some questions on unsecured, short term debt settlement

No way should they consider using their 401k for this! That retirement fund is non-attachable for CC debt. They need to do something with the equity loans, or they could lose their house. But the CCs are the least of their worries.

I agree , NEVER EVER use your retirement money to pay off debt.

Well, what should they do then? They have about $3000/month income from social security. They can barely cover their 2 home equity loans and other basic expenses with this, and have been going into their 401 K (and borrowing money from their children!) to make all the credit card payments. The payments pretty much cover the monthly interest.

And if they give their retirement money to the CC companies, what will they live on?

I would at least consult with a bankruptcy attorney. Normally i would never suggest bankruptcy if it can be avoided but they are in their 70s . If I am lucky enough to live that long my credit would be the last of my worries.

Two of their credit cards are from the same companies as their two home equity loans (chase and USAA). If they attempt debt settlement, is there any risk that these companies will somehow "call" the home loans. My father is very concerned about this. That is what is know as cross collateralization which could be an issue trying to negotiate on. They most likely will not be using their credit score to make any major purchases any time soon so I say forget your credit and enjoy the rest of their lives without this burden of debt. That is just my opinion but I hope it helps.

:D

unclewulf

They would live on their social security.

If they don't settle the debt by using the 401 K, what should they do about it? If they do chapter 13 bankruptcy, don't they need to use their savings? Anyway, they don't want to do this due to the embarrassment factor--ie it is in the public record, friends might find out, etc.

I agree that their credit score is kind of irrelevant at this point.

Never give the retirement money to credit card companies..better try a good debt negotiation company

Most likely they will qualify for a chapter 7 which would wipe the debt out.

OK, I hope I am not getting annoying. I get the point about the fact that the cc companies can't get the retirement account. However, my parents DO NOT want to file bankruptcy. So, short of chapter 13 or chapter 7 (which I don't think they would qualify for anyway), what are their options besides debt settlement?

They are not in danger of loosing their home, and are not at all behind on their monthly cc payments. They are now using their retirement savings to make these monthly payments, and at this rate they will use it up fast and still be in as much debt.

There aren`t that many options.

Option # 1 Consolidation loan

They can get one payment with a lower interest rate. BUT they will be turning unsecured debt into secured debt. Most financial advisers would never suggest that. Plus you will be robbing Peter to pay Paul. It doesn`t fix your debt problem. Your parents are overextended and thats why they are dipping into their savings.
Option # 2 Consumer credit counseling

Credit Counseling is great if you are not overextended and simply need to high interest rates lowered and have one payment. On average the APRs will be lowered somewhere around 6-8 %. BUT the down side is the monthly payment is going to be around 3-4% of debt enrolled . Again your parents are over extended and dipping into their savings so that won`t solve the their problem.

Option # 3 debt settlement

Debt settlement is an aggressive program and best for consumers that don't qualify for debt management, can't continue paying minimum payments, can't borrow to pay off debts and don't want to file bankruptcy. With Debt Settlement you will pay back is typically between 40% and 50%. This is their last option besides bankruptcy. The pros :The monthly payment with a settlement program would be around half of what the are paying a month now to be out of debt in around 3 years. The Cons : Collection calls , some risks of lawsuits and garnishments and liens. Especially since two of their credit cards are from the same companies as their two home equity loans (chase and USAA). Plus your parents are in their seventy's and most likely they will not be able to deal with the stress of the harassing calls .

Option # 4 Bankruptcy CH 7 or CH 13
CH 13 they will pay back a portion of debt through the courts over around 5 years. However the payment is usually kinda high.

CH 7 will make the debt go away. I bet they will qualify and they can live the rest of their lives without this debt burden. I know they don`t want to do bankruptcy but it might be the best option . I strongly suggest they at least speak with a couple of bankruptcy attorneys. They will usually always give a free consultation. You have nothing to lose to at least speak with them. It would be foolish to not explore all your options. It sounds like you really care about them and I just really don`t want your parents to make a mistake that will haunt them the rest of their lives. They should enjoy the rest of their lives retired , besides the Credit Card companys have most likely made a killing off of them over the years so its not like they will lose any or much money anyways. I really hope this helps .Take care

:D