We Have No Savings, an Underwater Mortgage, and the Car Just Died

“Dear Steve,

I have $11,000 in debt, no emergency fund; home seriously underwater; car died and employer just dropped our healthcare coverage, which looks like it will add another $500 to my monthly expenses.

It looks like I need to address 3 of the aforementioned expenses immediately; how will this impact my credit score or what strategy should I do first.

Should I attempt to refinance my home under HARP; apply for a car loan through my credit union and consolidate my debt to make room for the new health insurance bill; and how would this impact my credit score with 3 hard inquiries?


Dear Help,

Rather than try to spend valuable time digging out of what has proven to already be an impossible financial situation, it is probably time to do something different.

debt hole law tadaI can’t imagine how making some small changes in these items is going to create a larger benefit that will help you moving forward.

While the Home Affordable Refinance Program (HARP) is there, if you are set to try and reduce the amount you owe on your mortgage since it is “seriously underwater” then these programs might be better suited. You can always talk to a free HUD Housing Counselor for assistance with these as well.

But these solutions will take time and it does not seem you have time on your side with the recent change in your medical insurance cost. That sounds like something that is being heaped on right now, not six months from now.

The debt is most likely the accumulation of expenses you had to put on credit because you could not afford them on your current income. The lack of an emergency fund seems to indicate you are already living month-to-month. I have no clue where you are going to come up with the money to pay for the car repairs.

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It might be time to take legal action to change your situation and do better moving forward.

It’s worth exploring to see if losing the house and other debt would put you in a better situation so you could live within your income. This would require some substantial life changes but the outcome could get you back to being able to afford your health insurance and saving again.

I’m talking about filing bankruptcy here. Bankruptcy is a legal tool to break free from an unsustainable situation so you can get a fresh financial start.

Let’s say you just look at refinancing the mortgage. You don’t only need to make room for the $500 increase in health insurance but also more room to get back to saving and have money available for surprise expenses like the car.

It sounds like you need to lower your expenses by $1,000 a month at least and I am cautious any government mortgage program is going to do that for you in a short period of time.

I’ve written a lot about bankruptcy so take some time to explore the links below. And most importantly, take some action to change your path or tomorrow will look a whole lot like yesterday.

Please post your responses and follow-up messages to me on this in the comments section below.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
Damon Day - Pro Debt Coach

Steve Rhode

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