Question:
Dear Steve,
I’m just beginning to hunt for a solution. I’m 68, disabled and on limited Social Security and a very modest state pension. My wife still works (age 63) and makes about $36K. We have excellent credit and are not late YET on a American express card we’ve had in good standing since 1984.
Our payment has ballooned to $800 a month. Our AM account, which was previously a modest $2000, was used to pay for major repairs on our 2002 pickup truck and our account ballooned to $12k over two years. We couldn’t afford a new car and needed transportation. I’m afraid of falling behind, poor credit ratings, and collections, please advise.
How can I obtain relief with American Express?
Johnboy
Answer:
Dear Johnboy,
As a watcher of the Waltons when I was younger I feel compelled to say goodnight.
I am annoyingly consistent of saying we should let the math tell us what we need to do. So let’s do that.
This is a classic problem of insufficient income being supplemented with borrowed money. And it is a vicious cycle. Those who can’t afford to pay will borrow to make ends meet only to wind up in more debt that is even more unaffordable to pay.
My concern is less about your credit score than it is in giving you a safe path forward for your life.
Having good credit is a good goal but more important is making good decisions that will not put you in worse financial shape moving forward.
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It is unlikely you will need to apply for more credit moving forward considering your income limitations since you should not apply for more credit to make unaffordable ends meet.
So we have some options here:
1. You could make a monthly repayment arrangement with American Express or enter into a credit counseling program. But that seems unreasonable otherwise you would not have contacted me. And I wonder how realistic that approach is considering your income and possible reduction if your wife is unable to work in the years ahead. If your payment arrangement would take six-years to complete and your wife is only going to be able to work for four more years, then the problem isn’t actually fixed. Now you’ll have less income and still have debt.
2. You could default on your American Express account and hope to settle the debt in the future. It’s possible. But American Express is very quick to sue and typically has a “take no prisoner” reputation. And while it would appear your income might be off limits from American Express if they obtained a judgment against you, the income of your wife does not appear to be.
3. You could consider filing for bankruptcy protection. That would be the least expensive and fastest way to resolve the situation while giving you an opportunity to rebuild your credit quickly. See So You Are Going to File Bankruptcy. That’s Great News. Congratulations. If you focused on rebuilding your credit following a quick Chapter 7 bankruptcy you could be back in great shape in a couple of years and living within your budget in just about 10 days from today. Bankruptcy would give you legal protection and you would not be chased by your creditors.
So my advice is to make your decision by looking forward and not by reacting emotionally to how YOU judge your credit score. Let’s set you up for future success so you don’t have to live like a homeless person when you can least afford it.
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