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Help! Credit card elimination or consolidation?
December 6, 2009 9:31 AM   Subscribe

Help! -- My credit debt is nearly $50,000, my mortgage is upside down by 25% and my fiancee walked out the door a month ago. I can't make my bills. I'm trying to sort out which route to go with the credit cards. A service like CCCS? Or some other route like Credit Elimination? Please help me understand this. Thanks
posted by antipode12 to Work & Money (26 answers total) 4 users marked this as a favorite
 
Well, without knowing income and other factors we can't really say, but if your income is not sufficient to keep you above water you should be seriously considering bankruptcy -- that's what it's for.
posted by crapmatic at 9:36 AM on December 6, 2009


I'm trying to avoid bankruptcy, so I have some credit for the future.


Compared to bankruptcy, what effect does credit elimination or reduction or settlement have on credit?
posted by antipode12 at 9:40 AM on December 6, 2009


There is no such thing as "credit elimination.". It sounds like you are susceptible to a scam. Contact a bankruptcy attorney immediately. He can tell you what your options are.
posted by dfriedman at 9:44 AM on December 6, 2009


My ex-husband was in a similar situation when he graduated college and was in a lot of debt. He declared bankruptcy, but after seven years your credit slate is wiped clean and you can start over.

If you think about it, seven years isn't really that much time. Depending on your income, it may take that or more to pay off all your debt, and you won't have a mortgage hanging over your head. I am sorry to hear of your fiancee (did you lose her over your financial troubles?) and this may sound cold, but at least now you won't need a house and can live on your own in a smaller place while you dig yourself out of debt. Once you're out of it, you can always have a family member co-sign for you if there are instances when you need to have credit.
posted by Everydayville at 9:47 AM on December 6, 2009


Talk to a competent bankruptcy lawyer to see what effect it will have on your credit score in the long run and how that will affect your quality of life. Credit score is not all that important, and yours is likely pretty bad anyway due to this situation. After filing, the score gets a lot better in a year, and is WAY better in ~5 years. Individuals with particularly bad credit can actually look like better lendees after bk, because it shows that you're doing something about your financial situation.

You can find a certified bk attorney here, or you can check your state's bar associate website to see if they have a specialist certification program, like California, for example.

IANABKL, but I was a bk paralegal for a while.
posted by Aizkolari at 9:48 AM on December 6, 2009 [1 favorite]


On some posts around here, people like to scream "Get a lawyer!" In cases like this, we should be screaming get over to the Motley Fool's debt board! I've been a frequent member of the UK one for years now and it's a ridiculously useful place to get direct advice from people in the know.. or, at least, by reading about other people's woes and the advice they get. I don't know if the US board is as good but it seems pretty busy.
posted by wackybrit at 9:53 AM on December 6, 2009


What do you mean by "my mortgage is upside down by 25%"? Your house is worth less than you owe?

Many people these days are walking away from their mortgages. There are some moral issues here, but some people feel that the banks are partly responsible for "predatory lending" and that they should eat the losses. Apparently if you keep the rest of your credit good, you can survive a hit on your credit rating from walking away from your mortgage. Especially if you make any purchases you need to make (e.g. car) before doing it. And it may well take less time to recover your credit rating if you dump your house now than if you struggle with the mortgage for years and that makes you late on other payments.

Also, you'll probably get a few free months of rent while the bank forecloses.

In many states, the bank cannot come after you for repayment of the mortgage -- all they can do is foreclose on the house.

If you dump your house and move to a rental, or even better, an apartment, that should go a long way to clearing up your liquidity crisis.
posted by musofire at 9:58 AM on December 6, 2009


I also had $50,000 in CC debt - no mortgage or fiancee, though. I tried the credit services - the amount they wanted me to pay each month would have left me with about 100 bucks a month for everything after rent and their payment. Not realistic.

I filed Chapter 7 Bankruptcy about 6 months later. Depending on the laws where you are, you may be able to protect the house - in Massachusetts, you can file a homestead declaration which will help. It stays on your credit report for 10 years (it used to be 7) but the credit cards which were wiped fall off after 7 years. I was able to re-establish credit fairly quickly, although I expect that has changed significantly in the current financial climate.

The difference between a credit 'counselling' service and bankruptcy? Minimal - your cards will show the same on your credit report either way. The big difference is that you're paying a lot more for it.

Completely agree with Aizkolari - talk to a lawyer. Mine only charged $25 for the initial consultation. I also found the forums at creditboards.com to be immensely helpful.
posted by neilbert at 10:04 AM on December 6, 2009


I had a good experience with CCCS. I started with $30,000 debt and had it paid off in about four years with their help eliminating addtional interest each month. As neilbert mentioned above, I was left with not much more than $100/month to muddle through, but I did it. It truly gave me a sense of accomplishment. If you're interested, you can learn more about how I pulled myself out of the black hole.
posted by netbros at 10:12 AM on December 6, 2009 [2 favorites]


I'm just throwing out some things to consider:

Do you have a budget? You need a budget or this will happen again. A budget consists of a spending plan and then tracking your spending. For the spending plan, make a spreadsheet and write down all your fixed monthly expenses (like your mortgage payment). Then estimate your variable spending (things like going out to eat). Give yourself an allowance for those things. To track your spending, get a cheap note pad and write down every thing you spend. Compare how you did against your estimates and determine if you need to change either your spending plan (your estimates were not realistic) or your spending habits (you spent money on things you didn't need to).

What did you buy with the 50k? A big screen TV? High end clothes? You can sell those things to help pay down the debt. But if this is medical debt or something similar, than obviously that won't work.

What is your interest rate on the debt? You need to do what ever it takes to get it to be as low as possible. Can you get a loan from your bank? If you're stuck with the credit card debt, a common suggestion is to write down each debt in order of interest rate (highest to lowest). Then write down the minimum payments next to each amount. Any money you have left in your budget you use to pay down the highest interest rate debt. Once you've payed off that debt, you move all you had paying fro that debt to the debt with the next highest interest rate.

A second job will give you more money to pay down debt (but is hard/impossible to find in this economy).

Credit is not your friend now. Bankruptcy is a good option if it is unrealistic to pay off all the debt. (For example, if you can't make minimum payments, there's no way you're going to be able to pay off anything.)
posted by ifandonlyif at 10:21 AM on December 6, 2009


Thanks for all the replies.

By "upside down" -- yes, I mean it is worth 25% less than the mortgage.

My hope has been to keep the house while dealing with the credit card issue.

I'm 35, and bankruptcy will hang over me for a long time. So, if there's a way to deal with teh credit, and manage to keep the house, I'd love to hear it.

I guess I'll contact a BK lawyer, just to get informed, but that is not my first path, for sure.

And as for my credit score: right now, it should be fine -- I haven't missed any payments. I'm just right on the edge and will not be able to make them soon without the second income of my fiancee.
posted by antipode12 at 10:22 AM on December 6, 2009


CCCS are paid for by credit card companies, so if you want to try to pay back in whole or in part, that's the best route to go, because they know the wolf's agenda and how it relates to you.

other than that, nthing get a lawyer. your state's bar website will have a list of attorneys in good standing, by specialty, who have no outstanding complaints against them.
posted by toodleydoodley at 10:27 AM on December 6, 2009


Sorry, I don't really know much about debt, so I can't help out on that front. Just a though, though: would it be possible to take on a roommate, even for a bit, to help with the mortgage payments? I know a number of people who have roommates for that very reason, and it seems to work out well.

Granted, it's not all that much fun having that extra person around when you're in your 30s, but it's probably better than losing the house.

Good luck.
posted by iftheaccidentwill at 10:28 AM on December 6, 2009 [1 favorite]


I'm trying to avoid bankruptcy, so I have some credit for the future.

It only affects your credit for seven years.
posted by delmoi at 10:42 AM on December 6, 2009


One more point on the "Get a lawyer and file" pile: The lawyer I worked for would never push people to file at their initial consult. He knew that market forces were pushing them to him, and they they'd probably come back in 6 months or a year for another talk.

Another thing he'd say in the meetings was, "Just ignoring what I'm telling you for a second, what would your doctor tell you to do? To stay stressed out trying to pay down a mountain of debt at usurious rates for years, taking hits to your social life, free time, and general sanity, or to just file and be able to actually sleep at night?"
posted by Aizkolari at 10:49 AM on December 6, 2009 [1 favorite]


Seems to me that you want to do any consolidation/interest-lowering borrowing now, before you enter counseling, declare bankruptcy, or start missing payments. Also, if you're going to move from the house, might make sense to do it before foreclosure begins, even if it means you don't save a couple of months' rent, since many apartments will require a credit report to lease.
posted by fourcheesemac at 11:25 AM on December 6, 2009


Go into serious frugality mode. Get a roommate, if possible.

Make a list of everything you own of value, and another list of all your debt. Make a budget showing all your expenses. Get recommendations for a financial counselor in your area, and make a plan. Bankruptcy is for a situation where someone gets in a hole too deep to get out of. You need to sit down with someone clearheaded and assess.

Sorry about the fiancee; you must be overwhelmed.
posted by theora55 at 11:28 AM on December 6, 2009


How many bedrooms does it have? Rent each and every one out (except for the one you are in, of course).

Rent out the garage as a storage unit. Or two storage units. Or four.

So many people have houses that they are struggling with, but seem to refuse to take this temporary step.

It is not always ideal, but, for me, I have amazing people in my house who bring me company, and are allowing me to not lose my house.

USE the house to help you.
posted by Vaike at 11:30 AM on December 6, 2009 [1 favorite]


When I met my wife 5 years ago I had $44,000 in credit card debt. Over a period of four years we managed to whittle that down to less than $20K by being frugal and not spending on things we did not need. My wife started doing the "coupon queen" thing and to this day we save about 50% off our monthly grocery bill. I knocked out the remaining debt earlier this year by selling a domain name I'd been using since 1997. That asset sale also put us in the black and now we have a nice nest egg started, but we're not homeowners yet. During this same period we had three pregnancies and one child and my wife hasn't worked in almost three years.

We also moved from an expensive condo in Brooklyn where we had to pay our own heat to an apartment complex in New Jersey where heat was included in the rent. That alone was a savings of about $800/mo in lower rent and no heating bill.

You need to get your monthly budget in order and then stick to it. The less you spend, the more you can put towards your debt. There are web sites (mint.com) that can help you with this process.

If you work for yourself then learn how to do you own taxes and write off as much stuff as possible.

If you don't work for yourself, then consider taking on a second job you can do in the evenings or at home.

Bankruptcy is a last resort. I would not go that route unless you absolutely have to.
posted by camworld at 12:04 PM on December 6, 2009 [2 favorites]


Thanks, everyone, for the sympathies. It has been difficult.

I'll try to take the various suggestions one by one:

Roommate -- I could rent the unused bedroom. While the inconvenience of a roommate is a drawback, the real issue is that the rent would not do much more than keep me floating. I'd never get ahead on the debt.

Frugality -- believe me when I tell you my current budget is tighter than anything. In addition, I will have suspended 401k contributions and cancelled cable. I'm working on getting a 6 month forbearance for my student loan.

Second job -- yeah -- I've been asking around, but it looks slim. I might be able to find some retail work for min wage.
posted by antipode12 at 1:07 PM on December 6, 2009


Did you see this thread?
posted by TWinbrook8 at 1:30 PM on December 6, 2009


Dave Ramsey has a lot of good advice, especially about how to deal with creditors while you are trying to pay them off. Worth taking his course.
posted by cross_impact at 3:26 PM on December 6, 2009 [1 favorite]


Bankruptcy isn't a big deal for your credit (it'll screw it for a couple of years, but it will recover!) if you declare before you start missing payments. A bunch of lates look much worse than some accounts included in bankruptcy. Additionally, you're a better risk after BK since you can't declare bankruptcy again until some number of years I can't currently recall pass.

The key is to make sure you either get a couple of new revolving accounts before declaring or getting a capital one or orchard bank or other subprime card to keep open with positive history. (or if you have a couple of cards with low enough balances you can afford to keep them open and pay them off with the money that's no longer going to other creditors, that's even better, as age is a big factor in your credit score)

You'll even be able to get a mortgage in a couple of years since you have a good reason why the payments became too much for you. (the loss of the second income) They'll just want a letter of explanation and some assurance that it won't happen again.

Personally, unless rent is significantly more expensive than your monthly mortgage, I'd bail on the negative equity of the house, too.

I know you don't want to declare bankruptcy, but it's designed for situations like yours.
posted by wierdo at 3:35 PM on December 6, 2009 [1 favorite]


Bankruptcy is not precisely a choice. You could avoid it, but it would probably be more painful that way. Bankruptcy is only legally available to you when you are insolvent: when you have more debts than assets. By your home alone that would be true. You can also measure it in terms of whether you can possibly afford the payments on your debt. If you cannot, then you are at risk of losing the house. Perhaps you can handle the payments now, but what if your unsecured creditors begin garnishing your wages?

If you really truly must keep the house (at 25% underwater, I doubt this is wise), you'll need Chapter 13 bankruptcy. This will keep you out of foreclosure and prevent them from proceeding with a foreclosure case while you are making payments during the course of a 3 to 5 year repayment plan.

I do believe it would be financially wiser for you to shed the house and the consumer debt and start over. This is Chapter 7 bankruptcy.

Either way, you will be much better off, because the court gives you protection from your creditors. How long depends on the chapter you file under and other factors.
posted by dhartung at 8:29 PM on December 6, 2009


If you have a 401K that you are considering suspending payments to, as you say, how much money have you put into it? Can you borrow against it? Some companies would allow you to take out a loan against it to pay off the credit card debt or help with your mortgage, and the rate would be much lower than the credit card companies.
posted by misha at 8:45 PM on December 6, 2009


Bankruptcy is only legally available to you when you are insolvent

No, this is wrong. You do not have to be insolvent to declare bankruptcy. The concept of insolvency does come up in bk in various places, but not as a threshold "can you file?" question.

Under the 2005 BAPCPA amendments, you may be forced into a Chapter 13. This will not "keep you out of foreclosure" unless you (or your attorney) can come up with a payment plan -- but it is at least possible to keep your house through a 13. In the old days it was possible to use a Chapter 13 bk to force the lender to share in the pain of falling home prices, but that is much much harder now. You'll remain on the hook (probably, barring unusual circumstances) for the entire mortgage debt in a 13. Credit card debt, of course, is another matter.

In general, bankruptcy should certainly be thought of as a last resort -- but that means that it should be on the table and you should have an idea of what's involved. Also, it's perfectly fine (within limits) to arrange your affairs ahead of time to get the most bang out of a bankruptcy. The time to do this is now, before things get so desperate that you have no alternatives. A competent consumer bankruptcy attorney can give you advice on this now, even if you never end up filing.
posted by lex mercatoria at 10:52 AM on December 7, 2009


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