End of The Road - Need a Strategy / Advice

iVillage Member
Registered: 03-27-2012
End of The Road - Need a Strategy / Advice
24
Tue, 03-27-2012 - 6:15pm

I'm going to try to get to the point and then go more into my larger history in case anyone is interested.

I fear I'm running out of options to prevent myself from literally running out of money due to paying all my debt payments on time. I can't assume my income is going to increase in the short-term and don't really have any significant room for further cutting of my budget. So I'm about to waive the white flag and say goodbye to my credit rating in order to save my sanity.

Bankruptcy I believe is not an option (read below) based on my conversation with a bankruptcy attorney. I realize you need to be careful choosing a credit counseling service (make sure they are highly rates, and don't charge anything more than a very small monthly fee processing fee.) I understand how the debt consolidation differs from a debt settlement service. But frankly I'm having trouble deciding which will give me the best balance between getting out from under the debt ASAP while minimizing my longer term credit hit. I won't be buying a car or a house anytime soon so my credit isn't a big issue in the short-mid term, but I also don't want my phone ringing off the hook.

After many users I finally, accidentally missed a payment on one of my business credit cards a few months ago. My phone started ringing off the hook and they raised the interest rate to 21%. BUT, they offered me a lower rate depending on how large of a balloon payment I would make. The payment was normally about $250. If I paid them $500+, they would take it down to 15% (which I did). If I paid them about $1000 they would take it to around 10%. If I paid them $1500 it went down to around 6% and if I gave them $2K they would take it to 0%!

Now I also had a credit counseling service see what kind of rate reduction I could get. Some cards there was a significant reduction (from like 14% to 6%), others there wasn't much of a reduction. If I stopped paying, I could probably get a settlement for less than I owe but I'm really not the type of person that wants to weasel out (even though the banks have made tons of me in interest.) The other thing about debt consolidation is that I won't be able to use the accounts anymore. I've only been able to stay afloat by continuing to re-use the principal I pay down each month to pay bills (so my balance doesn't go down, but, I never have a late payment and my credit is still good - at least for someone with a lot of debt but obviously I can't continue like this forever.)

So I'm trying to decide what to do.

a) Consolidate a couple of the highest interest accounts to get a lower rate and save a couple hundred bucks a month and try to limp along hoping my income will increase.
b) Purposely stop paying some or all accounts so I can negotiate directly with all my creditors and compare the rates they'll give me to that the consolidator will get. Problem is, my balances still stay high, and now I've wrecked my credit.
c) Stop paying some or all accounts (maybe the ones with the highest balance+interest) and enlist a debt settlement service to get the balance down, the payments down, and get out of debt ASAP and say good bye to my credit for 5-7 years?

The main thing I'm worried about is legal hassles involving the banks putting liens on my house. If all I have left is the $200K equity in my house, as long as I don't sell, can I do debt settlement and wait until everything is paid off to sell my house so they can't touch the equity, or are they smart enough to find out I have that much equity and not negotiate?

My background:

Self employed freelancer running two businesses (one service one product sales related). Variable monthly income. Made good money and like most spent most of what I earned. Starting 5 years ago income started to decline, spending didn't. Was literally banking that income would recover and then late 2008 WHAMO (along with many others.) Smart and resourceful so thought I could weather the storm (guess not that smart for ending up in this situation.)
Got about 5 cards with total $120K debt. One business card with $50K on it. Talked to a few credit counselors a year ago and met with bankruptcy attorney. Can't file for bankruptcy because I have about $200K+ equity in my home $600K home (use to be worth $900K in 2007) (yes one of the few homeowners under 45 years-old that has equity - only silver lining in all this) Selling my home is very very very last resort as there's a least a hundred hours or work and/or $20K+ in maintenance and repairs that needs to be done to get it in what I would consider 'good selling condition'. A distress sale would not be wise.

Got two kids (10 and 12), my own business, a 4,500 sq foot 5-bedroom house ( not my choice to live here) to maintain and I'm so stressed I can understand why some people choose to end their life (not there yet and don't plan to be.) Totally cut back in spending to virtually bare essentials with exception of maybe a conveyor-belt sushi dinner or pair of Nike's for my son for his birthday. Wife is working 0.8 for school district bringing in $45K and I'm bringing in about $65K (about half what I used to) We need to gross about $9-10K+ just to stay afloat break even each month with a large portion of that being credit card payments and morgage. Don't have the income to get any more equity out of the house.
Owned outright both my cars, sold one car for $20K and financed a different used car in order to raise cash two years ago. That has helped make up monthly shortfalls but has run out (and frankly probably just made it easier to downplay the severity of my situation.) Running out of assets to sell. Liquidated what little we had in 401Ks long time ago. Exhausted from the stress of watching my account balance swing lower and lower.

** Have been late only once or twice on a credit card payment (well maybe late on one or two) in probably avg 5 accts X 12 months x 15+ years = 900 payments over 15 years (probably much longer). Never missed or been late on a mortgage payment.

The interest is killing me and there is no light at the end of the tunnel as far as income bouncing back (at least not in the next 2-3 months.) Have done barter service trade with a $160/hr Career/Life Goal/Interview Strategist. Got lots of good skills/strategies for re-igniting my career (whether it be stay freelance or go back to corporate grind.) I'm just too expended trying to use every hour I'm awake to make money to pay the bills, take care of kids, and maintain my house let alone job search. I'm not unemployed! I'm actually slammed for short periods!

The stress is not worth it anymore as I fear my marriage and eventually my physical health is going to pay too high of a price to try to grind through this. I need a strategy to get some relief so I can "reset my life" This is in part why bankruptcy exists but like I said with $200K of inacessible equity in my house and the fact I'd virtually prefer to die than move (well maybe not that bad but there are other details I won't go into causing the house sale to be only a very very very last resort.)

Please spare me on the criticism. Although I've made some bad choices to get here I know what they were and how to avoid them in the future. I just need to move forward. I'll tell you one thing, it sure has made me see/view the consumerism in the country in a new light (which I got caught up in about like everyone else I know in this mid-upper class suberb I live in.)

There's a lot of underlying stuff I haven't gone into and anyone in a similar situation can probably understand some of those things but I've already written a novel here.

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iVillage Member
Registered: 12-31-2010
Tue, 03-27-2012 - 7:55pm
Ok, deep breath - it is only debt!! You and your family are the most important things here.
Been there - we started with $115k of CC debt and have only $12k left now, so I do understand.

First is to take care of your 4 walls first, food, medical, home and transportation you need to work.

After that, you see that you can negotiate with creditors if you choose to stop paying. Personally I have helped a lot of people actually settle with accounts for cents on the dollar. You do not need a credit company to do this, you can do it cheaper on your own.
What if you stopped paying any credit cards you could not afford, hey you can only do what you can do, then dealt with the phone calls, (or switched the numbers on them all to a pay as you go phone number you get just for this reason) then got any money you could together and offered them a settlement one card at a time?
I have helped about a dozen families and the CC companies take as little as 25% of the balance and call it settled.
Let me tell you, they got a lot less from many who defaulted, or who filed full bankruptcy.
You can do this very strategically over a couple years and get yourself into a much better position.
Also, if you settle, it will show as a settlement and your credit score will barely be affected and as little as 3-5 years it could be in awesome shape.
Oh, and you don't need all that credit, you will do better not paying as much interest anyway.
A couple books I like are the Total Money Makeover by Dave Ramsey and Suzie Ormans books.

Remember, you are important to your kids and family, you will get through this!
-Marie
#Marie
iVillage Member
Registered: 07-24-2001
Tue, 03-27-2012 - 8:16pm

I'm by no means any type of financial expert, but I have been submerging myself in financial advice lately trying to get myself out of debt . . .

iVillage Member
Registered: 03-27-2012
Tue, 03-27-2012 - 8:25pm

Thanks for the input! To be honest, I think there's some psychological issues here at play that are making this more difficult for me. First, I've always been successful at what I do and considered a 'smart' guy. While this isn't 100% my fault as I am where I am due to a combination of things happening at bad times (Great Recession and dealing with loss of a close relative just before that) I'm an "A" Personality time. Oldest sibling. Straight-A Student. This has been a huge blow to my self confidence. I think it has hampered my ability to "bounce back" as it has introduced real doubt into my strategic decision making abilities. Nightmares and sleepless nights wondering as my children get older if they will be embarrassed of their now poor Dad. Fear of what my father-in-law will think should who know the position we're in. Etc. Etc. I'm sure there are people reading this that have been in far worse situations rolling their eyes.

iVillage Member
Registered: 03-15-2012
Tue, 03-27-2012 - 9:04pm

No judgements from me.

iVillage Member
Registered: 03-15-2012
Tue, 03-27-2012 - 9:11pm

Just had another thought.

Talk to a realtor and get thier opinion on selling your home.

iVillage Member
Registered: 01-12-2008
Tue, 03-27-2012 - 9:57pm
I don't think that any expert can give you the answers you are looking for. Heck, I believe it depends on the banks moods day to day how they are going to react to someone doing one thing.

One thing I will suggest, and look at everything, sale what sale. If your car is worth 20K sale it, and get a 1K care to get back and forth to work. Try to do whatever you can to bring in the extra income.

I would look into Dave Ramseys total Money Makeover. He has saved us. Funny I figured it out the other day, in the 7.5 years DH and I have been married we have paid off over 70K in debt. Mind you he is a soldier in the US Army, not the greatest pay check. But anyway....

Get a efund of 1K, if you have more than that, take that out and put it towards your smallest debt.

List your debts smallest to largest, and pay minimums to all, if you can pay all put a red line under that one, and worry about it later. Anything extra you get each month pay towards your smallest. When the CC call about not getting paid, tell them your below the red line, sorry. And leave it at that, eventually you will be able to start to pay them. Once you have that first bill paid off put that money on the next. Called snowball method.

You need to remember you are NOT your debt, your are NOT your possessions. You are you. I think you will find that your kiddos would rather have a non stressed dad than one who is worried about being poor, your kids will love you one way or another! And I hate to say it, its just money, it doesn't make the world go round, or the sun come up in the morning. It may or may not buy you a morning coffee, but life isn't about coffee.

And after all the that, some ((( HUGS )))
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iVillage Member
Registered: 12-31-2010
Wed, 03-28-2012 - 10:31am
Bumbling -
PLEASE watch advising people to take out money from their home, retirement funds or cash from life insurance policies. All these can be protected in bankruptcy, meaning that the court sees them as essential and will not make you give them up to pay unsecured debts.
For instance you might be able to settle a delinquent credit card, but you might loose your home if you move credit cards to a home equity loan and later cannot pay that.
It seems like a good idea to move money this way, but if you end up gong into bankruptcy these things are protected, so why choose to use them if that is the eventual end anyway?
I do agree with second jobs, cutting expenses drastically and taking a hard look at your life and goals.
I also totally agree with getting advice from some attorneys and non-profit credit counselors, but using that advice to do it yourself if you can.
#Marie
iVillage Member
Registered: 12-31-2010
Wed, 03-28-2012 - 10:34am
I can't share a lot on the board due to the fact I don't want to name banks, etc. But if you email me at marketingvirgo at yahoo dot com I can give you some facts on what I have seen.
#Marie
iVillage Member
Registered: 03-27-2012
Wed, 03-28-2012 - 11:33am

Well, according to economists, at least in THIS country, money/spending DOES make the world go round. LOL.

iVillage Member
Registered: 10-01-2008
Wed, 03-28-2012 - 1:30pm

I do not have any professional advise to offer.

Norma


"Patience is the best remedy for every trouble"- Plautus


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