Adam
“Dear Steve,
We’re currently have about $85,000 in unsecured debt. Also have two school tuitions. Right now, we both have 700+ credit scores and are current.
We are considering 4 options. 1) Debt Management Progam – the problem is the payments are higher than our budget allows. 2) Debt Settlement – I’ve read all about it and still don’t know what to think 3) Taking out a large, unsecured loan that has payments we can afford right now, but will take 7 years to pay off. 4) Bankruptcy – Afraid of the long-term ramifications. What’s your opinion?
Adam”
Dear Adam,
Hum, good question.
No solution is perfect. Let me run through them in order.
Debt Management
By your own admission the monthly payments are more than you can afford. This will fail at some point along the way then. Chances are a payment will be missed and the whole plan will crumble like a house of cards. Not a reasonable solution.
Debt Settlement
This is pretty much a scam or very scamish. I doubt you’ve got $50,000 laying around to settle so you’d either need to make monthly payments into a settlement fund or borrow the money to settle. If you are making monthly payments into a settlement fund or escrow account your credit will go straight down the tubes and you risk being sued by your creditors. You won’t be able to afford to pay creditors and save money to settle.
Taking Out a Loan
This is a potential good option if all of your creditors agree to settlements. Not all creditors do. In order to find out what the creditors will settle for, if at all, you’d have to get at least 90 days behind on your payments to get the best settlement offers. At that point your credit would be shot and getting the loan would be impossible.
If you borrowed $85K to payoff the unsecured debt then you will most likely have a new loan secured against the house. If you are unable to make those new loan payments you will most likely get foreclosed on and evicted. It is a big risk.
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Bankruptcy
This might be an option if you are either willing to take the kids out of private school or the bankruptcy lawyer feels that the tuition you are paying is not excessive and would be allowed in a bankruptcy plan. You really need to discuss your case face-to-face with a local bankruptcy lawyer to find out what might happen in a bankruptcy.
So, understanding the above basic information, which approach sounds most reasonable at this particular moment and why?
Have you been staying current on your bills by increasing the balances on your cards or using savings to stay current?
So what do you recommend for my situation?
Adam,
Before I recommend any solution you need to first find a local bankruptcy attorney, make an appointment and go in and talk to the attorney about your situation. You are not going to file, but to learn about what bankruptcy would offer you in your situation. Once you do that, give me an update and we’ll work through the final options.
Agree?
Steve
I’m leaning toward the unsecured loan. There’s a company called America One Unsecured. You pay them $300 to find a loan for you. We wouldn’t hurt our credit at all this way. The only problems: It will take 7 years to get out of debt and I’m not sure whether to trust the company.
We have been staying current on our bills. At one point, when my wife didn’t have a job, we had to use credit to pay our mortgage. We really don’t want to take our children out of the school they are in. We realize this is part of our financial problem.
Adam,
Sounds to me like an up-front loan fee scam. This typically works by the intermediary charging a fee to help ‘find a loan’. The loans typically never materialize or the terms of the loans change at the last minute. Even more suspicious would be if this company is promising you an unsecured loan for this amount.
Up-front loans are illegal in most locations.
You sound like you are a smart guy that is in a situation that leaves you either gullible or desperate. The AmericaOneUnsecured approach is a mistake and dubious at best.
Don’t screw around with a subprime lender. If you are going to go with a loan, contact a local mortgage broker. Any legit consolidation loan is either going to be secured by the house or through something like LendingClub.com/ But even LendingClub has a loan limit of $20,000.
Steve