How can I temporarily reduce my monthly payment on my *slowly* dying credit card debt?

February 20, 2006 7:39 PM

Credit cards are a trap. My partner and I have been digging out for the last 2 years w/ a Debt Management Plan from a Consumer Credit Counseling Service. We're having a kid and will suffer about 6 months of reduced income as a result. We're already at bare bones to make the huge monthly DMP payment and have no assets. The CCCS had very little to offer - the only real suggestion being that I pull out of the DMP and request a hardship repayment plan from each credit card individually(there are 5). Can anyone share experience of trying this? A consolidation loan is unlikely w/out super-high rates and the total debt is over 30k...
posted by dorcas to work & money (15 comments total)

Why not try real bankruptcy? You're already in credit counsoling, so you meet one of the requirements for the new (BS) bankruptcy laws.

Remember, Consumer Credit counseling services are paid for by credit card companies to keep you from declaring bankruptcy, or even thinking of it as an option.
posted by delmoi at 7:53 PM on February 20, 2006

Get a loan from someone who doesn't mind how long it takes you to pay it back ;-/
posted by vanoakenfold at 8:15 PM on February 20, 2006

I assume they would have done that if that by now if that was an option, van.
posted by delmoi at 8:22 PM on February 20, 2006

Sounds like you're headed for a bankruptcy. The nice thing about bankruptcy, though, is that IIRC you won't have to make any payments nor will interest continue to accrue between the time you file and the time you have your hearing. That's usually at least a couple of months -- it could well cover the entire time you're suffering from salary reduction. Use this time to get ahead a little bit. Save the money you were paying your creditors, less the salary reduction, and don't spend it! Put it in a high-interest savings account. It'll look good to the court if you're showing some fiscal responsibility. Also make it clear that you do want to pay all the money back and are not asking for any debt to be forgiven.

You're looking at a Chapter 13, a reorganization. It's basically the same thing you're doing through CCCS except it's through a court. You can probably get the payments to be reasonably low. You probably do not qualify for Chapter 7, where you pay as much as you can and the debt is wiped away, because you do have income.

If you have any significant assets (not counting home and cars but including e.g. significant amounts of jewelry) you will probably be required to liquidate it. You'll have to disclose this to the court and the attorneys for your creditors will argue that this should be done. But I expect you'd already have done this if it were an option.

The bad news is that a bankruptcy will stay on your credit report for seven years from the time you finish paying everything back. The good news is that you'll still be able to get credit afterward; you'll just pay more for it. (People who have discharged a bankruptcy have no debt and can't declare bankruptcy again for another 7 years, and are therefore seen by some lenders as a good risk.) Cars and even mortgages are possible because these loans are secured -- they'll repo your car or foreclose your mortgage if you don't pay. So it is not a life-ender.

Some of the details above may differ now that the laws have changed, so you'll definitely be consulting a lawyer.

It's absolutely none of my business, of course, but I can't imagine deciding to have a child while dealing with this kind of financial crisis. An ounce of prevention, as they say...
posted by kindall at 8:49 PM on February 20, 2006

The bad news is that a bankruptcy will stay on your credit report for seven years from the time you finish paying everything back.

(Seven years for Chapter 13, ten years for Chapter 7.)
posted by kindall at 8:50 PM on February 20, 2006

Years ago in medical school, a friend of mine was going through the same thing. His total debt was around 25k, and he had five cards. He, too, went to a debt counselor, and he tried the huge payment deal. Still had a difficult time paying it, so his debt counselor recommended that he call each company up and say: "look. I've got no dough. I make this much money now. I have other payments to make as well. There is no one who can loan me money. I'd like to try to take care of this without declaring bankruptcy."

And the companies 1) slashed his total debt owed, 2) froze his accounts, to be closed when the debt is paid off, 3) arranged monthly interest-free payments he could afford.

Worked like a charm, and I did it once myself for a smaller debt of around 4k, except they didn't cut the total debt amount.

By the end of school, I think he was still thinking of just declaring bankruptcy and starting over.
posted by herrdoktor at 9:45 PM on February 20, 2006

Are you working all the hours you possibly can? A second (or even third) job, though exhausting, is often the only way to dig yourself out of debt.
posted by jrossi4r at 9:46 PM on February 20, 2006

I've done the hardship repayment programs for 2 cards, and it turned out to be much better for me than the DMP that I looked into. I'm still doing this for one card, and it's working very well (and surprisingly, the people I deal with at the mega credit card company are really nice and easy to deal with about this). This particular company's hardship program had a 5-year limit, as in, they set your monthly payments such that you'll be paid down to $0 in no more than 5 years. Depending on how much you owe, this could be a lot of money per month. The second card, a bank-issued credit card, I'm still paying off, but I'm not in their hardship program because they made it insanely difficult for me to continue it after 6 months.

My accounts are closed, and I believe they monitor my credit such that if I try to open any other credit account while I'm in the program they'll kick me off it. So the only pain in the ass is not having a credit card for things like renting a car, but that's been the only issue I've had.

If you have any follow up quesitons, feel free to email me.
posted by banjo_and_the_pork at 4:23 AM on February 21, 2006

We're having a kid and will suffer\

You got that right.

Declare bankruptcy. Get another job or two.
posted by pieoverdone at 4:56 AM on February 21, 2006

Just declare a bankruptcy!
My brother did it less than a year ago. Both, him and his wife worked at the time and they still kept their condo and two cars. Some 9 months after the bankruptcy they got their first credit cards (each got a card from capital one for $3,000 limit and no interest for 1 year??!!).
They are so much better off now than they were a year ago, that they keep saying they should have done it years ago instead of trying to win an impossible battle of paying off the credit cards.
Granted, laws have changed recently but I would look into it.
posted by yabo at 6:40 AM on February 21, 2006

Have you talked with a CPA? I may seem counterintuitive, as it would be another bill to pay, but if I were you I would talk to someone who is a)knowledgeable about bankruptcy laws, and b) impartial (not owned by credit card company).
My parents are terrible with money, but now that they have a good accountant keeping them in check, they're finally paying their debt down and saving.
posted by Sara Anne at 8:40 AM on February 21, 2006

Thanks everyone for the helpful suggestions. Bankruptcy is an option, but truly feels like the last resort short of defaulting and becoming a homeless drifter. Talking to a CPA is a good idea I'll do that.

Does anyone know if there are specific qualifications that the major cc companies use to judge "hardship" I guess I'm looking for keywords to use on the phone with them?

As for the suggestions that I should have considered planning my family around the needs of Amerika's Credit Card industry... I've given enough of my life (and money!) to these corporations to more than make up for the cash they fronted me when I was a naive young person with no education about finance or credit and I still owe them a fat wad. Screw that! but you can bet that my kids will benefit from my mistakes - credit cards can be very dangerous and I hope to live to see a day where those companies are as publicly reviled for their practices as the tobacco folks are starting to be now.
posted by dorcas at 12:46 PM on February 21, 2006

Thanks everyone for the helpful suggestions. Bankruptcy is an option, but truly feels like the last resort short of defaulting and becoming a homeless drifter. Talking to a CPA is a good idea I'll do that.

I don't understand that. Why do you want to make these companies suffer in order to give them more of your money then you absolutly need too?
posted by delmoi at 7:34 PM on February 21, 2006

Regarding bankruptcy, I would say that it does seem like it should be an option in your case to at least consider.

Pertinent to that is the new bankruptcy law, which an experienced judge has excoriated Congress for passing. Your options are restricted, and you should definitely plan ahead regarding timing and so on.

That said, the beg-for-mercy plan looks like something that given your months/years of plan adherence might be something to pursue aggressively as well. You've got nothing to lose.
posted by dhartung at 10:14 PM on February 21, 2006

There are a lot of sites on the net that can offer you a good advice on how to get out of your debt, here are just few:




There is also Kryn's example, and the trend of "internet beggars", so why not give it a try:




Good Luck, and let us know how did you do!
posted by yogi40 at 10:29 AM on February 23, 2006