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“Dear Steve,

In a TON of debt…looking for a way out.

I am looking first to consolidate my debt, then form a plan to get rid of it.

I have a $235,000 mortgage at 5%, a $65,000 interest-only second mortgage at 3.75% and about $47,000 worth of credit card bills.

I was one of the millions of idiots that bought a house with no way to pay for it. $30,000 of the interest-only second mortgage was an “instant-loan” at the time of my house purchase, used as a “down payment”, the rest was a car + car repairs over the years. The $47,000 of credit card bills was racked up from the years of having to live off of credit cards when I had no money to pay the bills.

At the housing peak, my house was valued at $295,000, but it could be as low as $195,000 now. I have a 640 average credit score with NO late payments EVER.

I tried applying for a debt-consolidation loan when Bank of America offered it a few months ago. They were offering up to $50,000. They denied me because of…get this…too much debt.

Is there any way out? Do I just attempt to open more credit cards to spread the debt out and hope for low-interest rate cards?

ANY advice would be GREATLY appreciated!!!! Thanks!

Drowning in Debt”

Dear Drowning in Debt,

I noticed you mentioned that Bank of America debt consolidation product they’ve been marketing. It is actually called their CleanSweep loan. I reviewed and wrote about the offer in detail. You can read more about it here.

It seems to me that the issue here is not about moving your debt around but the fact that you can’t afford to pay the debt you’ve got now. The interest rates you are paying now don’t seem so bad but as long as you don’t earn enough to pay for it.

And this is not a problem that raised its ugly head yesterday. You yourself said “The $47,000 of credit card bills was racked up from the years of having to live off of credit cards when I had no money to pay the bills.” More credit, more interest free credit, and more debt of any kind is not going to free you.

To break free from your debt you’ll either need to accelerate your debt pay off or consider bankruptcy. I realize that bankruptcy might seem like an extreme reaction to your current situation but you are so buried in debt, that without increasing your income, I don’t see much chance of a successful outcome.

If you don’t think that you can increase your income and you are not mentally prepared to face bankruptcy, then consider a debt management solution (click here for debt management information) to wrap your debt into one monthly payment. Credit counseling and debt management is not a consolidation loan but you do make just one payment to the debt management company.

I am not optimistic that a debt management approach is going to eliminate your debt but if you want to try, go right ahead, and then when you are ready to consider bankruptcy, do it.

Big hug.

Steve

Source: I Am Looking to Consolidate My Debt And Then Form a Plan to Get Rid of It. - Drowning In Debt

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Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

My husband almost died due to an abscess on his liver. Medical bills piled up. Then he lost his job. Then I lost my job due to budget cuts. Currently my husband is unemployed, and I am working, but for less than my last job. Credit cards were used for everyday items such as food. Had been paying them off monthly at more than minimum. Then, credit card companies raised APR percentage and minimum payments to even more than had been paying them off at more than minimum. Could no longer afford monthly minimum. The credit card has spiraled out of control due to finance charges of $400 a month.

How do I get the credit card company to lower payment to what I want. I can afford $400 a month to pay them off. That is it. There is no more in the budget than that, and that is even with cutting down on food, electricity, etc. I am more than willing to close the account. I have been talking to them for 3 months now to no avail. I want to get rid of this debt!!!!!

Sally”

Dear Sally,

Actually, while you think it makes good common sense for you to enter into a repayment plan that you can afford, sadly the creditors don’t really care. Creditors look at acceptable repayments as what they want, and not necessarily what you can give.

If you’ve already been communicating with them and they have not proposed anything substantial that will work for you then you have three options.

1. Credit counseling or debt management programs may reduce your payment if you are currently behind. Click here for debt management information. Your payment will be calculated by the creditor formulas that the creditors dictate to the credit counseling groups and not what your budget allows. Talking to a debt management company is a good first step to take to see if it is a solution that will work for you.
2. Bankruptcy is a legal and logical option if you just can’t get by each month anymore. Sure bankruptcy is painful but so is just making it from month to month without getting ahead at all. Talk to a bankruptcy lawyer and find out what your options are in bankruptcy.
3. Keep paying the minimum payments or pay the cards off in full. Sure, this approach just leaves you on a treadmill and does not change anything but it is an option if you are not ready to take more drastic action like a debt management program or bankruptcy.

As it stands now, you are perfectly situated to make the creditors a maximum amount of money from jacked up interest and fees. They’d rather see you do that than let you jump down to a payment to better fits your budget. One thought is that they try to extract their pound of flesh, and as much as possible, before you stop paying or go bankrupt so they are going to push you as much as possible before you eventually default.

Big hug.

Steve

Source: How Do I Get the Credit Card Company to Lower My Payment to What I Want? - Sally

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Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

I am totally helpless when it comes to understanding my credit report, and making a choice as to what to start paying back first.

What do i need to do to get things straight?

Janet”

Dear Janet,

The good news is that dealing with your credit report and developing a repayment plan can be a relatively straight forward and simple affair.

I would recommend that you get a copy of your consolidated credit report. While there is a charge to get it I think the benefits far outweigh the cost. The special consolidated credit report will show you each of your credit items, as reported by all three major credit bureaus, side-by-side in an easy to read and color coded presentation.

If you get your consolidated credit report with the credit score option it will also show you exactly why your credit score is what it is and how you can improve it.

Armed with a comprehensive listing of who your creditors are from your new consolidated credit report you can then make some choices about who you are going to pay back first. While paying back the creditor that is charging you the highest interest rate makes the most mathematical sense, I think paying off the lowest balance creditors first makes the best motivational sense.

If you follow the Debt Snowball approach to repaying your creditors, you’ll eliminate people you owe and stay excited about paying people off.

Big hug.

Steve

Source: I Am Totally Helpless When it Comes to Understanding my Credit Report - Janet

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• Anne Has $25,000 of Credit Card Debt And Making Just Minimum Payments But She Wants to Get Out of Debt
• John Wants to Know “If I Consolidate My Debt On One Account Will It Hurt My Credit Score?”
• Robert Wrote “I Do Not Know Where To Start Other Than I Am in Debt”

Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

Early in 2008, I had a sudden turn of events. I had to quit my job due to health problems and lost half of my household income when my ex and I split up. I had just bought a new car and signed on to what would have been smart loans to transition into a more comfortable state but 4 to 5 months had passed and I still couldn’t find a job, my savings were depleted and I was close to losing my apartment and my automobile!

My financial situation spun out of control! Suddenly accounts that have been established for years were closed and some of my newer obligations got charged off, almost immediately! Finally, I was able to secure a job, but I’ve only been able to salvage a few of my major accounts.

Now I have law offices and creditors calling me non-stop; threatening to sue and treating me like a criminal! There is still about $10,000 worth of debt obligations unaccounted for. I took a cash job and am paying out almost 90% of my monthly income, but it still is not enough to get out of this mess.

How do I confront my financial crisis at this point? What are my options and what would be the least damaging route of these options?

Avria”

Dear Avria,

Of course looking at the situation from the outside is a lot different from living it. First, let’s just agree that your situation is what it is. While it makes you feel bad, from the collector point of view you are just another of thousands and thousands on the books that has to be scared into paying.

The collectors are trying to make you feel bad because they know that you are more likely to pay out of fear. It’s just an effective collection tool to use. Creditors and collectors can’t judge you. They really don’t know you. But they can effectively push your buttons and make you live in fear, shame, and doubt. Sounds like they are doing a good job of that with you.

In order to give you some breathing room and peace of mind, I previously wrote How to Hide From Debt Collection, the Debt Collector, and Creditors. This won’t make your debt vanish but if you follow this advice it will significantly diminish the day-to-day pressure you may be feeling from the collectors. By reducing the pressure you’ll begin to feel more stable again and be better able to deal with life.

So, you ask, “How do I confront my financial crisis at this point?” The best answer is head-on. I would suggest that you consider the debt snowball method of eliminating these debts and pay off the smallest balance first. You can read my step-by-step Debt Snowball guide here.

If you are not exactly sure who you owe, get a copy of your consolidated credit report and it will show you all your outstanding accounts.

If a creditor sues you or you can no longer cope with the situation, bankruptcy always remains a legal and viable solution that would eliminate your debt and stop the collectors cold. But before you do that, consider the approach above. It will work.

Big hug.

Steve

Source: Law Offices and Creditors Are Calling Me Non-Stop, Threatening to Sue and Treating Me Like a Criminal - Avria

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• Your Online Debt Collection Rights Guide
• How Do Bill Collectors Get Cell Phone Numbers?
• Fred Owes AMEX $40,000 And Can’t Pay American Express Back
• Stop Debt Collectors - 100 Pages of Good Advice
• Double Standard For Debt Settlement. Not So Sleazy Now, Ask Hilary Clinton, John Glenn and the FEC.

Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

I have recently hired a bankruptcy attorney and am in the process of making payments to him to file my case, which unfortunately he cannot do until I make the last payment. I should have this taken care of by May, 2009. I am now just starting to become delinquent with my credit cards.

Would it make sense for me to send a letter to my creditors notifying them of my intent to file bankruptcy and let them know that they need to contact my attorney regarding my account from here on out as it will be several months before my case is actually filed?

Laura”

Dear Laura,

You could send a letter but it will probably be just an effective/ineffective to tell the collections people on the phone what your intentions are. Don’t be surprised if it makes no difference to them.

The reason I’m not enthusiastically supporting the letter writing option is that creditors are notorious for never getting written correspondence properly entered or linked to the client account. If you rely upon sending the letter as full notification to your creditors and then dodge the calls, that’s probably not a smart idea.

If the bankruptcy attorney has been retained and has advised you to tell them to call the bankruptcy attorney, I would do that. But be sure you get the permission of the bankruptcy attorney first. The last thing you want the creditor to be told when they call the attorney is that they don’t represent you until you make the final payment.

So, call your bankruptcy attorney and ask the office the best way to handle this situation in coordination with them. Once you do file bankruptcy then be sure to write down you filing number and give that to the creditors if they call you.

Big hug.

Steve

Source: I’m Just Starting to Become Delinquent With Credit Cards And Going to File Bankruptcy. Should I Tell My Creditors? - Laura

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Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

Recently divorced and trapped in an upside down mortgage. Living off credit cards to get by.

I am recently divorced and bought out my ex wife during the up market for my current home. My mortgage is now upside down and I am not making enough money each month to even break even with my expenses. I have a FICO of 750 (was 810), but my debt in credit cards is nearing max. I have been using credit cards to keep up with the negative income hoping I would clear the divorce and start with a positive income by now. This has happened, but barely. I now make just enough money to make my expensive mortgage, make my child care payment, and pay a little over my minimums for my credit cards. I can’t go much longer like this. Any ideas?

Frank”

Dear Frank,

I’m glad that you recognized that you’ve been using the cards to make-up for the shortage each month. Being aware of that is helpful.

The reason that it is so hard to dig out of this kind of debt is that in order to have $X each month to repay on top of the minimums you’ve got to have an increase in income or a reduction in expenses. And when you are just getting by each month it is darn hard to find those extra dollars to use for the next six years, month-after-month, to get totally out of debt.

There are some short-term things that you can do, like talking to your mortgage lender about giving the house back with a deed in lieu of foreclosure or finding a buyer and asking the lender to accept a short sale, a sale for less than is owed.

You could also consider entering a debt management program (click here for debt management information) to consolidate your credit cards into one monthly payment that you might be able to afford.

All of these things will hurt your credit and unless you can confidently make repayments in a debt management program for the next six years, then you might simply be entering a path that will lead you away from today but not out of debt. Any repayment strategy needs to fully repay the debt for you to be debt free. I know that sounds obvious but not everybody understands that.

If you launch into a debt repayment program for the next year, you’re just getting by each month, and if an unexpected event happens that causes you to stop making payments then it could be argued that you’ve just wasted a year of payments and a year you could have used for rebuilding your credit. In that case bankruptcy might have been a smarter move for you. It would give you a fresh start and allow you to start over on what you can really afford today. Of course you’ll still have to pay the child support payment, you can’t get rid of that in bankruptcy.

Frank, if you are not mentally prepared to think about bankruptcy then go into a debt management program and see if you can get some breathing room that way. But I would still suggest that you talk to a bankruptcy lawyer just to be fully informed about what bankruptcy would mean for you. Talking to a bankruptcy attorney does not mean that you are going to go bankrupt. It just means you’ll be better informed.

With your credit cards nearly maxed out they are quickly turning into ticking time bombs. As you near your limits you become a greater risk and that puts you higher on the creditor radar. These days creditors are lowering limits or closing cards to minimize their credit exposure to people who might be risky. Also, maxing out your cards also lowers your credit score. If you get to be too big of a risk your creditors could significantly increase your interest rates and that will sink you for sure.

The absolute fact is that unless you change something here, either increasing income, reducing expenses, or potentially going bankrupt, next month isn’t going to be any different than last month. You will never break free from this situation as long as you keep repeating the same thing over and expecting a different result.

Big hug.

Steve

Source: I’m Recently Divorced and Trapped in an Upside Down Mortgage - Frank

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Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

My husand over 10 years ago got appendicitis with no insurance. The hospital wasn’t happy with the small payments hubby was making, so they hired a law firm. The lawyer for the hospital wanted him to start paying $170 a week when he was only making like $260 a week in a factory. Hubby had no choice but to file bankrupcy because the lawyer won a suit to start garnishment.

Well its been almost 10 years, and the bankrupcy is suppose to fall off his credit report Feb 2009 (it says that on the credit report). My hubby is currently deployed and my car died about 2 months after he left. I can’t obtain a car loan until the bankrupcy falls off (so the banks say). I’m hoping to get a car really soon since I have no transportation and we have 2 children. Any insight would be wonderful.

Is there a specific day that the bureaus take these off of the credit reports? If not is it a general time frame like the beginning, middle, or end of a month? How is the credit report affected ater it falls off?

April”

Dear April,

I know car lenders really tightened their standards recently but wow, waiting for the decade old bankruptcy to fall off the credit report seems very extreme.

You have a couple of options. The first is a story I saw recently that might be able to help you. As a result of GMAC getting government aid to help bail them out they were requested to loosen their lending standards to help people that otherwise could not get a vehicle.

General Motors Corp and its financing affiliate GMAC on Tuesday announced programs to make it easier for car and truck buyers to get financing, a day after GMAC agreed to sell the government a $5 billion stake.

Through Jan. 5, GM will offer interest rates of zero percent to 4.9 percent on loans of up to five years on various 2008 model year vehicles, and 3.9 percent to 5.9 percent on some 2009 vehicles. Many of the vehicles also carry cash discounts of $500 to $4,250.

The move is a bid to capitalize on GMAC’s separate plan to provide auto financing to more U.S. consumers. GMAC will extend loans to retail buyers with credit scores of 621 or higher. In October it had restricted loans to borrowers with scores of 700 or higher.

Many analysts consider borrowers with credit scores of 620 or lower to be “subprime.” Dealer wholesale financing is unchanged, GMAC said.

Mark LaNeve, GM’s sales and marketing chief, said the lower financing costs will encourage customers to “get back into the game.”

The second option would be for you to go to one of the local buy here, pay here lots. You’ll pay more for the vehicle but you are more likely to get one there than at a traditional lender.

If you want to check your credit score before you head out to a GM dealer or another dealer, just use this credit score link.

Using this advice, you should be able to get the wheels you need.

Big hug.

Steve

Source: I Can’t Get a Car Loan Because of a Past Bankruptcy - April

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Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

If I don’t pay unsecured creditors like personal and business lines of credit and I disappear as you have described.

What can the creditors do to collect? Do they look for corp bank accounts I might have created?

Janet”

Dear Janet,

If you go back and read the article I wrote, “How to Hide From Debt Collection, the Debt Collector, and Creditors” you will see that the article is full of advice on how to reduce the collections pressure you may be facing but no trick or advice is going to eliminate a legal obligation to fulfill the performance of a contract.

Creditors can avail themselves of all legal means of collection, including suing you which can lead to a lien or wage garnishment. Being sued is a serious matter. If you are going to stop paying on business lines of credit then if I was a creditor I’d go after your business assets.

Let me state clearly again, hiding from your creditors does not change your obligations, it just eliminates the immediate pressure you might be facing.

For help in dealing with the underlying financial problems, please see a debt management company, (click here for debt management information) or a bankruptcy lawyer, (click here for bankruptcy information).

Please don’t misconstrue my advice about hiding from your creditors as a trick or technique to make your debt vanish. It’s not. But it will reduce the collection calls to give you some peace of mind while you figure out how you best want to tackle the underlying debt problem.

Big hug.

Steve

Source: I Want to Hide From My Creditors - Janet

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Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

I am considering taking on a federal Stafford loan in order to go to nursing school at a private school. Tuition is $25,000-30,000. I am single, in my 40’s work full time.

Should I pay the loan off ASAP, before acquiring any further debt? I want to get a house soon and don’t know if this loan will adversely affect me?

Sandra”

Dear Sandra,

Debt is debt.

Student loans deserve respect and should not be assumed to be “good” debt. This new student loan debt is just another obligation that you will be responsible for paying off. In fact of all debts, student loans are among the toughest since they can’t be discharged in bankruptcy and if you fail to pay the loan you can get his will a penalty of as much as 40% of the original loan amount.

It would be wise to significantly pay down the debt before going further into debt and if it was possible to eliminate the debt completely, that would be even better.

The loan could impact your ability to borrow since it will be an outstanding obligation and based on your income, it could reduce the amount you would be eligible to borrow. Before you get house shopping fever, go and discuss your situation with a mortgage broker so you’ll know exactly what you’ll qualify for.

If you don’t have a down payment on the house then it would be smart to focus on putting money in a savings account at the same time as you repay your student loan.

Good luck with nursing school.

Big hug.

Steve

Source: I’m Going to Take Out a Student Loan to Go to Nursing School - Sandra

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Income from the GetOutOfDebt.org site advertising is used to help alleviate poverty. If you would like to help me to help others, there are easy and free things you can do, click here to learn how you can help.

“Dear Steve,

Six years ago - had a unplanned child with my wife (still married). A Pediatrician put a $50.00 collection on my credit report (not my bill - total mistake). This triggered universal default 29% interest rates on me and my wife’s credit cards. I got it removed but could not get the card companys to reduce the interest rates.Thought I could get cards paid down but have been fighting a losing battle. Could I have taken legal action against the doctor?? It has been 5 years of Universal Default Hell. In Chapter 13 bankruptcy - What % of unsecured debt are you liable for?

Eric”

Dear Eric,

It is very unfortunate that you had to live through this episode with the credit report error. I am not a lawyer but I think it would be very hard to go after the doctor that may have placed a comment on your credit report in error. There was nothing intentional about it and the error was corrected.

The real issue seems to be the actions of the credit card companies in response to the error. While stranger things have happened, I find it hard to believe that the error alone triggered rate increases on all your cards and your wife’s cards.

Experience tells me that when things like that happen that it typically involves the convergence of other events at the same time. For example, a rising debt to income ratio, late on a credit card account, etc. The $50 collection account all by itself is generally not enough to make all your cards explode.

Typically after 6 months you can reapply for a rate reduction but that sounds like a moot point now since you are in a Chapter 13 bankruptcy and all the interest is frozen on those cards.

You asked about the percentage of unsecured debt you would be responsible for in your Chapter 13 bankruptcy and that is really a question for your bankruptcy lawyer. They can tell you what they estimate you will have to repay with your filing. It really depends on your confirmed plan and you stated income.

For everyone else, if you are faced with a small bill that is going to go to collections, it is better to pay the bill under protest and then fight for a refund than risk having it appear on your credit report and then have to deal with the consequences it can create.

Steve

Source: I’m Struggling With High Interest Rates on my Credit Cards From Universal Default - Eric

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