April Writes And Asks “Is There A Debt Program That Can Help Me And Protect My Credit?”

April wrote to me through the GetOutOfDebt.org site and asked me the question below. If you have a question, please write to me for free and I’ll help you as well.

“Dear Steve,

I am married with three children 11, 4 and 3, I also have an 11 year old step son. We live in Jersey. My husband is a disabled vet (from the first gulf war). He gets a pension and I work at home so I can take care of the kids our income is less then $50,000 per year, our money is very limited. Since everything cost double it’s been harder and harder to pay bills. I am on time with everything. I am very concerned with my credit score. I’ve been flirting with debt consolidation but am a bit leery to what it will do to my credit. Plus their fees almost equal what I’d be saving in interest. I’ve tried calling my credit cards to have my interest lowered and they won’t budge (I really don’t think they have a soul charging over 23%, it should be against the law). I’ve tried borrowing money and no one is lending even with a score close to 700. What’s the point of having good credit? I want to pay my bills but they are chocking me and my family. Do I pay my bills or feed my kids? Even PB and J is getting expensive with a loaf of bread over $3.

Is there a program that can help me that will keep my credit intact?

I will appreciate any advice!

Thanks in advance,

April”

Dear April,

I’m so sorry that you are living through this right now. I know it is stressful but I think I have some advice that will help.

First, let me get right to answering your question if there is a debt consolidation program that will help you keep your credit intact. No, there is not. The only way to get out of debt without hurting your credit is to pay the debt in full or as agreed in monthly payments.

Credit agreements are “take no prisoner” contracts. They don’t make room or allowances for people to pay what they can afford. Instead they ask you to make firm promises to repay the loan in full or with regular payments. Anything outside of those payments is an exception and reported to the credit bureaus.

If you send less than you owe, it will be reported. If you go into a credit counseling program, footprints will appear on your credit report. If you sign up with a debt settlement company, you’ll fall behind on your debts and that negative information will be reported. If you go bankrupt, that will be reported for sure.

But the issue here is twofold. First, you can’t live a life you can’t afford to preserve a credit score. While your score is good, the consequences to living for that score are not so good.

Second, while you may be current on your bills, you won’t be for long. You are living so close to the edge that all it will take is one unforeseen event and your budget will be shot. Besides a safe monthly budget needs to include some money set aside in a savings account to build an emergency fund. If you can’t do that, you really are not making it from month to month now.

Disabled Vet

I am hopeful that you are receiving all the VA benefits you can for your husband. If not, here is a quick list of special loan programs for VA eligible members.

I know you’ve tried to call your credit card companies to lower your interest and they won’t budge, I’m not surprised. The issue here is that you are current on your bills and the customer service reps that talk to you when you are current don’t have access to those special programs to adjust your interest or payment. The irony is that to reach those customer service reps you’ll have to go past due on your bills and that will hurt your credit score. Creditors don’t reward people for being proactive.

Another question you had was do you feed the kids or pay the bills. The 100% honest and moral response is that you fee your kids first. You need to put the priorities in the right order. They should be:

Food
Shelter
Utilities
Clothing
Car or Truck Payments
Other Needed Utilities (Reasonable mobile phone, cable TV, saving for an emergency, an occasional fun thing for the kids)
Creditors

Do you have an obligation to repay what you borrowed? Yes you do, but if prices have gone up and you can no longer meet the bills under your current day-to-day reality, then what has actually happened is that the loan agreements remained the same but your life changed around them. That happens, that’s normal.

Are creditors soulless who charge 23% interest? You made that statement as well. Just yesterday I wrote about an account at 36.5% interest. In Europe the interest rates on a credit card can be even higher.

I’m afraid you’ll have to shoulder the 23% interest argument. The interest rate calculations are covered in the terms and conditions that come with each card. If you did not want to be subject to them increasing the rate then your options are to not take out the credit card to begin with or pay the balance off in full. That is the only way for you to gain your freedom from the terms you agreed to when you took the card out.

Let’s change a few things here.

Read my article about getting cheap bread. You should not be paying $3 for a loaf.
Read my article about where to buy cheap food. Doing that will help lower expenses.
Come to terms with the fact that your credit score is probably not going to be sustainable and loosen your grip on that.
You can try a debt management or credit counseling program if you want and see if they can come up with a monthly payment you can afford over a five to seven year period. But before you do that I want you to read what I said about credit counseling programs in this article.
If you take a good honest look at what you can afford to repay each month and it does not meet the creditor minimum payments then you might consider bankruptcy. If so, speak to a bankruptcy attorney for a free bankruptcy review and get the facts.

April, let me talk to the mother in you for a moment. Your children are young an impressionable. Please be sure to sit them down and have an honest conversation about the struggle that are going on. They need to understand that the reason you might say no to stuff they might want is not them, but the budget. They need to understand that it is the financial situation that makes things tough at times but no matter what, you love them with all your heart and soul.

Big hug. Here is an extra hug for the kids.

Steve

September 26, 2008 | Filed Under Ask The Get Out of Debt Expert | 1 Comment

Karen Writes In “Ex-Husband Isn’t Paying The Bills and He’s Trashed My Credit. What Can I Do to Repair It?”

Karen wrote to me through the GetOutOfDebt.org site and asked for help and advice to repair her credit. If you have a debt or credit related question, ask it and I’ll help you for free.

“Dear Steve,

I have been divorced for one year. Our house was in my name and husbands. He never refnanced or sold the home. His late payments have started to ruin my credit report and credit score. Now it look as if the bank will foreclose. How can I repair my credit and how long will it take me?

Karen”

Dearest Karen,

Often there is a hidden silver lining in debt situations but in this case there is little good news to share, only bad. I’m sorry, I’d rather be there with you as you read this and give you a big hug to let you know that in the long run things will get better. You see Karen, I’m afraid the problem is even worse that it currently appears.

I suppose the good news is that there are solutions and you can look forward to a brighter future, but not just yet. It may get worse before it gets better and you’ll have to take some action first.

When people get divorced they don’t realize that while you can divorce your spouse, you can’t divorce your creditors. Joint creditors and debts before the divorce are joint creditors and debt after the divorce. While you might have had an agreement between you and your husband to each be responsible for some bills, or in your case, he was to cash you out of the home but that agreement is between you and you ex and not you and your creditors.

The problem is that this is a horrible time to refinance or sell a property in many locations. He just might simply not be able to afford the property and can’t find a lender that is willing to even talk about refinancing. The banks are in a mess right now with all their bad loans they wrote and the credit markets have all but seized up. Borrowing money is tough right now and homes are worth less than they were.

Here is the really bad news, since you and you ex-husband are jointly obligated for the mortgage, if the bank forecloses they will probably come after all the obligated parties for any balance due. So even though you are out of the house and he is supposed to pay the bills and give you your share of the house, you can easily wind up in collections and be sued for any balance due after foreclosure.

This post-divorce joint surviving liability applies to any other joint debt that you two had together from before your divorce.

The past due payments, foreclosure and if you are sued by the mortgage company for any balance due will all wind up on your credit report. That is why the worst may not even be close yet.

There are a couple of things you can do right now. Here is what I suggest:

Immediately get a copy of your consolidated credit report. Hands down I think the best type of credit report to get right now is going to be my recommended consolidated credit report. You can get yours online right here.
After you print out your credit report you will be able to instantly identify any joint accounts you may still share with your ex-husband, see if they have any balance and see if they are on-time or past due also.
Contact your ex-husband and try to schedule and have a non-confrontational discussion about the realities of the situation. I want you to leave that meeting with some sort of factual understanding about his ability or intention to bring all the joint accounts current and not allow them to go delinquent any more.
If you leave that meeting feeling like he’s got the situation under control and will bring the mortgage and any other joint debts current and keep them current then there is little more to do at this time. You will still be linked to him on those joint debts but as long as he goes back to paying them on-time then your credit report and credit score will improve.
If you leave that meeting and you have no confidence that he will be able to honor his end of the financial deal between the two of you and the home is headed for foreclosure then we are going to have to take more drastic action.

Typical Worst Case Scenario

What usually happens in these situations is that the person responsible for the bills that is unable to pay them, files bankruptcy and dumps all the joint debt on the other spouse, in this case that will be you. That’s why it is so important for you to look at your consolidated credit report with all three credit bureaus on it to see what you may be on the hook for.

Once all that debt is dumped on the other spouse, again, you in this situation, bankruptcy is typically necessary also.

You see that outside of repaying the creditors, the only way you can terminate this debt is to either sue your ex-husband, win a judgment against him and go after any assets he has to repay the debt, or go bankrupt and end your obligation for these debts.

It is doubtful that suing your ex-husband is going to be affordable or fruitful. This means that like it or not, you’ve got a real good chance of finding yourself in the office of a bankruptcy lawyer looking for a free bankruptcy review.

If the house situation looks terminal and your husband is not going to be able to save it from foreclosure, you might want to strongly consider getting out ahead of this and go speak with a bankruptcy lawyer now. If you go bankrupt first then you will close the door on these debts and creditors will NOT come after you when they go bad. You will dump this entire situation in his lap, you’ll be able to walk away from it and you’ll be able to start rebuilding a positive financial life sooner rather than latter.

So Here Is The Good News

The bit of good news is that once you take care of addressing these issues and go bankrupt, then we can focus on rebuilding your credit. It is possible and it will take a year or so to get you back to a good credit score.

I’ll give you advice on that and guide you on how to repair your credit but it is too early for that now. We need to address the other issues first.

There is more pain to come but life will be so very much better afterwards. Trust me, I’ve been there myself.

A great big bear hug for you.

Steve

September 23, 2008 | Filed Under Ask The Get Out of Debt Expert | Leave a Comment

How to Get Out of Debt - Part 1

What People Usually Say About Getting Out of Debt

All day, every day, I read and hear the same pleas and wishes from people that want to get out of debt. See if any of these sound familiar to you.

“I need fast help in gettin out of debt for free.”

“I don’t know how to get out of debt fast.”

“I need ways to get out of debt.”

“You got any tips on getting out of debt?”

“Get me out of debt.”

“We need help getting out of debt to buy first home.”

How to Get Out of Debt Fast

The only real way to get out of debt fast is to win the lottery or have someone die and leave you a lot of cash. Without borrowing money you will need a sudden injection of enough cash from some external source to make that dream happen.

So let’s get real here.

The ABC’s of Getting Out of Debt

Getting out of debt is truly not rocket science. In fact I’ve even helped people that were rocket scientists to get out of debt. Getting out of debt numerically is a simple exercise. If you need to make the numbers change all you have to do is spend less than you make and take part of the difference and use it to pay down your debt.

Oh if it only were that easy.

You see money problems are not about the amount of debt you have. They are about the choices and reasons why you got into debt in the first place.

Some people say that the debt was caused by an unexpected life event like a job loss or accident. In many cases the person was living close to the financial edge without any savings or investments and when one or two paychecks were lost, Kablam, they got in a jam.

So in that case the job loss was not the cause of the financial problem, the lack of savings and preparation was the reason that the financial problem exists. With ample savings in the bank a temporary reduction in income or unexpected expense would be annoying but not totally financially destructive.

A - Acceptance
The first step to really get out of debt is to see and accept the reality of your situation. Continued bargaining with yourself about the reality of your situation only prolongs it, not change it. The quicker you accept that you are in debt and need to pay close attention to getting out of debt and are willing to make changes to do so, that’s when you begin to get out of debt.

B - Behavior
Getting out of debt requires a fundamental behavior change on your part. You need to be ready, willing and able to change your behavior that led to your getting in debt in the first place. Take a close look at your spending. What do you spend extra money on and why?

It can be easy to locate extra money in your budget each month when you identify where money is leaking out of your pockets. For example, a daily cuppa exclusive coffee can wind up costing you $100 or more a month. And when you find your month too long by $100 it really isn’t due to not enough income, but how you elected to spend the income you do have.

I’m not saying that you need to kill Starbucks coffees out of your life, but maybe there are some cheaper alternatives for coffee or upon evaluation you may elect to stay with the designer coffee but cut it back.

If you are going out 8 nights a month to the clubs, why not do the same thing that you love to do but only go out 4 times a month instead? You’ll still have fun and cut your bar bills in half.

C - Conviction / Commitment
You must be committed to achieving your goal to get out of debt. Getting out of debt is slow and methodical work. Even if you got a debt consolidation loan you’d still have to pay it back. Nothing is going to change the month after month payments to get yourself out of debt.

The Secrets to Getting Out of Debt

The big secret that people never tell you about getting out of debt is that there are no secrets. It’s just boring, repetitive work that slowly but surely will dig you out of the hole that you’re in.