“Dear Steve,
I was divorced 2 years ago and was awarded a $5000 credit card balance and a zero balance in my checking/savings accounts. Since I didn’t have enough cash flow to pay off the credit card, I carried this balance (for the first time…I’d paid it off monthly till then). I tried to use only cash to pay for my new life(deposit for my apt, furniture, dishes…the stuff I’d need for my new life), but quickly found myself with only $50 left in the bank. I missed my first AMEX payment and got my interest rate hiked immediately. I got scared and started charging everything…rent, gas, electric, water, food…so that I’d have some cash reserves in the bank. Fast forward a few months and I’m suddenly at a $10,000 credit card balance! From there it just snowballed. I’d make the minimum payment, and at first I’d add extra to try to pay it off. I applied for a personal loan with my credit union so that I could pay off the credit card, with monthly payments I could afford, but my application was declined. Instead, they offered me a MasterCard with a much lower interest rate, so I took it. (My plan was to transfer my balance & pay the lower rate…but that didn’t happen.) By the end of a year, my AMEX was maxed out at almost $25,000 and I was charging on my Visa. I maxed out THAT card and started charging on the MasterCard. At this point I was still charging everything because now I needed my cash to pay my minimum payments. All this was “working” until I maxed out the MasterCard. Now I needed money to pay my minimums AND money to pay my expenses (rent, gas, electric, water, food, car payment). And I make a good (great) wage but not that much.
I now make $72,000 a year but have credit card debts of $75,000 (approx $25,000 on each of 3 cards). I couldn’t make the minimum payments so I’m in payment plans with the Visa & the Mastercard. If I make these “minimum” payments, I can scrape by, but I’ll have them paid off in 40 years (and I’m 46). In that 40 years, my credit will continue to stink, and I’ll never be able to get another car loan, much less buy a house.
I have 2 daughters who are planning to go to college, but I don’t have the extra money to pay their tuition. (One is starting her junior year in college and the other her jr year of high school)
It seems like a better idea to default on the credit cards, take the credit score hit for even 10 years, and restart. However, my car loan (which is due to be paid off in May), is also with the credit union that issued the MasterCard. You guessed it…an anaconda loan. Ugh.
Do I pay off the three cards for the next 40 years (and hope that Jeep holds up), pay off just the MasterCard and default on the others, or something else?!
Hope”
Dear Hope,
First off, I invite you to use the free How to Get Out of Debt Calculator to review your options.
But based on your situation I think I have a critical question for you to ponder and answer. Let me ask you, do you feel you should attempt to repayment your debt as you are now, for the next five years, or does it make more sense to learn from your financial mistake and do better moving forward?
What I hear you saying in your words is that through a series of events you are maxed out and can’t make it month-to-month. I’m very concerned that any potential debt relief tool you might try will leave you still limping along and unable to save.
Your situation sounds like one that might be best solved with a legal second chance and fresh start using consumer bankruptcy as a way to end your debt quickly and begin to build new good credit quickly. You can read this guide to show you how to do that.
If your knee-jerk gut reaction is that bankruptcy is not right for you, I’m assigning you some homework. Regardless of your initial reaction I’d like for you to find a local bankruptcy attorney and talk to them about what this legal solution would mean to you and your situation. I’d also like for you to read How to Get Out of Debt. The Honest and Unvarnished Truth.
Your homework is due in a week.
As a responsible parent you have a duty to your daughters to get this mess under control and develop a financial safety net as quickly as possible.
Please post your responses and follow-up messages to me on this in the comments section below.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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