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Hi, I would like your input on the best route for

Date: Fri, 04/22/2011 - 08:19

Submitted by ahendon2020
on Fri, 04/22/2011 - 08:19

Posts: 8 Credits: [Donate]

Total Replies: 18


Hi,
I would like your input on the best route for my situation - debt settlement or debt counseling/consolidation.
Facts:
32K in CC debt
12k in IRS debt
Avg interest on CC = 25% (8 accounts)
80k/year income
rent home = 2200k/mnth
food/utilities/auto/etc = 3800/mnth
I have been paying about $600/month to CC and $200/month to IRS = treading water.

Credit scores: me 623 wife 650

Thoughts as to how to approach this?

Thanks for your time!


With an average interest rate of 25%, you have the option to call your credit card companies and see if you can lower this rate. It doesn't hurt to ask and the worst that can happen is that they say no. At least you tried.

I can't speak on debt consolidation but I can speak a little on debt settlement. First thing is you can settle yourself. Doing it yourself will take some work on your part but the money you save on fees can go towards paying down this debt. You do not need to pay someone to do settlement for you. If you do decide to go with a company, do your research. There are many scam companies out there. Also, know that if you settle, you will have to claim the amount the companies forgave as income. I would hate to see you get further in debt with the IRS if you don't. And trust me, they will find out and come after you. (found this out the hard way) Here is the link for step by step guide to settling on your own. http://www.debtconsolidationcare.com/steps.html

The other thing I would suggest is that you put your house on a budget. There is a very good FREE budget program right here on this site. And cut up those credit cards and never use them again.

Good luck.


lrhall41

Submitted by ahspeedy on Sat, 04/23/2011 - 04:47

( Posts: 12 | Credits: )


Thanks for your response. I have already caled the CC companies, in fact lsat year the all lowered their interest in a speacil plan as I had gotten a new job and thought I would be back on my feet by now. The reality is that the job has not paid what I expected and I am in the same boat I was in 12 months ago. I haven't used a card in 16 months.

There is no way for to continue to afford the $1300 montly min payment on these cards - I could swing about half that - and if I could work out a plan that allows for that I think it will take me forever to pay them off - which is why I am leaning towards settlement.

I am 30 days behind on one card and the rest are current so my big concern in how much worse my credit score could get and how long it would take me to restore it. That's why I am posting here - to get thoughts on that.

thanks again.


lrhall41

Submitted by ahendon2020 on Sun, 04/24/2011 - 06:37

( Posts: 8 | Credits: )


This threw me for a loop because, I developed a strategy for you based on the $1300 minumum payments but, then I saw that you posted you've been making payments of only $600 monthly and your cards are current with the exception of 1. Can you tell which is correct? I can't give you a good strategy plan without proper info. How much can you afford to pay monthly? And, if you could also break out the minimum payments on each of the cards, that would help me out a lot also. Thanks!


lrhall41

Submitted by OhioGal1 on Thu, 04/28/2011 - 07:59

( Posts: 5253 | Credits: )


Funny you should say this - I just saw that and went through my finances all last night - the minimum payments are altogether really 1400. Most of them had put their interest down for a year ending in Feb as I called a year ago and they had hardship plans that allowed them to do this. This has caused my minimum payments to essentially double and I hadnt noticed until now. That is actually why I am online looking for solutions becuase I am now 30 days behind on one and going to go behind on the rest if I don't get this resolved. Only Chase was willing to continue the plan.

Here is how it breaks out for payments and balances today:

PAYPAL 1383 29% $47
CHASE 1179 6% $30
CHASE 1519 6% $40
CHASE 4986 0% $108
BOA 4211 29% $215
CITI 11,515 29.9% $404
DISCOVER 7478 17.99% $293
CAP ONE 678 27% $57
IRS 12,000 10%1 $200

Thanks for the team you are investing in this.

I really appreciate the help.

Aaron


lrhall41

Submitted by ahendon2020 on Thu, 04/28/2011 - 12:20

( Posts: 8 | Credits: )


OK, here???s what I think.

Obviously you can???t stop paying the IRS so, that leaves you $600/month to work with. You???re already on the hardship plan with Chase with very low interest, so you don???t want to mess with that yet either.

That leaves us around $425/monthly to work with.

With the amount of debt you have, that???s not much. I???m going to ask you some tough questions.

[LIST=1]

  • Do you have more than 1 car and if so, do you need more than 1?
  • If you do need all of the vehicles, can you downgrade?
  • Can you or your wife get a part time job to help get these accounts settled?
  • Where else can you cut expenses? I bet if you take a good hard look at your spending, you can trim it by at least 25% monthly. Think about these things?


    • Do you have a land line and cell phones? If so, do you need the land line?
    • What type of cable tv package do you have? Trim it or get rid of it completely.
    • What type of cell phone package do you have? Do you need all of the services/perks included?
    • Where are you shopping? Get the grocery bill under control (buy generic items when possible, stop buying bottled water, etc.). No new clothes or luxury items until you get this paid off.
    • Are you conserving water and/or electricity?
    • Are you eating out? Pack your lunch and take your own coffee to work. I???ve seen people spend $10/day on coffee and lunch (or more) daily. That???s $50 per week (or $200/month extra you could be saving to pay off your debt!)
    • What else can you sell? Unused furniture (baby stuff?), art, clothes, etc. Craigslist and Ebay (or a yard sale) can save your butt.
    • Do you have a family member who can loan you money to pay these off?
    • Do you have a 401k you can borrow from?

    You have a mess on your hands and $425/month isn???t going to go far at all. You could maybe settle the two smaller cards in a month or two at 50ish% but, that still leaves a hefty balance.

    A debt management plan might be an option for you but not all lenders will participate.

    Bankruptcy is another option.

    Your first step is to look long and hard at your finances and your lifestyle and figure out where and how you can increase the amount available to spend on these accounts.

    If you can come up with more money, I can give you an actual plan for strategic default. I can???t give you much of a plan with only $425/month to work with on a balance of over $30k.

    Sorry I can???t give you more.


    • lrhall41

    Submitted by OhioGal1 on Thu, 04/28/2011 - 13:36

    ( Posts: 5253 | Credits: )


    Well, Houston, we have a problem. We have one car - 1998 Nissan Altima with 120K on it and we need it. No cable, no home line. Work pays for my cell so it's just one cell line, already pack lunch, only clothes we buy are for the kids and that is at goodwill mostly. No 401k. Could probably squeeze $100 bucks out of groceries. I am working on commissions so I could close more accounts and that could provide a boost and come the fall my son starts public schools so that is another $500 bucks that we have from not paying childcare.

    What kind of difference does that make?


    lrhall41

    Submitted by ahendon2020 on Thu, 04/28/2011 - 13:51

    ( Posts: 8 | Credits: )


    Thank you for all your work.

    CAR (insurance, gas, maint) - $400
    CHILDCARE - $700
    CHARITY - $30
    CLOTHING - $100
    TUTORING/ACTIVITY - $350
    DINING OUT - $100
    ENTERTAINMENT - $100
    GIFTS - $40
    GROCERIES - $800
    DOCTORS/MEDS - $400
    HOUSEHOLD - $50
    RENT - $2000
    UTILITIES/PHONE - $400

    Our take home pay is at a minimum $5600 - that's with no commissions and my wife seeing a minimal amount of clients. I should be able to to increase my take home by $500-750/month sometime in the next 3 months and my wife could make an additional $500/month if she stays healthy (her health was a contributing factor to the onset of this situation - how we handled it was the major factor).

    The cards are all closed at or right near their max limits - these are roughly:
    PAYPAL $3,000
    CHASE $2,000
    CHASE $2,000
    CHASE $5,000
    BOA $5,000
    CITI $12,000
    DISCOVER $7500
    CAP ONE $650
    [FONT=Calibri][/FONT]
    [FONT=Calibri][/FONT]


    lrhall41

    Submitted by ahendon2020 on Fri, 04/29/2011 - 09:35

    ( Posts: 8 | Credits: )


    Just to clarify - right now - some months we each make more and we total on average closer to $6,000/month. When budgeting I just like to go real conservative - but I guess overdoing that paints an unrealistic picture and is not so helpful. To get by we had been pulling money out of an IRA which is part of why our tax debt is so high. Our commitment to stop that practice is also why we are exploring all these options.


    lrhall41

    Submitted by ahendon2020 on Fri, 04/29/2011 - 09:38

    ( Posts: 8 | Credits: )


    Well, it doesn't look good, my friend. You've been robbing Peter to pay Paul for a while now and it's finally caught up to you. Check out the numbers and tell me what you're seeing. I'm betting you'll get to the same conclusion I am.

    Current monthly income: $6000.00
    Current monthly expenses: $6875.00
    Month-end balance to use toward settlement: -$875.00
    [COLOR=#ff0000][/COLOR]

    Breakdown of monthly expenses:
    [LEFT]400 Car
    700 Childcare
    30 Charity
    100 Clothing
    350 Tutoring/Activity
    100 Dining Out
    100 Entertainment
    40 Gifts
    800 Groceries
    400 Medical
    50 Household
    2000 Rent
    400 Utilities
    50 Paypal
    30 Chase
    40 Chase
    110 Chase
    215 BOA
    405 Citi
    295 Discover
    60 CapOne
    200 IRS[/LEFT]


    Even if we eliminate and/or reduce some of your expenses, that's not going to get you back to even. If you want to try to settle, you need to be in the black, at least a little bit, in order to squirrel away funds for payoffs.

    You mentioned you could possible shave off a bit here and there and that your income might improve, etc. I see around $600 that could be eliminated or tightened right away. That still puts you $275 in the hole each month.

    You mentioned that you "could" make an additional $750 monthly and your wife could make an additional $500 monthly. That's something but it's not a guarantee. If you and your wife could eliminate the $600 in excess spending monthly, consistently increase your income by $1000.00 and then eliminate that childc are expense you mentioned, that would get you in a nice position to start strategic default. You'd have about $1400 monthly to start the ball rolling.

    Do you think you can consistenly be $1000 or more positive each month once your child starts school in the fall? If so, I can set up a settlement strategy for you, once you're there.

    My concern is, with that type of monthly defecit, can you even make it to that point? Where you are right now, bankruptcy might be the better choice for you.


    lrhall41

    Submitted by OhioGal1 on Mon, 05/02/2011 - 13:37

    ( Posts: 5253 | Credits: )