“Dear Steve,
Thank you for your site. I’m at a precipice and need your help.
I am employed making $130,000 a year with $76,000 in debt, with mortgage and school tuition monthly payments of $3200 a month not including utilities, car/home maintenance etc. My husband has been laid off since May and with the credit card rate increases it is harder and harder to make my payments. I’m barely making them and I’m a month or two away from really not being able to pay someone what I owe — with the rate increases I fear I may drown altogether.
In an effort to reduce my rates with Chase I was referred to MMI. I see on your site a lot of discussion regarding bankruptcy vs. a Debt Management Plan and I’m really not sure what would be best for my situation. I spoke with MMI and they can get my monthly debt payments down to $1,200 with interest rates drastically reduced (from 29.9% to the max of 7% one is even 0%) which seems so much more reasonable that I actually could take responsibility for my actions. What are your thoughts?
Also, if going with a DMP, do you recommend trying to double the first month of payments to avoid possible cross over issues and credit dings? Or are dings inevitable when going this route? My credit rating was around 700 last I checked. I’m not sure how much I should be worrying about my rating given I’m on the verge of not being able to many of the cards.
I value your opinion.
Regards,
Jennicka”
Dear Jennicka,
Thanks for the trust and asking me for advice.
Money Management International, MMI, is a fine credit counseling company. They can handle a debt management plan as good or better than a lot of people. But that’s not really the issue here.
As I see it the underlying issue we need to focus on is if a debt management plan is a reasonable risk for you at all right now.
First, no matter what you do, debt management or some other solution, it will impact your credit. While it is true that some credit counseling groups say that a DMP will not hurt your credit, that is partially true. While it might not be noted on your credit report that you are in a DMP, the accounts you include in the DMP will be closed by the creditors and that will impact your score.
If you feel you could make the $1,200 monthly DMP payments for the next five years or so, then it might be worth pursuing. However, if those $1,200 payments don’t leave you room to save money each month and to build up an emergency fund since you can’t fall back on the cards since they will be closed, it might not be right for you.
A debt management plan works when you can make ALL the payments and repay ALL your debt. If you fall short and are only able to make 60% of the payments then you are still stuck in debt.
If I could assign you some homework it would be for you to first find a local bankruptcy attorney to make a free appointment with for a bankruptcy consultation. I want you to go in and discuss your situation with them so you can get a second opinion and be as informed as possible so you can make the most educated decision possible.
After you meet with the bankruptcy attorney you can then decide if bankruptcy offers you additional benefits and options or if you are willing to be you’ll be able to make the payment for the next five years.
Does that seem like a reasonable request and homework for you?
Please update me on your progress by
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