“Dear Steve,
Family of 4 (13 yr & 12 yr girls). My salary = $112K, wive’s salary = $40K. Total Assets $292K (liquid $10K, autos $9, house $200, 401K $73K). Total Liabilities $204K (mortgage $112, home equity loan $41K, credit cards $24K, 401K loans $22K, auto loan $5K). Net worth = $88K. . .plummeted 35% in last year.
How did we get here? Major medical expenses in past 2 years with wife. Fall in 401K value. Borrowing to keep up. We live pretty frugal, participate in a CCCS repayment plan.
Despite the attempt to control costs and pay down debt…things seem to be getting worse. My hope has run out.
I used to think that a positive net worth counted for something, but I am not so sure. Is there any hope?
Dave”
Dear Dave,
The only reason your situation feels hopeless right now is because you can’t see it working out the way you want it to. That does not mean that there is no hope, just hope in a different direction. I am 100% confident that there is a solution here for you and I am enthusiastic about that for you.
Before we look at moving money around to deal with this situation the underlying factor we need to deal with is if you can even afford your current lifestyle on your income. If you can’t, then we need to change where you live, what you drive, how you casually spend money.
A CCCS, credit counseling or debt management program can be a good way to get you back to a regular monthly payment when you’ve fallen behind. (Click here for credit counseling information.) But a credit counseling program is not going to reduce the total amount that you owe.
Borrowing money to make ends meet on an ongoing basis is a recipe for disaster. Nothing good every comes from that. At some point your income has to exceed your expenses and you need to start to dig yourself out from under the growing anvil above your head.
One option is that you could explore a debt settlement approach to do a lump sum settlement of your credit card debt. That would make it go away at once. Even though there are some drawbacks with debt settlement, like tax liability for forgiven debt, it is a way to eliminate your debt without bankruptcy. Click here for debt settlement information.
If you are currently struggling to make your CCCS credit counseling payments I can’t see how continuing that path is going to be a long term solution for you. If you have not done so already, contact your credit counseling office and explain your situation and ask if there is any possibility of lowering your payment slightly. But I doubt that lowering your monthly payment by $50 or $100 is really going to make the kind of difference you probably need.
To get deeper breathing room you’ll have to look at big changes and cuts. That typically means downsizing your home payment or car payments. These are typically the largest fixed monthly costs for you. Whatever you do, your health insurance premiums are not optional nor can they be discontinued, especially with the issues your wife has recently struggled with.
What I’m about to say may sound silly but just think through the numbers. You might be better off on a monthly basis if you could sell your home and rent rather than continue to carry the mortgage, and home equity loan. Selling might allow you to get enough cash out to do a debt settlement on the credit cards and loans, and payoff the auto loans.
Outside of making that really hard choice your best bet is to talk to a local bankruptcy attorney and see if a Chapter 13 bankruptcy might work for you even with the equity you’ve got. Click here for bankruptcy information.
Bottom line, big results require big changes. Without some big changes, your treading water but sinking will be the way you’ll go, unfortunately.

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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As for settlement options, there is a process that protects you from tax liability while achieving better results in negotiations called Debt Validation and Resolution. It contains components of typical debt settlement with some key differences and strengths. A budget appears to be in order as your liabilities do not appear to overpower your income levels.