“Dear Steve,
Me and my wife both have good jobs. We also both have good credit. We are not behind on anything nor have we ever been late on anything. A couple years ago we consolidated $42,000 dollars worth of credit card debt. Then about a year ago we consolidated about $27,000 dollars worth of credit card debt. Well guess what? we now have another $35,000 dollars worth of credit card debt.
Some of the consolidation loan has been paid down so we have about $85,000 dollars worth of unsecured debt. We also have a mortgage, a second mortgage, 2 car payments, and a small student loan. As you probably can see we have been using credit cards to live beyond our means. We both want to stop and turn our situation around but don’t know how. We may be able to make the minimum payments on everything but I don’t know. We hve started getting rid of things that are not necessary but it may be to little to late.
Should we contact consumer credit counseling?
Steve”
Dear Steve,
It certainly can come as no surprise that people that have previously taken out debt consolidation loans secured by their homes are more likely to wind up in bankruptcy if they run the debt back up again.
You obviously recognize that you have been living beyond your means in a fools paradise by believing that once the credit card debt had been moved to a mortgage that the cards were primed and ready to run up again.
So here we are. What are we going to do now?
Let’s say you have lived 30% above your means. Now that you want to payback those financial obligations you are going to have to find a way to live 30% below your means so you can use that extra money to pay towards your debt. That’s not a 30% reduction in your lifestyle, it is a 60% reduction. And the pain gets deeper than that. Those cost cutting reductions that you will make might leave you just able to pay the bare minimums as far as mortgage payments, utilities, food, etc.
It is unreasonable to expect you to be able to live like that for the six or seven years that a credit counseling program might take. And don’t forget that at the same time you are paying off your debt, you’ll also have to be sure to save money in a savings account. Something that you may not have been doing before. You’ll need emergency cash in case something breaks or needs fixing since you won’t be able to turn to the plastic again.
Just based on my experience I think is is highly unlikely that you will be able to make such deep reductions in your budget, be able to afford to pay a credit counseling agency and sustain that for the amount of time it will take you to pay off all this debt.
I honestly think you should work to uncover what your true budget is using something like Mvelopes; contact a credit counseling agency to find out what they would be able to offer you in the way of a monthly debt management payment; and, I strongly think you should meet with a local bankruptcy attorney to review your situation.
If you do all three of those things, within a month you’ll know which solution will be best for your situation.
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