My wife and I bought a house a few years ago and proceeded to build up credit card debt, in part due to an expected salary increase for me, which didn’t happen because the company “couldn’t afford it”. We have decreased spending, but my income has not increased in 3 years other than the part-time job I started recently. My wife has had small increases, but not enough to offset increased expenses like for our child. Consequently, I pay bills and cannot make much headway in credit card debt.
I am looking into some sort of debt consolidation, and my wife favors going to a bankruptcy lawyer. Ethically, I’d prefer to pay off our debts at a reasonable rate, rather than sticking the banks. How would the various forms of bankruptcy compare to the various debt consolidation options (and lendingclub.com)?
I totally get the “ethical” argument. And here it comes…but. The but here is that the decision should not necessarily start with the avoidance of bankruptcy but the clear identification of the goal you want to achieve.
One aspect of bankruptcy that is lost by almost everyone is that there is nothing that prevents you from seeking the legal protections bankruptcy has to offer and still repay your creditors. That’s what I did, or tried to do. Some of my creditors would not take my payments. Crazy, but true.
You conversation so far surrounds three possible solutions, credit counseling, debt consolidation loan or bankruptcy.
A debt consolidation loan through LendingClub.com might be a viable solution if your credit score is 660 or higher and the interest rate and monthly payment offered make a substantial difference.
The big difference between credit counseling and bankruptcy is the point at which success is guaranteed. In credit counseling the goal is achieved after six years of payments to your creditors. At that point the debt has been retired. In the meantime you need to hope something does not crop up that prevents you from making all of your payments.
In bankruptcy, 75% of bankruptcy filers fall under a Chapter 7 bankruptcy and receive a full discharge of their debt in months.
The slippery slope on the ethical argument comes with the belief that you deserve a rate reduction or you are being screwed by the banks. If you want to go with the 100% ethical position then you would happily pay whatever the interest rate is under your agreement with the creditor, no matter what the cost.
If that isn’t a reasonable position for you then it’s time to discard the ethical argument and start looking at all the stuff above and what actually achieves the goal.
Of course all of this is just my opinion.