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Is Debt Settlement or Debt Consolidation a Good Choice for Us? – Diane

“Dear Steve,

My husband lost his job in mid-2007, then again in early 2010.

Then in 2010 we attempted a small business venture (an LLC), which failed.

After three cross-country moves, the business failure, etc., we are roughly $50,000 in debt, with about half on our personal credit cards, and the other half in unpaid bills related to the business, which have now unincorporated.

We bought our current home outright in 2006, just before the crash, and our cars are paid off (and currently still running!), but we no longer have any cash savings.

We have a $60k line of credit on our house, which was originally used to make improvements. Our house is probably worth around $200k.

Fortunately, my husband found a new job about 6 months ago, and it is going well; he makes $50k. My husband thinks that with so much instability in his recent work history that we don’t stand a chance of getting any sort of loan to pay things off, and thinks we’re better off leaving our unsecured debt unsecure, rather than changing it into a home equity loan.

However, our current payments on the $60k line of credit are very low ($200/month), and we could easily handle higher payments if that was all we were paying. Keeping up with the minimum payments on the credit card debt and running our household is keeping us living paycheck to paycheck. I have not been successful in finding work, but am job hunting daily. Before the recession, we had a 20-year history together of excellent credit, long-term jobs and no debt to speak of; now we’re completely off balance.

Will any banks even look in our direction when it comes to giving us a home equity loan or refinancing our existing line of credit so we could pay off our debts and just have one payment?

My husband thinks it’s too soon for him to look like he has job stability. I’m a get-it-done kind of person and want to at least find out whether we stand a chance to get a loan. We’re beginning to get letters from lawyers and calls from collection agencies regarding our unpaid business bills, but we simply haven’t got the money. It certainly wasn’t our intention to stiff our business creditors, but here we are.

Diane”

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The Answer

Dear Diane,

Quite frankly you appear to be a good candidate for ethical debt settlement. I’ll ask some companies to come post a comment on this answer to give you some feedback.

The reason I think you are a good candidate is because you have assets to lose in a possible Chapter 7 bankruptcy, you have access to cash to settle and you are sufficiently behind that the creditors may be more likely to settle the debt promptly. You could fund settlement using a debt consolidation loan if you qualify and the resulting payments would be reasonable. I like LendingClub.com but Prosper.com has been moving aggressively to make unsecured debt consolidation loans as well. Both companies will lend up to about $30,000.

My advice would be to explore that option first, loan/settlement, and if you don’t like what you hear then come back and I’ll help you come up with a Plan B. You can click here for debt settlement information.

Once the current debt is disposed of we can deal with rebuilding your credit.

But what do you think? Does this sound like a reasonable first step?

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

Is Debt Settlement or Debt Consolidation a Good Choice for Us?   Diane
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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