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It’s Just a Matter of Time Before I Have to Look at Debt Settlement or Bankruptcy. – Laura

“Dear Steve,

Hi, I am drowning in debt from student loans and credit cards. I have a steady job, but it’s just a matter of time before I’m going to have to look at debt settlement or bankruptcy. So far I’ve paid all bills on time, but LOTS of debt.

My 5 year ARM is up end of 2009. Would it be smart to try and refinance before I try some type of debt relief program or bankruptcy. OR is the amount of debt owed worse when trying to find a good interest rate when refinancing? Which type of debt relief program do you recommend?

Thank you!!!!!!


Dear Laura,

Being current on your bills is good, but you credit score can still be damaged by it if the amount of debt you are carrying is excessive. Also, if the amount of debt is high relative to the credit limits on the credit card, that can hurt your credit score as well.

People frequently think that they preserve their credit report or credit score simply by just making the minimum payment. In turn they wind up using credit cards to get by or taking cash advances to make the minimum payments.

I am concerned about your ARM coming due at the end of 2009. Depending on what kind of ARM mortgage you’ve got you could be in for quite a punch in the gut when it resets. Many people that took out ARM mortgages over the past few years are going to be in for a big shock when they do adjust this year.

But I think that all of these things are fairly hypothetical and when it comes to your situation we need to deal with the facts.

You need to look at your current mortgage and see what the terms of the deal are. If the mortgage will reset down to an indexed interest rate that is lower now, your mortgage payment could go down. That would be a good thing.

I think you should get a copy of the same consolidated credit report I use and see what your credit report and credit score are really saying about you. If you order the credit score when you get your consolidated credit report then it will tell you specifically what you need to do to bring up your score.

There are some good mortgage refinance offers available right now for people with good credit. But knowing what your credit report and credit score look like before you apply is going to be very important. If you invest the time to follow the advice on your consolidated credit report you’ll get a better credit score, a lower interest rate if you refinance and a better chance of getting a new mortgage.

Depending on the final details of the Homeowner Affordability and Stability Plan (HASP) recently announced, there may be some opportunities for you to refinance there.

The bottom line however is that if you are just making it month-to-month now, you may have bigger debt problems brewing than just an adjustable rate mortgage that is going to adjust.

You may simply be overextended today if your debt levels have been growing and taking up more of your disposable income. In that case, a debt management program is probably not going to give you the type of relief that you need. It would be a wise idea to first talk to a local bankruptcy attorney or click here for a free bankruptcy consultation.


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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About the author

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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