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I’ve Never Been Late But I Can’t Afford the Minimum Payments. – Ted


“Dear Steve,

I owe about $50,000 on credit cards I am current and have never been late on a payment. I make the minimum payment that is all I can afford. I need some breathing room and I could pay more on each card. But there is no breathing room. I have looked into debt settlement but I have read that I could be sued and legal action could be taken against me. I have checked into debt management but that will cost me more than I pay now.

What is your suggestion for my situation? Is debt settlement safe? Or would it be better to consolidate?




Dear Ted,

I’m glad to see you did some research on your options. One of the big drawbacks of debt settlement, when you have to save up the money to settle your debts, is that during that period you are not paying your creditors, you can get sued, and you will most likely lose. The way debt settlement companies work when you don’t have the funds on hand to send agreed upon lump sum payments right now is to collect your monthly payments and accumulate them. Once they have enough money to settle a debt, they present an offer to the creditor.

I like lump-sum debt settlement when you have the cash on hand and want to avoid bankruptcy. The monthly payment debt settlement plans don’t thrill me that much.

If your monthly payments due don’t include an amount past due then going into a debt management program is probably not going to reduce your payment much, and in some cases it will actually go up. The 50% payment reductions promised by debt management companies work like this. If you are a month behind on a credit card and your monthly minimum is $100, then you owe $200. When you enroll into the debt management program the company can get you back on a payment plan on your regular monthly minimum. So you go from owing $200 to owing $100 each month. This is the 50% payment reduction they claim.

You are actually in the worst position. None of the solutions are a real good fit for you so you’ll have to weigh the risks and consequences. This is why some people elect for the “surprise bankruptcy”. They appear to be current on their bills, never delinquent, and BAM, they go bankrupt.

This happens because a credit counseling or debt management program doesn’t give them much, if any, monthly payment relief. They don’t have cash laying around to settle debts, and they don’t want to face debt settlement lawsuits. So for some, bankruptcy becomes an acceptable solution.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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