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After 20+ years of maintaining 720+ FICO scores, my wife and I ran up credit debt of about $15K back in 07 due to some health and employment issues , but this was manageable. We stopped using the cards, began giving them more than the minimum each month and took advantage of 1 year no-interest offers to reduce the balance to under $10K.
In 2009, we took advantage of the housing market situation and purchased our first home on an FHA loan. 30 year fixed at 4.3% – put monthly payments equal to our old monthly rent. On paper, things looked good until we realized why this foreclosure was such a “great deal.” After AC/Heating, blinds, electrical, plumbing, drywall and paint repairs, we placed another $38K+ on our credit cards. At the same time, due to new legislation from Congress, the banks changed their policies and dramatically increased interest rates – going from 9.9% to 20% overnight. As a result, the monthly min requirements doubled. We stopped using the cards in Feb 2010 – so using cash for everything and making $1600/mo CC payments tapped our savings and most of my 401k.
We knew we had to do something, so we contacted Greenpath. They came with an A rating from the BBB and they have done what they said they would do – no complaints at all. They put us on a plan to pay down the entire debit balance in 5 years. US Bank and Chase really worked with to us to eliminate interest or reduce it to almost nothing. Capital One has been a nightmare as they would only shave off 5%. We’re 10 months into the program and the balances have come down by about $7500 – and this is exciting. But, we have nothing left to give. $1300/mo is killing us. We will run out of money by August…
So – with the background outlined above, we need to make a decision. Is Credit Consolidation or Mediation viable? I’m prepared to say goodbye to the 700 FICO score (probably a 600 too!) but I’ve heard horror stories about Mediation being a rip off. Or that it does not truly satisfy debts – or that the IRS considers any amounts forgiven to be taxable income. I’m trying to do the “RIGHT THING” by being proactive about our situation BEFORE we have to skip payments. We are the kind of people who take complete responsibility for our actions. We got ourselves into a huge credit mess with no one’s help. But, the banks took advantage and hit us when we were at our most vulnerable. They were predatory and went for the jugular so they only made it worse.
So I need to ask what you recommend for our next step. We are bleeding about $800 a month due to the Greenpath plan, and our normal monthly bills. And yes, we killed excessive liabilities like Netflix, publications, YMCA, pet insurance, eating out and even refinanced the house to save $200 per month. Can you advise what makes the most sense? We stand today at $40K in credit debt and Greenpath requires us to pay $284 per week via direct debits.
Thank you for your help! Gary
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