One unfortunate side effect of not paying off debt – or not being able to pay off debt – is that your hard earned wages can be garnished. This means that a percentage (up to 25%) of your paycheck can be taken out to help repay that debt. While wage garnishment is a reality for some people, it is often a last resort for creditors – but one they feel they must take.
A recent NPR article gave us a glimpse into the world of wage garnishment:
“ADP's findings indicate that 4 million workers — about 3 percent of all employees — had wages taken for a consumer debt in 2013. People in some geographic regions and income groups had twice that rate of garnishment.”
In previous years, wage garnishment has often been relegated to low-income folks who neglected to pay child support. But with the economic recession of 2008, recent studies have proven that wage garnishment affects a much larger population. It’s no longer something that only affects people who haven’t paid child support.
Creditors are now garnishing wages for unpaid credit cards, mortgages, and even student loans.
When I First Learned About Wage Garnishment
My first experience understanding the weight of wage garnishments came in 2011. I was a recent graduate of NYU and had accumulated massive student loans for the opportunity to attend a prestigious school. In September of that year, Occupy Wall Street had taken over part of the city. At Occupy Wall Street, I met a 72-year-old woman, who was intrigued by my sign, which said, “Got Student Loans?”
She told me that her social security payments were being garnished due to an unpaid student loan from 30 years ago. My heart broke. Regardless of my political beliefs, or whatever financial situation she was in, I knew that I had to get out of debt right away. Hearing her story had a huge impact on me. I had seen, right in front of me, what I deemed my worst nightmare. I did not want to be spending my future paying for my past.
Ever since that moment I’ve been committed to paying off debt. If you are in debt, like me, and want to avoid getting your wages garnished, here’s what to do:
Communicate with Your Lender
As I mentioned above, wage garnishment is the absolute last resort for most creditors. If you have student loans, request forbearance if you really can’t pay anything at all. If you have a mortgage or credit cards, call up your lender and see what options are available given your situation.
Start a Side Hustle
Cutting down on expenses is great, but if you can’t cut down your budget any more, your only option is to make more money. You can get started by using your already existing skills and talking to friends and family. In addition, you can sell items you no longer need. Making extra money is often the more difficult option, compared to saving money, but it's also very rewarding.
Be Determined to Change the Situation
Although I haven’t experienced wage garnishment myself, I imagine it is a difficult moment in one’s life. It’s hard to see your hard earned cash being taken away, especially on something you don't feel like you can pay back. But it’s important to find a way out. Motivation, hope, and perseverance are so important in the debt payoff process.
Although it is not popular financial advice, if paying the minimum on your debt is all you can do and it will prevent you from getting your wages garnished down the line, do that. It’s a small step to paying off your debt.
Paying off debt is tough, but sometimes it takes little steps to make a big impact — and to avoid the harsh realities of wage garnishment.
Have you experienced wage garnishment? Have you been an employer who has had to tell an employee about their wages being garnished?
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This is why financial education is so important in schools, so people know what they’re getting into. Eventually “future you” is expected to pay back the money “younger you” borrowed. Interestingly, garnishment is the method of repayment which will be used in the UK for all student loans from now on: 9% of graduates’ wages (above a £21k minimum threshold) will automatically deducted at source to cover the cost of student loans. It’s an interesting arrangement and, going through the maths, you realise that most people will never be able to pay off their loans.