Jessica grew up in Colorado Springs, Colo., a medium-sized city at the base of the Rocky Mountains. Her mother was a mortgage lender, and it was through her that Jessica learned the basics of credit and managing her personal finances as she was growing up.

“In my house, the rule was: if you make mistakes, you take care of them—especially if you knew better,” Jessica says.

When she moved out of her parents’ house at age 17 to attend college, her parents allowed her to stay in one of their rental properties, charging her nominal rent. To save money, she found a roommate and split the cost of living. Jessica’s plan was to attend a local community college part-time while she worked a full-time job as a nanny to pay for her rent, tuition and other expenses rather than take out school loans.

At first, everything seemed to work out well. She was proud to be self-sufficient and considered herself to be financially responsible.

Jessica

Life Happens

And then, as she puts it, “Life happened.” First, her relationship with her roommate fell apart, and Jessica moved into an apartment by herself, which increased her monthly rent. She then changed jobs, working as a nanny for another family. She was being paid a monthly salary and making a little more money than before, working 10- to 12-hour days five or six days per week. Her previous job paid her as an employee, but now she was a self-employed contractor responsible for filing and paying her own taxes. Not only did this cost more, but Jessica was unfamiliar with the process.

Between driving to school, commuting to work and driving her employer’s children around, she was putting more than 100 miles a day on her car, and it was falling apart. Her employer decided to buy her another (used) car, but it wasn’t long before that car also needed maintenance.

What’s more, Jessica didn’t have health insurance, and relied on expensive emergency room services whenever she needed care.

Digging a Financial Hole

After a while, Jessica found herself struggling financially. She saved to make her quarterly estimated tax payments to the IRS, but inevitably the money went elsewhere—to pay for medical expenses or car repairs, for example. She fell behind on her tax payments, and began using her credit card to cover her daily expenses. By that point, Jessica was using her paycheck to pay whatever she could toward her taxes.

This began a cycle of debt that included constantly being behind on one payment or another. While she was usually able to make her credit card’s minimum payment, she was rarely able to pay more than that to reduce her debt. And sometimes, unable to make her minimum payment, she paid whatever she could.

“Eventually, you start running out of credit,” she says.

“Then, there’s the emotional aspect. I was working insane hours, taking spare jobs on the side. School kind of went away as I was trying to catch up,” she notes. “You’re working as hard as you can, but you can’t afford to buy a pair of jeans.”

The most difficult aspect of Jessica’s situation was not being honest with her parents. “I knew better, and I should’ve asked my parents for help, but there was an assumption that I was responsible and hard-working, so there’s no reason why I shouldn’t have made it,” she says. “They were great at teaching me how to manage my finances, and I was embarrassed to disclose my situation to anyone.”

Reaching the Breaking Point

When she was 27, after having worked for the same family for nine years, Jessica decided it was time to move on. Despite her strong emotional connection to her employer and the family, she felt as though her job was actually costing her money.

The IRS was relentless in its pursuit of Jessica’s late taxes, but it never went so far as to go to court to file a lien. And although she was usually able to keep up with her credit card’s minimum payments, eventually she exhausted her line of credit. Occasionally, her payments were late by 30 to 60 days, which resulted in both costly fees and high penalty interest rates.

Gerri Detweiler is a recognized expert in credit, Head of Market Education for Nav.com, and the coauthor of the book Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. According to Detweiler, “Jessica is lucky that the IRS never filed a Notice of Federal Tax Lien. Not long ago, tax liens were automatically filed if you owed $5,000 or more, but the threshold is now $10,000 or more.”

Detweiler also cautions that a tax lien can cause your credit score to plummet, but the IRS now offers an option under its Fresh Start program to get the lien removed if you pay off your tax debt or make payments under a payment plan. Nevertheless, there are specific requirements the taxpayer must meet.

Turning It Around

Finally, Jessica made the difficult decision to turn around her personal finances and her life. First, she contacted a nonprofit credit counseling service that she’d seen advertised around town. “They basically said, ‘This is your total debt. This is how long it will take to pay it off. And this is how much you will have to pay each month, as part of a five-year plan,'” she says. The service also worked with her creditors to consolidate her debts, drop most of the fees and even forgive some of the principal, called a payoff.

Jessica knew that a payoff would hurt her credit further, but she felt it was worth it to put her debt behind her and start fresh. She even decided to give up her car, riding the bus around town for the next two years. “It was scary,” she says, “but knowing that my transportation costs were just $35 per month was liberating. I didn’t have to worry about gas bills, insurance and whether my car was going to suddenly break down.”

She gave up her own apartment and moved into a friend’s spare bedroom. In addition, Jessica sold or gave away most of her possessions, which she also found liberating. “I thought that there were all these things that I needed to have, that there was this image of being successful. But I realized that I didn’t need all of this stuff that I was trying to keep around and pay for,” Jessica says. “And from all that, I think I gained an emotional peace and self-confidence that I had never had before.”

Sharing Her Struggles

It was about that time Jessica met her future husband, and she found it very difficult to talk to him about her financial struggles, especially since she considered him someone who had it all together. She realized her pride prevented her from ever being completely honest with her parents while she was struggling financially. “I was kind of in denial. I felt that life was OK, and that whatever was happening was just a glitch,” she says.

Looking back, Jessica sees that her financial problems caused a variety of emotional problems including depression and anxiety, but she is proud of the hard work that got her where she is now. “You don’t think of this number [your credit score] as being so crippling, but it is. This number identifies who you are to the world. I know that I work hard and I’m not lazy, but there’s a stigma that comes from having a low number.”

At 34, she is now happily married with three children, and has paid off her tax liability and her debts in accordance with the plan from the debt consolidator. Recently, she took the opportunity to look up her credit score, which, she was proud to discover, is now 768—considered excellent by any measure.

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