“Dear Steve,
With the economy in such turmoil, my husband who is self-employed has had close to no work for 6 months. I went back to work and that is helping, but our finanaces are a mess. We are living paycheck to paycheck and are barely able to make our monthly payments. We had already had credit card debt and now we have had to use our credit cards numerous times to make it. We now have over $25,000.00 in credit card debt and feel helpless.
How can we try to get rid of this debt without sacraficing our credit? Although we have high limits on our credit cards our credit scores are still in good standing. Where do we start and how so we get ourselves out of this horrible mess?
Melissa”
The Answer:
Dear Melissa,
The only reason your credit scores are good now is because you’ve been borrowing from the credit cards to make ends meet or make the payments. In reality your credit score isn’t so good now, the credit bureaus just haven’t caught on yet.
Trying to get out of this mess without impacting your credit is simple, pay your bills off in full. But if you could have done that, you would have.
Right now you are in a deep and dark hole that is continuing to get deeper and darker each day. Saying you don’t want to do anything that might sacrifice your credit is like saying you want out of the hole without the use of a rope.
Making decisions about what you are going to do to resolve this based on your emotional attachment to “good credit” is understandable, but emotional. Logically it is much better for you to take a big credit hit and solve the problem quickly and then rebuild from it than it is to let the situation linger for years, unresolved, for fear of how it might hurt your credit score.
In a situation where there is no immediate expectation that lost income will be replaced, the most logical solution is to neutralize the unserviceable debt. The only way to legally do that in America that gives you consumer protections from collections and lawsuits is with bankruptcy.
Here is what I would humbly suggest that you do. Find a local bankruptcy attorney, make an appointment for a free bankruptcy consultation and just go in and talk to them. Learn as much as you can about bankruptcy from them and then go home, think about it, and then decide if bankruptcy is for you. Don’t exclude bankruptcy as the appropriate solution for your situation solely based on how you think you’ll feel.
Living paycheck-to-paycheck is a volatile recipe for disaster. All it will take is one unexpected expense on maxed out credit cards to sink you.
