Recently divorced and trapped in an upside down mortgage. Living off credit cards to get by.
I am recently divorced and bought out my ex wife during the up market for my current home. My mortgage is now upside down and I am not making enough money each month to even break even with my expenses. I have a FICO of 750 (was 810), but my debt in credit cards is nearing max. I have been using credit cards to keep up with the negative income hoping I would clear the divorce and start with a positive income by now. This has happened, but barely. I now make just enough money to make my expensive mortgage, make my child care payment, and pay a little over my minimums for my credit cards. I can’t go much longer like this. Any ideas?
I’m glad that you recognized that you’ve been using the cards to make-up for the shortage each month. Being aware of that is helpful.
The reason that it is so hard to dig out of this kind of debt is that in order to have $X each month to repay on top of the minimums you’ve got to have an increase in income or a reduction in expenses. And when you are just getting by each month it is darn hard to find those extra dollars to use for the next six years, month-after-month, to get totally out of debt.
There are some short-term things that you can do, like talking to your mortgage lender about giving the house back with a deed in lieu of foreclosure or finding a buyer and asking the lender to accept a short sale, a sale for less than is owed.
You could also consider entering a debt management program (click here for debt management information) to consolidate your credit cards into one monthly payment that you might be able to afford.
All of these things will hurt your credit and unless you can confidently make repayments in a debt management program for the next six years, then you might simply be entering a path that will lead you away from today but not out of debt. Any repayment strategy needs to fully repay the debt for you to be debt free. I know that sounds obvious but not everybody understands that.
If you launch into a debt repayment program for the next year, you’re just getting by each month, and if an unexpected event happens that causes you to stop making payments then it could be argued that you’ve just wasted a year of payments and a year you could have used for rebuilding your credit. In that case bankruptcy might have been a smarter move for you. It would give you a fresh start and allow you to start over on what you can really afford today. Of course you’ll still have to pay the child support payment, you can’t get rid of that in bankruptcy.
Frank, if you are not mentally prepared to think about bankruptcy then go into a debt management program and see if you can get some breathing room that way. But I would still suggest that you talk to a bankruptcy lawyer just to be fully informed about what bankruptcy would mean for you. Talking to a bankruptcy attorney does not mean that you are going to go bankrupt. It just means you’ll be better informed.
With your credit cards nearly maxed out they are quickly turning into ticking time bombs. As you near your limits you become a greater risk and that puts you higher on the creditor radar. These days creditors are lowering limits or closing cards to minimize their credit exposure to people who might be risky. Also, maxing out your cards also lowers your credit score. If you get to be too big of a risk your creditors could significantly increase your interest rates and that will sink you for sure.
The absolute fact is that unless you change something here, either increasing income, reducing expenses, or potentially going bankrupt, next month isn’t going to be any different than last month. You will never break free from this situation as long as you keep repeating the same thing over and expecting a different result.