Sarah’s Story: Tackling a Wage Garnishment

One employee’s journey to regain financial — and emotional — control over her debt

Sarah was one of the 7 percent of employees subject to wage garnishment, according to the ADP Research Institute’s 2016 report “The U.S. Wage Garnishment Landscape Through the Lens of the Employer. In her case, an old credit card debt got charged off, and the original creditor sued her, resulting in over $700 being garnished from her paycheck each month.

To Sarah, a mother of two, that $700 was a huge portion of her monthly paycheck and made it challenging for her to make ends meet. To help offset this unexpected expense, she sought help to make a hardship withdrawal from her 401(k) and signed up for TrustPlus through her employer.

After learning more about Sarah’s situation, her financial coach realized that making a hardship withdrawal could actually do more harm than good. Without changing the way in which she relates to her finances, she could end up in the same situation in two years — only with $12,000 less in retirement savings.

Her coach proposed alternative solutions, such as taking a loan from her 401(k) rather than a withdrawal or opening up a home equity line of credit on her house. But none were viable options given that she already had two current loans against her 401(k) (and no further concurrent loans were permitted), and her mother was on her deed and she didn’t want to involve her.

Further complicating her situation was the fact that Sarah experienced a lot of embarrassment around the wage garnishment — particularly the semi-public nature of it — above and beyond the loss of income. She also had a strong resistance to asking for help from her family, even though she knew it was an option.

Ultimately, Sarah and her coach settled on a blend of strategies. At her financial coach’s suggestion, Sarah called the lawyer behind the garnishment to negotiate the debt settlement, and her coach cheered her on via text and email to re-motivate her every time she telephoned the law office and got stuck in the purgatory of endless hold. They talked about negotiation strategies and planned out what she could say and how much she could offer them to settle. Eventually, the creditor agreed to lower the balance by $1600, bringing it to around $7,000. Negotiating with the creditor empowered Sarah to take the reins on the situation, instead of passively waiting for the garnishment to settle the debt or jeopardizing her own financial future to pay it off.

Next came the hardest part: Sarah admitted to her family that she needed help and asked for enough to pay off the smaller 401(k) loan she had taken out. After paying off that loan, she planned to take another loan for the full amount of the settlement. This reduced her monthly debt repayment from the onerous and involuntary $700/month to a much more manageable $160/month to her 401(k), plus a flexible repayment plan to her family. In addition, letting her family know that she needed help removed some of the emotional power that the debt had over Sarah.

Now Sarah is working with her coach to improve her financial health. They have developed a budget to ensure that she will not need to use credit cards to compensate for gaps in income. Sarah mentioned to her coach that she used to live on much less, but, like many of us, her lifestyle crept up imperceptibly until it outpaced her income. Keeping an eye on that lifestyle creep is now a big part of Sarah’s progress moving forward, and having a judgment-free accountability guide will be crucial to ingraining these new habits.