We are a young family of four. My husband nets $890 per week. Our mortgage is $362 every week. ($196,000 @ 5.5% 30 year fixed) I do not work but stay home with two little ones… daycare costs prohibit me working. We are swimming in credit card debt.
A total of $17,193 from 5 cards with monthly minimums totaling almost $400. The interest rates are between 9-22%. We also have 2 car payments $225 and $366 per month. Those loans have a balance of $11,234 @7.9% and $12,000 @ 8.24%, respectively. Not to mention I have almost $26,000 student loans that are on deferment since I’m not working. We have no savings cushion and live paycheck to paycheck.
We have no savings and are swimming in debt. The credit card debt has gotten out of control. Our monthly budget leaves no wiggle room for miscellaneous expenses. Any financial “hiccup” like car repairs, home repairs or medical/ dental expenses have gone on the credit cards which now total over $17,000. I don’t know what to do. I would like to consolidate our debt to a manageable monthly amount so I can start building a savings cushion. Two years ago we had good to excellent credit, now I’m not sure how great it is. I don’t know what options are out there that won’t permanently hurt our credit score.
This is a problem that actually began the first day you started putting charges on cards you could not pay in full in that month. Once you did that you began to turbocharge your debt and drive the situation downhill at an every increasing rate. I’m not casting blame, just trying to let you see what the underlying issue is here so you can avoid it in the future.
To make matters worse, the deferred student loans are ticking away, earning interest and the balance is growing, so are the payments when they kick in. So let’s come up with a plan to really address your situation.
My first concern is the lack of any savings account or emergency fund. Not only is living paycheck-to-paycheck financially unsafe, as you recognized, but it is extremely stressful. And in the middle of money troubles that stress can lead to depression which only makes the situation worse.
The solution is going to lie in taking your life back to fit within your income. This means you need to prioritize payments in the following order: mortgage, utilities, health insurance, savings (at least $50), transportation, food, and an allowance for miscellaneous expenses. The best way to come up with a clear look at your financial reality is to develop a spending plan. Download my free book, How to Eliminate Your Debt like a pro and start reading on page 83.
I understand your fear of hurting your credit score but it’s already damaged with the debt to income ratio you have now and besides, you can’t eat a credit score. In order to get out of this situation you are going to have to take some credit score pain. I don’t see any other way.
While a consolidation loan from a place like LendingClub.com might be available I seriously doubt it will be beneficial. You see, the issue is not just about reducing your credit card payments, it’s like I said, getting your life back inside your income. To do that you’d need to get a massive reduction in your credit card payment to the point where you would not need to use the cards and have enough left to save and reduce your debt.
I think the time has come for you to click here to find a local bankruptcy attorney you like. Make an appointment to go in and discuss what bankruptcy would mean for you. Once you get back on your feet the credit can be easily rebuilt.
In your bankruptcy you may want to decide to give one of the cars back to the lender. It would be less expensive with payment, insurance, and gas for you to instead use one car. Maybe drive your husband to work, or rent a card as needed. That’s what my wife and I do. We only have one car and when a time comes up that we need a second one on some day we rent one for $40 for the day.
By giving the most expensive car back and losing the credit card payments you will gain over $700 a month and that should give you a good opportunity to get a fresh start.
Now remember, this pain you might have to live through with bankruptcy is not just for you, but those kids as well. Make sure you closely exam any bankruptcy bias you might have and weigh that against your current inability to safely care for those beautiful children in a financial environment that protects them. They need you to be the mom and step-up and do the right thing to protect them. Bankruptcy sucks, but being homeless or unable to feed your kids sucks more.
Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.
P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.