“Dear Steve,
Ok, here goes. I have spent the past many years (decades) coming and going from home; being away so much I never paid much attention to the bills. Recently I changed jobs and noticed my wife stressed out, upon investigation, discovered we owe $109,000 to credit cards. We almost own (still have a mortgage for six more years) our own home, but there is no equity to speak of.
Currenlty I have a negative cash flow of $800. Should I take money out of my IRA (traditional) and use it to pay $25,000 of debt so I’m not running negative each month? I have a snowball identified, but am having dificutly getting it started becuase of the lack of extra income.
Dan”
Dear Dan,
You should absolutely not take money out of your IRA to pay off debt.
I think your situation is a classic example of my saying “There is no sense wasting a perfectly good mistake”. We can address the current situation but you’ve got to take what you’ve learned from this and not repeat it in the future.
Work as a team with your wife to mange your finances. Even get a copy of your consolidated credit report at least once a year and sit down together with it. You can review it together and see exactly where you stand. If that had been doing that, this debt would never have snuck up on you.
I think the only logical solution right now will probably be a Chapter 13 bankruptcy. A Chapter 13 will allow you to repay what you can reasonably afford and that is actually what you are trying to do. It will reduce all your interest rates to 0% on the cards and put you on a three to five year repayment plan.
Doing this is better than a credit counseling or debt management plan in your situation since you are already negative each month.
In your case you are simply using bankruptcy like a major corporation would, to reorganize your finances so you can repay what you can afford to.
Please go meet with a local bankruptcy attorney and ask for a free bankruptcy consultation to discuss your options and situation.
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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Bankruptcy can be a good option for some but it is not for everyone. It can takes years to recover from the hit it will put on your credit report.