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I’ve Been Using My House as an ATM Machine. – Jeannette

Jeanette

“Dear Steve,

I have used my home as an ATM machine to put 2 kids and myself through college.

We have a primary mortgage at 6% and a home equity loan at 8% both at a fixed rate (total loan amount $250,000.00). January 2008 our home appraised at $310,000.00.

Problem, we have one hundred thousand dollars in credit card debt. Just writing this brings tears to my eyes because I still cannot believe the mess that I have gotten myself in. I have always taken such great pride in our credit and have worked very hard to make sure that all our bills were payed on time but despite all of that I have seen our credit score drop from 730 to 630 because of our debt to income ratio.

There was a time when lending institutions and credit card companies were begging us to take their money. Now they have raised our interest rates, reduced our available credit and raised our minimum payments!

I am drowning in a sea of debt.

The minimum payments on all the credit cards and personal loans are approximately $4500.00 and my 2 mortgage payments total $2700.00. I have been working a lot of overtime to make sure that our net income is $8000.00 per month to cover the bills but each month it is getting harder and harder.

I don’t know what to do. My first mortgage company suggested “off the record” to consult with a debt settlement agency to get out from all this credit card debt and another person told me to try to refinance again. I found myself at google punching in the words “get out of debt” and found you. I have found some comfort in reading your posts and I know that I am not alone but I still need some advice.

Overwhelmed in New England!

Jeanniette”

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The Answer

 

Dear Jeanniette,

I wish I was there to wipe away the tears. The pain and sadness created by too much debt is almost the inverse of the fun and enjoyment that is created from spending the money.

What concerns me is that your ability to make it from month-to-month is dependent on overtime. I certainly applaud your work ethic but I can clearly see what would happen to your efforts if overtime was cut. And since overtime is optional and not guaranteed, basing continued obligations or a repayment strategy on overtime can be financial suicide.

With so much credit card debt I would assume that it is spread out over a number of credit cards. The thought of you being able to manage a “total solution” that worked for you with a number of different entities is doubtful. And even if you went with a credit counseling or debt management approach, I think it still leaves you dependent on overtime to make the payments.

I think the more logical approach at this point is to consult with a local bankruptcy attorney. Most offer a free bankruptcy consultation so it won’t cost you anything to go and talk, just talk. The only legal tool you have to reorganize your debt will be through bankruptcy. In a chapter 13 bankruptcy you can keep your home and the other debts reduced to a level that you can afford.

If you could refinance again, that might be an option for you. But with a current credit score of 630 I doubt that in the current market that you would be able to lower your overall rate much and even then you would securing unsecured debt against the house.

I know those tears of yours are tears of pain and that this path will be emotionally painful as well, but painful does not mean wrong.

Big Hug!

Ive Been Using My House as an ATM Machine.   Jeannette
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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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