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I Can Make the Minimum Credit Card Payments But Trying to Decide Between MMI and Bankruptcy. – Tony

“Dear Steve,

Own a home, divorced, alimony is $375/month through May 2013, a $500/month loan with lending club through July 2013. House payment is $1,250 including assessments. Credit card debt alone is $25,000. Lending Club loan has about $6,000 left. Total unsecured debt is about $35,000, including student loan. My house isn’t selling — the one two floors below just sold for $118,000. I owe $119,000 on mine and bought it for $135,000 just before the crash. My income is about $4,600 a month and yet I am having a hard time making ends meet because my wife just moved to the U.S. and I’m supporting two people right now.

I need to know if I even qualify for any of the programs mentioned such as MMI or bankruptcy. My income is about $4,600 a month, I have a steady job and have for six years. My mortgage and assessments total $1,250 a month. I am paying a lot on my CCs right now, way more than the minimums, about $1,800 a month — trying to get the amount I owe down but missed a couple payments in the past, which means my interest rates are ridiculously high. I have about $25,000 on credit card debt, a Lending Club debt with about $5,000 left on it ($500 a month for another year) and student loans in the amount of about $3,000. I owe alimony to the tune of $375 for another six months. My credit score fell to the mid-600s because of a missed electric payment on my condo when I was living overseas.

I can make my payments pretty comfortably but find I have very little left at the end of the month.

My question is, should I even consider working with a debt management group or should I try to hold out until my alimony and Lending Club debt are payed and my wife, who is ineligible to work in the U.S. because she just moved here from, of all places, Canada, gets a job, which should take about 9 months?

Tony”

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The Answer

Dear Tony,

The one thing that strikes me is that you are sending more than the minimum on your credit cards each month. I’d suggest that unless you have some emergency fund or savings account to help you in an emergency that you stop doing that and pay just the minimum for the next nine months or so.

What makes your situation a bit different than most that seek advice is that you are not in immediate danger. What you are in is a desire to make this all go away quickly.

I’m curious, is the LendingClub.com loan for a previous debt consolidation attempt?

One realistic course of action is to do nothing right now if your goal is to rebuild your credit as you dig yourself out of debt. If you take your extra cash for the next six months and build your emergency fund, you’ll have an extra $375 a month to use for debt reduction then.

You could always consider the MMI credit counseling approach but it would close your credit cards and that can hurt your credit history.

When you get that alimony money available then consider using ReadyForZero.com or some other structured service to optimize your debt repayment. Another six months later you’ll have the Lending Club loan paid off and you can add that $500 in the mix as well.

You mentioned that your home isn’t selling but I wasn’t clear if there was a need to sell the home at this time. Can you stay put for now or do you need to move?

Bottom line, if we can get you on a better foundation now you can spend your time rebuilding your credit as you dig out. Of course, you can always toss in the towel now and consider bankruptcy as a fresh start to dump the condo and your debt and start over.

I’d suggest you first read How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. They will give you a great overview of what we need to deal with to get you moving in the right direction.

Then use the free How to Get Out of Debt Calculator to review your options.

Once you’ve identified a company you want to work with, then follow my step-by-step guide on how to check out a debt relief company.

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

Big Hug!

I Can Make the Minimum Credit Card Payments But Trying to Decide Between MMI and Bankruptcy.   Tony
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If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

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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.
  • Tony

    Thanks for responding to my question!

    I don’t need to sell my home but we may have to move back overseas for a year or so, meaning again having a rent AND a mortgage, which is part of the reason I have so much debt right now. But I don’t want to leave my company — they pay well for my industry and offer great benefits. The problem is the condo we have needs work to the tune of about $15,000 (bathroom wall needs to be remodeled and carpets need to be replaced). The Lending Club loan was for a consolidation a few years ago. I’d like to not have to declare bankruptcy but if my credit takes a bit of a hit, that would be OK.

    What is the point of paying the minimums on the credit card? Is it to build a bit of cash reserves?

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