Shelly
“Dear Steve,
Thank you so much for this website and helping people like myself get out of debt. I was inspired by Mary Hunt and joined as a member on her website debtproofliving to work my way out of debt. I have over 36k of credit card debt and I am using Mary’s system to pay on this debt without using a debt program. So far so good but the interest is so high on the credit card debt. I did write my creditors to see if I could lower my rate but nothing happened, any suggestions?
Second my biggest problem is my student loan now close to $80k and has been in forbearance for several years because due to my credit card debt I can’t afford the $500 monthly payment. I hate that I am accumulating interest on these loans while in forbearance and I don’t qualify for the income plan because I make too much money.
I do have a good paying job the Lord has blessed me but I got myself into this debt and I want to try and do the right thing. I contacted direct loans but I was told it is nothing they can do for me except to keep the forberance going until I can pay the monthly payment. I did consolidate both my unsub and sub loans in a fixed rate at 5% which is good I think but again until I get my credit card debt paid off interest is increasing my loan amount.
Any suggestions with how I can work in paying off my credit card debt and working to get off of the forbearance on my student loan to avoid interest being added to the total amount of my loan soon to hit $90k all becuase of my loan in forbearance?
Shelly”
Dear Shelly,
I think I have a good idea what your initial reaction is going to be to my suggestion, but mull it over and think about it for a day or so.
Even in a credit counseling or debt management program you can’t get your interest rates to 0% anymore. So that approach is out. Besides, a debt management program is going to be about the same or higher than the minimums you are paying now.
So besides the IBR (Income Based Repayment) plan there is no way to get your student loans into an affordable program so you can repay them. Unless you do forbearance will only keep ratcheting up the balance. At this rate you owe more in total debt day-after-day than you are able to repay.
So where does that leave you, well, right where you are now and that’s not working for you.
The only way you can get all of your interest rates to 0% and/or be able to repay what you can afford based on your income, is going to be bankruptcy. Now, this is just about where I am convinced that I’ve lost you. But bear me out.
Many people think bankruptcy is for losers and cheats. That is just an urban myth that creditors want you to believe so you stay on the debt treadmill.
I’m not suggesting bankruptcy so you can walk away from your debt, not at all. If you want to repay all of your debt in full, you can, even with bankruptcy. Going bankrupt doesn’t mean you can’t repay your creditors because you feel it is the right thing to do. I’m suggesting bankruptcy because it is the only legal and binding solution you have to stop the credit card interest and let you focus on the student loan debt to stop it from climbing.
In bankruptcy you will either qualify for a complete discharge of your unsecured debt in a Chapter 7 or you will wind up in a Chapter 13 repayment plan that, guess what, is based on what you can actually afford after your student loan payment. And isn’t that the goal that you want to achieve?
Your student loans can’t be discharged in a Chapter 7 or Chapter 13 bankruptcy. And the student loan is your most troublesome debt. If you default on those loans you can have a collection penalty of up to 40% of the balance added to what you current owe, your wages can be garnished and tax returns intercepted. Basically, nothing good will happen.
Based on all the information above, your priority debt is the student loans. That’s the one that should be getting repaid first. Next, you should send what you can afford to the credit card companies, but that’s not going to make them happy. So you see, bankruptcy is the most logical approach to let you achieve your goal and prioritize your debts.
And if you don’t and you are not able to pay what you need to on the student loan then it will be $110,000 in four years years and you will just be deeper in debt.
The bankruptcy bottom line is that you can get the legal protection you need, the right priority to repay your debts, eliminate the credit card interest, and still repay your debts in full to honor your moral or religious commitments.
So what do you think. Does that approach make sense?
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