Need of Help

[JPB]

Hi. I'm not quite sure where to begin -- with the exception of, "I need Help!" -- so, here goes.

I went back to finish my degree two years ago, when I was 28. I had a couple of thousand in credit card debt, but nothing I was seriously worried about. When going back to school, I worked a couple of part-time jobs, but wound up relying on credit cards to make my monthly obligations. After I finished, it took me almost nine months to find a full-time job (I was still working the part time jobs -- and when I say two part-time jobs, I mean I was working two jobs for a total of about 50 hours a week plus school). To take that job, I relocated to a new city. I still rent an apartment, and sold my car in the process (have no plans in the near or far future to replace it).

I currently work a 40-hour full time job and work about 25 hours a week at a part-time job at a local bookstore. I've got probably about $25k in credit card debt, and pay $1000 or so a month on those credit cards making, big surprise, very little of a dent in my balance. Before taxes, I make about $45,000 a year (but the money I make from my part-time job tends to vary: as we go into the Christmas season, I'm working more, and expect to find a loss of hours as the new year comes around).

I'm contemplating bankruptcy. I'm not at all familiar with bankruptcy law, except that it's gotten tougher to do. A friend suggested it as an option (truthfully, I thought it was no longer possible to do so), and it hadn't occurred to me an option before. I don't know that I qualify, and I don't know that it's the right option for me. Preferably, I'd like to be able to sit down with my credit card companies and work out some sort of payment plan that might enable me to pay off my balance without worrying about the accruing interest.

Any guidance would be greatly appreciated. Thank you.

[Hedwig]

First of all, before you do anything else, start a spreadsheet with all of your debts. Include the balance, interest rate, and monthly payment. Sort it by interest rate.

The account with the highest interest rate is your "target," meaning you want it paid off first. Pay only the minimum on all other accouts. Every spare penny you get goes to the target account. When it's paid off, then add what you've been paying on the target to the minimum you've been paying on the next highest interest. This is your new target and gets all the extra money. As one is paid off, add everything to the next one. You'll be surprised, once the first one is paid, how quickly it will go.

You'll see your overall balance decrease as you update. I did it monthly--and check the interest rates each month. If the card that is the target lowers the rate, or some other card raises them, you change the target. In other words, every month all of your extra money goes to the one with the highest rate that month, and the others get the minimum.

It sounds like you're already doing what you can to save money. You don't have a car. Take your lunch instead of eating out. Cancel the cable. Cancel the newspaper and magazines--read them at the library or online.

As your credit improves, you may get offers for balance transfers to lower rates. Look at them carefully. See what the fees are, if any, and factor that into the cost. If it makes sense, transfer balances to that card (it needs to be paid off and not used for anything else, as all payments will go to the lower-rate balance). That card, of course, then goes into the minimum payment lot and you will be paying a lower rate there and paying more on the higher rate.

I had over $77K in unsecured debt and have either paid off or transferred to low balances all of it, no bankruptcy.

If you call the creditors, explain your situation, and tell them you really don't want to consider bankruptcy (don't say you're going to file), at least one or two may give you lower interest for a while. If they do and you follow my plan, you will dig out. It won't be overnight, but you won't have the bankruptcy on your record, either.

A bankruptcy can follow you forever in certain cases, like mortgages over (I think) $150K and salary over some level that's not incredible high (I think $75 or 100K, but I'm too lazy to look it up right now).

[NightStar]

If you can try to pay off all of the accounts.

You need to call all of the creditors to see if you can negotiate lower interest rate - maybe some kind of hardship - where they lower it for a period of time.

Ask them if you are qualified to a reduced interest rate after a given time. There are new laws which went into affect the end of February. Also ask if you close the account if you can opt out of the higher interest rate. Usually you have to catch it immediately to do this, but it is worth a try to ask. Closed accounts look negative on the credit report when they still have a balance but if it saves you money you might want to do that. It will eventually rebound once the balance is gone.

If you file bankruptcy - Federal Student Loans are not dis chargeable through bankruptcy. You will still be required to pay these loans off. One idea is if you can, transfer the student loans to unsecured cards that way if you default there is a statute of limitations on the cards where there is not on the student loans.

Bankruptcy can last on the credit report for 7 to 10 years, but they are always on record with the court house if some creditor decides to check that way. Some lenders will not grant new credit if you have a bankruptcy - American Express is one for example.

If you are maxed out on the balances to the credit limits, you might be trapped in a corner and not be able to get good interest rate offers on new cards, or be able to balance transfer to zero percent cards. Right now with the financial situation banks are just not showing the love to extend credit to the sub-prime group.

If you want to research the bankruptcy option, just post back what state you are from, and I will post back the official state web site for you to research.

[Hedwig]

The post is over a year old. I doubt that the poster will ever be back.

[NightStar]

Yeah, sometimes I get excited and forget to look at dates on posts. Anyway if someone else takes a look it will be here.

Thanks, Pammila