We have almost $200,000 in credit card debt. Although we are current on payments, we now have a health situation that may not allow us to continue making our payments. My wife and I make a good income ($220,000 per year), but we need relief – primarily interest relief from the cards. We want to get out of debt within 3-5 years.
This is actually a more delicate situation than most readers would assume.
The answer to getting you an interest break is clear, a debt management program. In a debt management program, many of the interest rates being charged will be reduced. The downside is that your credit report will take a little hit but you don’t get to have it both ways, reduced interest rates without some pain.
My bigger concern is the underlying issue that lead you to accumulate $200,000 in credit card debt to begin with. Even with your sizable income, it appears that you simply may have been living beyond your income, for whatever reason, using borrowed money.
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Here is the hard part, once you enroll in a debt management program your cards will be closed to further purchases on them. This means that not only will you have to scale back your spending to fit within your income, but even further than that to afford debt repayment. This is very hard for most people to do.
Since you won’t have cards to fall back on you will need to focus on building an emergency fund, a savings account, full of cash to use in case you need some cash unexpectedly. And you will. And you have to do this at the same time that you have to scale back your lifestyle and make the big monthly payment without unconsciously using credit cards to make ends meet.
For most people, the ability to cut way back and live within their income for five years is life altering and damn near impossible. In order to achieve these transformations it can only be accomplished with lifestyle changes. That means that whatever you were spending on will no longer be available. This can impact relationships with friends and others that you might have hung out with during these excursions on the card.
Even in a debt management program, while the interest rates can be cut, your monthly payment will remain around $4,100 for your level of debt. That is still a sizable payment.
I am concerned that if the health situation you see before you might truly impact your ability to make the $4,100 a month credit card payment that you will never get out of debt with any sort of debt repayment approach. Instead you might make a year of payments only to default when the medical issue becomes a bigger problem.