“Dear Steve,

I started out in college with the only debt being my college loan which was manageable. Then it was suggested that I get a credit card while in college so that I could start to establish some credit. Well I got a credit card, then I got another credit card, and another, now I have high credit card debt. Using the credit card was like an addiction.

I have high credit card debt on top of my monthly utility bills, how do I lower my credit card debt while still paying my monthly utility bills. I am basically living pay check to pay check. Here are my bills including my wife’s.

Credit Card 1: $16,903.06
Credit Card 2: $5,933.40
Credit Card 3: $12,929.73
Credit Card 4: $10,938.64
Credit Card 5: $2,446.17
Credit Card 6: $1,133.38

Loan 1: $19,504
Loan 2: $4,160
Loan 3: $5,629
Loan 4: $3,937

Monthly
Utility 1: $198.20
Utility 2: $224.00
Utility 3: $329.00
Utility 4: 126.00

”

The Answer:

Dear Victor,

The current issue is that your debt to income ratio is all out of whack. Basically you owe more in monthly obligations that your income can support.

There are a number of free get out of debt calculators you can use to start to dig out of this hole. But I suspect that you are so close to the edge now that there is little money to devote towards extra debt repayment payments.

Before I give you a comprehensive answer I’d like for you to post an update in the comments below with some additional information.

1. Over the minimum payments, how much extra money do you have on a regular monthly basis to use for debt repayment?
2. Do you have a savings account or emergency fund you can fall back on in case you have a financial emergency?
3. Are you and your wife pooling your income and debt or is repayment dependent on your income alone?

Big Hug!

@GetOutOfDebtGuy

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

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• Jeff Asks About Trick To Boast Credit Score. “Will It Work?”

Read the full article at GetOutOfDebt.org, click here: Debt Ratio Formula, What Should Ours Be? – Victor

“Dear Steve,

My debt to income ratio is enormous. I pay bills on time, but do not have money left over for groceries much less anything else. I need to refinance my home because my ARM is up soon.

Would it be smarter to refinance now before I mess up my credit worse with a dept mgmt. program? I don’t know if my credit is ruined worse by a debt settlement or by my debt to income ratio. Please help.

Laura”

The Answer:

Dear Laura,

No matter what the cause of your decreased credit score, the end result is the same thing, poor credit.

With a ARM needing to be refinanced in the near future you better make a serious effort to get your credit in shape.

First step will be to get a copy of your consolidated credit report and look to see what is really being reported about you. If you find negative and inaccurate information being reported, follow the instructions included in the consolidated credit report to get it removed.

With the stricter lending standards for mortgage today you might find it difficult to refinance with borderline credit. Once you tune up your credit report then I would contact a mortgage broker and talk about your refinancing options.

I don’t see any reason why you should be considering a debt management program at this time.

Big Hug!

@GetOutOfDebtGuy

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Read the full article at GetOutOfDebt.org, click here: My Debt to Income Ratio is Enormous. – Laura

Terri wrote and asked her question through the GetOutOfDebt.org site. If you have a credit or debt question you’d like to ask, just visit this page and ask. My help is totally free.

“Dear Steve,

We have appox $50,000 in revolving debt, 2 vehicle payments, 1st and second mtg, we pay everything on time and have a small amount left over each month, but feel everything closing in and have fear starting to come over me about all of the debt.

Is there any way to get some help even if we are paying on time ….without ruining our credit?

Terri”

The Answer:

Dear Terri,

Yes, there is a way to get out of debt and improve your credit at the same time. The only problem is, it’s hard to do and requires perseverance.

The issue you are facing right now is that it feels like the walls are closing in. At times like that people often leap to solutions like credit counseling or debt settlement that they think will be quick and painless fixes, they are not.

You do have a lot of debt and now is the time to start to dig your way out. By making at least the minimum payments on your debts and then using whatever money you may be able to find as an extra monthly payment you can start your journey to eliminating your debt.

By paying down your debt with at least monthly minimum payments while focusing on eliminating one debt at a time your payment history on your credit report will show that you met your contractual obligations, were on time and not delinquent at all. All those factors will continue to increase your credit score and you reduce your debt.

It sounds to me like your debt to income ratio is pretty high, meaning that most of your income is pledged to debt repayments. That makes it harder to do a balance transfer of your highest interest rate debt to pay that one off interest free. That approach is wonderful as long as you can completely pay off the transferred balance before the introductory rate expires. I just wrote about my own recent experience in doing a balance transfer.

You can also easily adopt the debt snowball approach for effective emotional and financial debt reduction. It is an approach that works, and works well.

The key here is that you need to trust your instincts. Your subconscious is telling you, through fear and worry, that your financial life is out of balance. You should listen to to those warnings but there is no need to panic, just make a choice on which path you will follow to get out of debt and execute that plan.

If you feel like you just can’t do it on your own then look at a credit counseling program, it will screw up your credit but by sending one payment to them every month they will then take care of distributing your payment to your creditors.

But you really don’t need a credit counseling program at the moment since you can do this yourself and by doing so it will achieve your goal of getting out of debt and not harming your credit report or reducing your credit score.

There is hope.

Big Hug!

@GetOutOfDebtGuy

The Answer:

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Read the full article at GetOutOfDebt.org, click here: Terri Wants to Know “Is There a Way to Get Out of Debt Without Ruining Our Credit?”

“Dear Steve,

I am a full time graduate student who works occassionally. Mainly, I live off my student loans. I have 23K in credit card debt and need to get out of it because I don’t have much money to work with.

I’m nervous about consolidating my credit cards because I heard that it doesn’t look good on your credit report if that is done. Is that true? Also, if I consolidate my credit cards will that hurt my chances of getting future student loans.

Nancy”

The Answer:

Dear Nancy,

When I read that you were living off of your student loans, I cringed. Student loans are almost one of the worst debts to have. If you default or fall behind on your student loan debts up to a 40% collection charge can be added, they can’t be discharged with bankruptcy, and even if you are dependent on public benefits to get by, those benefits can be garnished to pay the student loan.

I would suspect that your occasional work schedule, need or habit has lead to some of your $23,000 of credit card debt. While you might not be taking cash advances from the cards to get by, I would bet that many small expenses were charged to the cards to help make ends meet.

I am less concerned about how your credit report would look from going into a debt management program to consolidate your debt. If you are not working much then having $23,000 of credit card debt gives you a horrible debt to income ratio and that is already hurting your credit score.

I implore you to get a copy of this consolidated credit report and see what all the credit bureaus are saying about you right now. I think you’ll find that you score is low now but the good news is that the consolidated credit report I recommend will tell you the exact steps you will need to take to increase your credit score.

Nancy, please stop adding to the debt on your credit card. Please stop living off of the student loan money and you may have to adjust your workload so you can get by.

The last option to consider is for you to go and meet with a bankruptcy attorney for a free bankruptcy consultation and discuss discharging the $23,000 of credit card debt so you can focus on finishing your college education.

Big Hug!

@GetOutOfDebtGuy

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Read the full article at GetOutOfDebt.org, click here: I’m Living Off My Student Loans and Need to Get Out of Credit Card Debt. – Nancy

Kathy

“Dear Steve,

I own a home and i am at 80% so finding it hard to refinance my home with my current debt.

I owe 24,000.00 in debt and dont want to file banckrupcy. i need help and cannot afford to pay for a service and dont know who i can trust

Kathy”

The Answer:

Dear Kathy,

You picked the wrong time in the history of man to try to suck cash out of a house with an 80% LTV. These are not the days of high flying, low logic mortgage lending. These are the days of being extra careful.

If you can afford your regular monthly payment on your debt then think about contacting a debt management company to see if they can lower your interest rate. It can impact your credit.

If you can’t afford your monthly payment then go talk to a local bankruptcy attorney, for free, about a Chapter 13 repayment plan. This will allow you to keep your house but repay your debt based on what you can afford.

I know you said that you did not want to file bankruptcy but sometimes you don’t get what you want, you get what you need.

Big Hug!

@GetOutOfDebtGuy

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Read the full article at GetOutOfDebt.org, click here: I Own a Home But Can’t Seem to Refinance it to Take Cash Out. – Kathy

“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”

The Answer:

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

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Read the full article at GetOutOfDebt.org, click here: I’m Struggling With High Interest Rates on my Credit Cards From Universal Default – Eric

“Dear Steve,

I have never heard anyone ask this question or any money experts suggest it: If my wife and I have many joint user credit cards and lots of debt, could it help our credit scores if we changed the status of our joint cards to just the primary user, thus showing each of us is responsible for about half the debt we our now on the books together with? We pay on time but the biggest drag on both our scores is the amount of debt we owe. What do you think? Coulld it backfire and show we are taken off a long held card? Does anyone really know what would happen?

Jeff”

The Answer:

Dear Jeff,

Well if you could do that it possibly might help but I doubt it. Depending on your level of individual debt and individual income your debt to income ratio could get all out of wack. But the biggest issue here, and why this is an interesting mental exercise, but not a practical one is that your creditors are not going to let you do this.

If a creditor has two people jointly liable for a card, they are not going to let one go. Hooks in two is better than hooks in one. You could possibly get your wife removed but you would have to have the card at a $0 balance and the creditor would probably re-qualify you for the card, potentially lowering limits and raising interest rates.

You might be better off applying for a new credit card in your sole names and then doing a balance transfer to the new card. While that accomplishes the goal of dividing the debt, it also hurts you since you will now have more lines of credit out there for use and if you close the old cards, and you’ve had them for a long time, that would lower your credit score.

Thanks for the really interesting question.

Steve

The Answer:

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Read the full article at GetOutOfDebt.org, click here: Jeff Asks About Trick To Boast Credit Score. “Will It Work?”