Brenda Writes The Squirrel Asking For Advice. Is She Nuts!
While I’m always scampering to give you great advice, you do realize that I am a squirrel in search of nuts to hoard for desperate times. Who knows if I’m the best supplier of financial advice. But one thing is for certain, I think a lot of humans could learn something from us squirrels about preparing for lean times. And we squirrels could learn a thing or two from you humans, like how to read the word ELECTRICITY.
Brenda sent this question in via treenet. If you are brave enough, you can too!
“I have approximate1y $34,000 in debt, all credit cards that I have kept moving around from one company to another to try and get interest free payments for 6 months to a year. They charge a 3% fee.
The kicker is I have excellent credit but Im down to 300 dollars a month operating cash.
I am retired and went through a bad time and started charging. I don’t want to file bankruptcy. I want to play my bills but I can’t on my salary; which is approximately $3,000 a month. In addition to the above debt, I have a mortgage of $1200 a month and a home equity loan of $35,000.
I do pay on time, but I cant keep up anymore trying to pay more than the minimum requirement. So, my question to you is; these cards are through American Express, Chase, and other companies like that so Im guessing they are what you call unsecured loans.
Can any company help me reduce those balances? ”
The Get Out of Debt Squirrel Says:
Brenda,
I would bet a month of acorns that all that time you were shuffling your balances around, they were increasing as well. Low rate balance transfers, simply as a stalling technique, can be bad. But a low rate balance transfer can be used as a smart way to get out of debt if you pay the balance off in full before the end of the introductory rate period.
And while you have an excellent credit report, which is admirable, your credit report isn’t going to help you to get out of debt if you have no available money to repay your debt each month.
At this point you have only a few realistic options.
Option 1
Continue on the path you are on, but the odds are that approach will be doomed to fail once you can’t shift your balances to the next low rate card or you add to the balances owed.
Option 2
Tap into your equity to borrow about $20,000 and use that money to settle your debts for less than you owe. There are consequences to doing that but it may be a better approach than bankruptcy so you can stay in your house.
Option 3
You could try a debt management plan from a credit counseling agency but since your monthly payments are already artificially low because of the introductory rate offers you are on, I don’t think that will help much.
Option 4
Now some may call this suggestion crazy but, bankruptcy is worth considering. Based on your age, income and working status it might make better sense for you to consider bankruptcy. But before you make any decision about if bankruptcy is for you I’d strongly suggest that you talk to a bankruptcy attorney to discuss how it will help and/or impact you. (You can find a local bankruptcy lawyer here.)
While you may have to give up the equity in your home or be forced to sell it to free some equity, a good bankruptcy attorney could possibly show how the sale of your house in this market may not return anything to use towards the debts and thus prevent the sale of your home in bankruptcy.
As long as you don’t start building up debts again, the fresh start you’d get in bankruptcy will eliminate all of your debt to give you some financial safety room on a monthly basis.
As painful as bankruptcy may feel or sound, based on your situation it is probably a solution you should strongly consider.
Lenora Asks The Squirrel - “What Should I Do About My Debts?”
Lenora wrote to me and asked:
Dear Get Out of Debt Squirrel,
What should I do about my debts? I am trying to set up a budget, but even with a budget, I can’t make all my payments. I need help now? I have over $23,000 in credit card bills and I want to get free of all of them. My husband thinks bankruptcy is the answer. But I am not sure God wants one to do that. Help!!!!!!!
My Dear Lenora,
While it feels like the walls are closing in on you and that you are living through desperate times, rest assured there is a way through this mess.
It doesn’t really matter what the number is that you owe. What is important is that there is not enough money coming in to take care of the bills.
As you say, even if you take your expenses down to the bare minimum, you still can’t make it from month to month. That is a clear indication that no amount of catching rain water to flush toilets, washing out Ziploc bags or reusing aluminum foil is going to do the trick.
Your husband has mentioned that maybe you should go bankrupt, and maybe you should. After all it is a legal and valid solution for dealing with overwhelming debt.
You mentioned what would God want you to do and I think it would be a mistake to automatically discount bankruptcy as an option simply because of what you think God might want for you. Think about it, she led you here for a reason and maybe that reason was to read this answer and to talk about bankruptcy?
Your options really come down to a few basic choices:
- Do Nothing.
- Increase Income and/or Reduce Expenses.
- Go Bankrupt
- Enter a Reduced Payment Plan.
Lenora, it’s not rocket science, just tough, difficult, emotional and gut wrenching. As a furry squirrel sitting on a distant branch the path you should take seems clear. Here is my plan for you.
Lenora’s Plan of Action to Get Out of Debt
- First thing I would suggest if you need immediate relief from debt collectors or collection calls and you are not yet ready to go bankrupt is to enter a reduced Payment Plan where you can consolidate your debts.
- I would also suggest that either now or as soon as you are ready you should talk to a bankruptcy lawyer. This doesn’t have to be with the intention of going bankrupt but to educate yourself about the realities of what bankruptcy means to you and your husband.
- At some point following the meeting with the bankruptcy lawyer or during the early months of your consolidated debt plan you may decide that you can’t continue to make payments and live in the stress and pressure that you are currently in. You might opt for bankruptcy.
The advantages of this approach are that this does not force you to go bankrupt now if you are not mentally ready for it. And it allows you to make a good faith effort to repay your debt based on what you can afford to pay with professional help in the meantime.
Only you can decide if bankruptcy is right or wrong for you. But I ask you to consider this as you say your evening prayers. Lenora, do you have a greater responsibility to fix the past or attempt to fix the future? If you want to fix the future then it just might make more sense to go bankrupt now, get yourself back into a safe position where you can afford to live, and then if you have extra money leftover, you can always repay your creditor for moral reasons.
Going bankrupt does not mean you can’t still honor your debts. It just gives you legal protection and a fresh start, or you can keep living in the past. The choice is yours.
From a squirrel point of view I always prefer to hunt for as many nuts as I can and save them for the winter to come rather than worry about how many I didn’t have last year.
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