Money Class: How to Stand in Your Truth and Create the Future You Deserve (Spiegel & Grau).

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*Name has been changed.


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