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I’ve Got Eight Kids at Home and an Upside Down Mortgage. – Justin

By on May 6, 2010
I’ve Got Eight Kids at Home and an Upside Down Mortgage. – Justin

Justin

“Dear Steve,

I have $56K in credit card debt between my wife and I. My debt is just over $22k and hers is just over $34k. I earn around $50k a yr and she only earns about $7k a yr. We have 8 kids living at home and an upside down mortgage that we owe about $200k on w/$1300 a mo payment. My CC debt equals about $1340 a mo.

Should I look into bankruptcy or debt management?

Justin”

Dear Justin,

Personally I think you should look into both bankruptcy and debt management. I think you should look into everything possible and then, and only then, make a decision about what path is right for you.

Getting out of debt is really 10% technical but 90% emotional. It makes no sense for me to force you into any solution that isn’t going to be both appropriate for you to achieve your goal or that you are not prepared to face.

Let’s take bankruptcy for example, I don’t want you to go bankrupt if you don’t feel it is an appropriate solution for you. And at the same time I don’t want you to discount bankruptcy for fear of how you think you will feel being a bankrupt.

My advice and guidance is always based first on my memories of living through horrible debt and bankruptcy and years and years of helping people in the same situation.

Just based on what you shared with me I am skeptical that debt management is going to be a realistic way out since you only win with debt management if you dig yourself all the way out of debt and that will take 5+ years to do. With eight kids at home the chances of having some unexpected expenses that will through your budget out of wack are pretty high. If that happens it could scuttle your debt management plan and you are essentially back to square one.

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The key to your success is to understand how you got in this situation to begin with, and not repeat those actions again. Bankruptcy is a legal option for you and you should schedule a free bankruptcy consultation with a local bankruptcy attorney and go talk about what bankruptcy would mean for you.

What I am most worried about for you Justin is that with either a debt management or bankruptcy approach, your credit cards will be closed and not available to you. If those balances of yours have been used to help make ends meet, you won’t have that tool anymore and you will have to live within your income.

Keep me posted via Twitter at @GetOutOfDebtGuy on how things go for you or post updates in the comments section to this question.

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About 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.

11 Comments

  1. Justin

    April 20, 2009 at 10:06 am

    Well Steve, it looks to me like they’re both snake oil salesmen. The whole concept of there plan is the snowball effect on paying down debt and live frugal in your purchases. With that they make millions! (I don’t trust Dave Ramsey because of his close association with FOX news and he thinks the whole Tea Party stint last week was all grass roots and it’s all conspiracy to think FOX news sponsored it.) John Commuta seems like a nice guy, but like you said, it’s all built around selling his product, and little concern of people going further in debt to buy it. I’m going to try my own smowball effect on my debt for a couple of months to see if I can survive, if it’s only getting worse by June, then I’ll talk more with a Bankruptcy attorney and/or debt solution company like New Era. Talk soon Steve,
    Justin

    • Steve Rhode

      April 20, 2009 at 10:16 am

      Justin,

      I have a previous post on the debt snowball approach that I think works well to keep people motivated on moving forward. I respect your approach to try what you think you must, first. This will allow you to clarify the situation in your own mind and not look back latter and wonder if another path would have worked for you. However, all I humbly ask is that while you are trying your own debt snowball (Awesome, BTW), that you go and meet with a local bankruptcy attorney simply to get better educated about bankruptcy in your situation. Don’t go to file. Go to learn. That’s all. You’ll walk away from that free appointment either knowing it is absolutely not for you or “Hum, I didn’t know that.” Either result is a plus as it provides you with greater clarity.

      Please keep me posted. I really do care.

      Oh, and one more thing. I would really appreciate your participation in comments on other questions. I think the insight you have to offer others as you move through this yourself is enlightening.

      Steve

  2. Gerri

    April 20, 2009 at 8:53 am

    Steve is right. Unfortunately, the BBB is not objective on this issue. They believe that debt settlement is not a legitimate option, and no settlement company can achieve higher than a C rating, even if they pay a membership fee to join. If there are any kinds of complaints, and/or the company does not want to pay the BBB to be a member the rating is lower. I wrote about this on my blog (see the link above).

    I do think you must be very careful about choosing a settlement firm. In particular avoid “front loaded” models where they take most of their money up front. I prefer results-based fees that give the company an incentive to stick with you until all your debts are settled.

  3. Justin

    April 20, 2009 at 7:45 am

    Thanks Steve, that was rather informative, and New Era Debt may actually be a decent company from the amount I’ve read about it since. What are your thoughts on John Cummuta and Dave Ramsey? Are they just selling a simple common sense approach that helps people with a lot less debt then I?

  4. justin

    April 18, 2009 at 10:51 pm

    What is wrong with the BBB?

    • Steve Rhode

      April 19, 2009 at 7:19 pm

      BBB is a franchise operation, they do not have any powers of investigation, they are not a government agency, some of their practices in selling memberships through “contributions” simply blackmail businesses, each franchise makes a business pay to be a member. If you are a member of a local BBB, you are only covered for their protected territory. Higher subscription fees paid by business members allow complaints to be handled differently. Not sure about today, but in the not too distant past, a business as an entry level member could not tell the public they were a member of the BBB unless they paid a higher “contribution.”

      I would suggest that rather than the BBB, that you contact your county or state consumers affairs office.

      I admit that this link presents a volatile look at the BBB, but form first hand experience, there is merit in many of the claims.

      I invite you to research these issues for yourself and see what you find.

      Steve

  5. Justin

    April 17, 2009 at 3:25 pm

    Steve, Apparently “New Era Debt Solutions” used to be DTS and they have an “F” rating with the BBB for being a ripoff company. How do I find a trustworthy company?

    • Steve Rhode

      April 17, 2009 at 4:04 pm

      Justin,

      The same way you find a good dentist, or doctor, ask around and search. I don’t know any personally. My friend Gerri Detweiler, another consumer advocate, really trusts New Era and that’s why I mentioned them. Still, worth contacting them for a second opinion. You still need to meet with a bankruptcy attorney also.

      BTW, I don’t have much respect for the BBB. Talk about a scam. Whew!

      Steve

  6. justin

    April 16, 2009 at 10:22 pm

    Steve,
    I’ve spoken with Pacificdebt about negotiating a lower payoff settlement with the credit cards, my question is: Is this a legitimate company and does this work?

    • Steve Rhode

      April 17, 2009 at 11:10 am

      Justin,

      I don’t know anything about Pacific Debt as a debt settlement or debt negotiation company. But I did go back and read your question again and I’m still highly skeptical that any monthly payment approach is going to be successful for you. Especially when your wife owes $34,000 on a $7,000 salary.

      If you decide that debt settlement is the way you want to go, consider getting a second opinion from a company like New Era Debt Solutions. I’m impressed with their honesty about the pitfalls of debt settlement.

      I still think you need to meet with a bankruptcy attorney in your area before you make a decision about how you want to tackle this problem.

      Thanks for keeping me posted. Please continue to keep me in the loop.

      Steve

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