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My Husband and I Are Just Barely Making the Minimum Payments. – Janet

“Dear Steve,

My husband and I have about $40,000 in credit card debt. We are just barely making the min. payments. Right now the interest averages about 7.99%. Part of this 40,000 is due to purchasing a used truck in December and charging the 12,000. on a card at 5.99% until Oct 2009. In addition to the credit card debt we have a loan of about 12,000 which is secured by a boat that is probably worth less.

We just refinanced our home last year and now have a 62,000 mortgage with not very much equity. Our home was appraised last year for 79,000.

We own a 2000 Jeep Grand Cherokee free and clear. I don’t think we can sell it because it was a salvaged title vehicle (which we did not know) when we bought it from a private party about 3 years ago and charged it to one of our credit cards that was another 12,000/ That is part of the large balance.

We own a 1990 Mazda truck probably worth about 2000.00 or less.

I drive 300 miles each week to work and I need a reliable car, since it is all rural highway in the mountains and not very safe.

We have no savings (emergency fund) and when we need tires or car repairs we usually end up charging them.

I have a 19,000 IRA.

With the changing credit card limits and min payments that I have been reading about, should we file bankruptcy so we would then have some cash left over after regular expenses to start saving or just keep paying min until they increase it beyond our abilities to pay and keep using our credit cards as an emergency fund until they decrease our credit limits, (which are quite high). Several of our credit cards are with Chase and they now will not let us transfer other cards balances.

Bank of America will let us transfer but the low rate is until Oct. 2009 and our rate on Chase and Citi Card is until the balance is paid off.

Our income has increased in March this year because my husband is now getting social security retirement of about 650.00. All the credit card debt and the house and vehicles are in my name only due to a child support issue which we have now paid off.

Also did I mention that I am nearing the age of 63 and I probably never will be able to retire.

My credit rating is about 760 due to the high credit card debt and low mortgage amount.

Can we ever get out of debt? Will we ever be able to put money in a savings account for emergencies? I am very worried. I don’t want to do anything that would make my credit rating worse and I really don’t want to file bankruptcy, but if it is looking like it is very likely then maybe we should stop paying our cards and put that money in a saving account.

Please Help!

Do you think we should stop paying our credit cards and put the 800 a month in a savings, or try to borrow more on our cards to put in an emergency fund even though we would have to use some of that money to make the additional min. payment.

Do you think it is possible to get out of debt without filing bankruptcy?

I am very worried and very confused as you can tell by my questions and background statement.

Janet”

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The Answer

 

Dear Janet,

Thank you for contacting me and trusting me to help.

Every debt situation is unique and the solution lies somewhere between a highly logical and academic solution and a wildly emotional and more charged one.

Technically, many would tell you that you can just cut expenses further, keep limping along like this for the next 15 years or so and don’t do anything that will lower your credit score. But dearest Janet, I honestly don’t think that is the right answer for you.

While it has felt that you have been protecting a good credit score and doing okay financially, the reality is that you have been sinking for quite some time. Rather than being able to afford to pay for these large expenses in your life, you have had to rely on credit, to make ends meet.

Continuing to use the cards or taking a cash advance off the cards to pay other debts is financial suicide. You can do it if you want, but I guarantee that the outcome is not going to be pretty.

At some point here you are going to need to face the music. You can do that at 63, 70, or 75. My experience tells me that the piper will need to be paid one of these days.

I say you should pay the piper sooner rather than latter, stand up and deal with your financial situation squarely.

You are 63, with little equity and a tiny bit of money in an IRA. That money and those assets are not going to properly care for you as you get older. So your two choices are to continue the path you are on, running up debt, unable to save and putting off the tough choices for another day, or you can face bankruptcy right now.

The advantage to you with bankruptcy is that it will eliminate your debt and then allow you to focus on saving money each month during your remaining income earning years.

For all of those that will scold me for giving you this advice, I invite them to help to feed you in you latter years, to help pay for your utilities, or to help you with the cost of medications. They won’t.

At 63 years young you need to face the reality that your income earning days are dwindling, you don’t have much of a retirement plan, and with minimum payments only on your debt it could take upwards of 15+ years to pay your current debt back without borrowing another penny. But you do need to borrow to get by.

Since all of the debt is in your name, your husband does not need to go bankrupt. The good news is that you have little equity in your home so you’ll be able to keep it.

After your bankruptcy you will be able to start putting money in the bank, savings, building that emergency fund. The irony is that unless you do file bankruptcy you will most likely never be able to do that, and where does that leave you?

Before you decide if my advice sounds right for you, I urge you to look around, ask others and most importantly, go and meet with a local bankruptcy attorney and discuss your situation.

Please come back and let me know what you decide to do. I care.

Big Hug!

My Husband and I Are Just Barely Making the Minimum Payments.   Janet
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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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