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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Hi Gary,
I assume the references you made to “mediation” are referring to settling accounts with creditors for less than what is owed. The process of settling with creditors for less is not a rip off. Banks settle all the time. There are companies offering to settle debts whose business practices have been proven to cause harm to people who can least afford it.
I am with Vin in suggesting chapter 7 bankruptcy being a logical next step to look into. If you qualify to discharge the debts in a chapter 7, this path will provide the quickest and least expensive path for debt relief.
If you learn something when consulting with an attorney that would give you pause in filing chapter 7, or learn that you would only be able to file a chapter 13, then look into settlement as an option. If you would like to get a general idea of what settlement would look like given your creditors, balances and workable timelines, check out the debt relief calculator found on this very site: https://getoutofdebt.org//resource/the-amazing-how-to-get-out-of-debt-calculator
Enter your accounts then look at the settlement summary.
If you have questions about what you learn through the calculator, post comment replies on this page and you will get helpful tips and feedback.
your situation is not uncommon. Many people got “hit” so to speak in 2009 due to the new laws concerning credit cards. The banks went ahead and raised millions of people’s interest rates to beat the deadline of Feb/2010 where they had to change their ways. You are also in massive credit card debt and you have to face the music and dance. Your credit score is not the most important thing right now. I can only give you suggestions, not legal advice, but if I were in your situation, I would seriously consider bankruptcy. The first bankruptcy I would consider is Chapter 7, that is if you can pass the “means” test. If you can’t, then a chapter 13 might be in order for you, as they can only take what is left over after a strict budget is set for you. They also take away all interest payments on your credit card debt. As far as your credit score is concerned, if it has not already taken a hit, it cetainly will with bankruptcy, but within 2 years after you file, you can build your score to a very respectable level – you won’t be able to achieve a 720 because the bankruptcy itself will pull down the score, but having a score around 700 is not unheard of 2 to 3 years after the filing. You have reached a point where you just cannot juggle anymore, so now is the time to do something about the dilemma – the same dilemma that millions of americans have faced for the past few years now. Bankruptcy is the only legal way of disposing debt without any fear of reprisal or future collections of that debt. The hill that you have to get over is that even though you admit you take responsibility for your situation, bankruptcy is no longer a stigma. If you say you are bleeding and bandaids will not help the situation, it is time to get major surgery and bankruptcy is probably the only route to go. It is a lot easier to do this than you think and you should seriously consider it. Unless you win a lottery, your situation is not going to get any better.