My Debt Judgement Day is here, could use some advice

Hello Manuel,

There are a couple of things that concern me. The biggest is that you and your partner have taken a significant hit to your income. Do you have any savings or retirement left at this point?

You indicated that you may be able to save 500 a month but then indicated that you could raise about 10K in 4 or 5 months. Where is the extra money going to be coming from?

At some point before you start to settle your debt, I would recommend at least consulting with a Bankruptcy attorney to learn how a BK will affect you. Depending on your cash flow, resources and other circumstances, it might be a more favorable option. You won't know until you explore it though.

To answer your specific questions.
1. You are not a candidate for a hardship program. Even if all 3 cards gave you 0% interest for 5 years, you could not afford the minimum payments based on the numbers you provided.

2. The strategy will depend on your resources available. You don't have the cash flow to continue making payments on 2 of them while saving up to settle the third. So I would say circumstances would dictate that you would have to do them at the same time if you chose to go down the settlement path.

3. You can call them or they will call you very quickly. Either way doesn't matter. However there is a right and a wrong way to talk to them, and at this point, be sure not to mention anything about debt settlement.

4. You will just have to keep saving until you have enough to settle the debts. If you have 10K then you should be able to settle at least one, and the others will have to wait. A word of warning though, you can't bank on 33% average across the board. You need to account for the inflation that will occur on these accounts. If you can hit that mark than of course that would be great, but you should look at this as if you are going to have to pay back 50% and anything lower than that can be a bonus.

Overall, I have concerns about whether or not you can raise the funds needed in a sufficient amount of time. Also you need to take your overall situation into account and contemplate the opportunity cost of the money that you would spend on settlement and determine if that is the best use of that money at this point given your circumstances.

Hope that helps.

Thank you for the detailed response Damon.

We only have about 1k in savings and I have no retirement savings. In 2004 I put 20% down (65K) on a house but with the market crash, all my equity has been lost.

The 10k seems like a best case scenario. With 500 a month and my tax return next February (I usually get about 4-5K with my deductions). I am hoping to get a part time job to bring in another 300-400 a month.

I am hoping to avoid bankruptcy if possible. Does it cost any money (if so, how much) to talk with a BK attorney? I would want to file ch13 if anything and do what I can to pay back the debt on a plan. But I hate thinking of taking that kind of hit to my credit report for 7-10 years. I do have a house and two cars, hope I don't have to see them.



When you say that I can settle one and the rest will have to wait...wont I be sued and taken to court if I don't agree to debt settlement by 6 months?


Another thought. Should I try and keep up with or try a hardship program with 1 card (the lowest balanced one), and ignore the other 2 to try for debt settlement. Or is it best with the hole I am in to waive the white flag on all three and work on debt settlement/bankruptcy for all?


Even though I am not using my cards anymore, should I cancel the accounts or just leave the accounts open?



I am frustrated with my living beyond me means and not solving the problem earlier. I guess I always though my income would continue to rise or stay the same, not fall back to pre-2000 levels. I am frustrated by my credit card rates being jacked up to as high as 26% even though I was never late. They kept raising my credit limits, knowing I would continue to charge more. It's a deceptive trap they put out there and I got sucked in. Now I need to find a way out.

Hello Manuel,

You are welcome. Based on what you are telling me, it looks like bankruptcy will be your best option unless your income/expense ratio can improve. I am not saying you need to rush out and file BK right away, but with the debt you have and your ability to save money, settlement is not likely going to have a good outcome for you.

Also with no retirement savings and only 1000 liquid savings, you are one minor emergency away from a cash flow crises.

You can usually meet with a BK attorney for free. I understand you wish to avoid BK, most everyone does, however it is typically because of unfounded fear about how a BK will actually effect you.

You mentioned not wanting to take a hit to your credit. Well at this point, no matter what you do, you will be taking a hit to your credit.

So it sounds like what would be very beneficial for you is a clear understanding of how bankruptcy would affect you specifically. You don't have to file now, just speak with a few attorneys and feel out the option.

Financially speaking, you are probably better off liquidating the debt if possible, and getting a fresh start. Then you can use your tax return and that 500 a month to start building your savings and retirement accounts. The opportunity cost to not starting that now is huge.

What you need is to analyze your life situation and determine what is important to you, then create a spending plan to fund the things that are important and move forward.