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We Have $225,000 in Credit Card Debt. – Jane

“Dear Steve,

My husband is on disablity ($1300 per mo) and I am employed and take home about $3,000.00 every 2 weeks. We have $225,000 in credit card debt. Although we have not been late on a payment, we have been borrowing from Peter to pay Paul and can’t go on much longer as our monthly payments now total $4,800. Our mortgage payments total about $5200.00 per month without tax and insurance. We understand that we need to either file for bankruptcy or go for debt resettlement. I’ve been investigating a little and have been told we could do a 3-year debt elimination program for $3600/month.

What is your recommendation based upon the facts provided?

Jane”

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The Answer

 

Dear Jane,

Most people reading this answer right now are thinking, “Holy crap Batman, $225,000 in credit card debt!” But my record client had $1,400,000 in credit card debt on 85 credit cards.

While you have not been late on a payment, you’ve been playing a shell game to stay that way. By borrowing from one source to pay your bills you have essentially put your debt on turbo and you are racing down a dark dead end street. You either need to put the brakes on right now or the collision at the end will be messy and financially fatal.

Your three year debt elimination program sounds a lot like a debt settlement program where you will make monthly payments into an account and as enough funds are accumulated to settle a debt, then the creditor will be contacted to accept less than the full amount as payment in full. On the surface that sounds like an interesting idea but during the time that funds are being accumulated your creditors will not being getting paid. This will cause your credit report and credit score to be trashed, collection calls to flow in and potentially getting sued for non-payment by your creditors.

Plus I have not even told you the best part yet, the amount of debt forgiven by your creditors will be a taxable event and you’ll have to pay income tax on it. Let’s say your creditors wipe out $112,000 of your debt in this process, you will need to be prepared to pay personal income tax on that $112,000 in the year it is forgiven. Most people don’t realize this and are not prepared for the IRS to come knocking.

If you had cash in hand right now to settle your debts, that might be a good thing to consider but since you don’t I think you need to go and have a conversation with a bankruptcy attorney. If you click here for bankruptcy information you can get a free consultation. You don’t need to go talk to the lawyer with the intention of filing bankruptcy but more to get educated about bankruptcy will mean for you in your situation.

Let me know what you decide to do.

Big Hug!

We Have $225,000 in Credit Card Debt.   Jane
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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.
  • http://blog.freedomfromcreditors.com Billy

    Get educated on bankruptcy but remember, a bankruptcy attorney will always suggest bankruptcy as your best alternative! Take the information and then decide against the pros/cons of your other options. There are strategies to protect against lawsuits, taxes on forgiven debts, etc. We utilize the asset guard and a proven method of validation to mitigate the tax risk as well, all while settling for pennies on the dollar. Of course your credit is damaged, but with an “exit strategy” to repair it (which begins immediately). We have clients with 500k+ in credit card debt who have avoided bankruptcy, taxes, etc. But it all depends on you and discovering all the information about your options and then deciding what is best for YOU!

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