Don't know what to do, help?

[somebodyelse]

I'm not sure if this is even in the correct area of the board.

 

The story is that we (my husband and I) are in deep, deep debt. For almost a year we owned 2 houses in 2 cities. We ended up selling our old home for MUCH less than we expected to, in fact we had to bring $20K to close. Besides that, we spent a ton on credit that year to cover our living expenses, when most of our income was going to both mortgages and utilities. Add to that, that we had planned/hoped to MAKE $40K with the sale of our first house, with which we planned to pay off our earlier debt. In 2009 we cashed in my husband's 401K to pay off some debt (if we hadn't, we would not have been able to make minimum payments). Of course, b/c of that, we are now going to owe a lot of federal taxes this year.

 

On the plus side, my husband makes a good living (crossing fingers that nothing will change with that).

 

I guess the hard facts are...

 

-Husband makes $145K/year

 

-I stay at home with our 4 young kids and make 0

 

-I think our current cc debt is $80-90K

 

-I expect to owe about $14K in federal taxes for 2009

 

-I also have student loans (husband's were just paid off, except a small $50/month one).

 

The stress of all of this on me is huge. Husband prefers not to think about it at all, but when he does he gets very very stressed about it too.

 

He and I both worry that a bankruptcy or consumer credit counseling would be bad for his career (he is an attorney).

 

I will also say that in the past 18 months or so, we have been very diligent about not adding to our debt. The trouble is that we still are mostly only making minimum payments. With paying off my car last month and his student loans the month before, we should have about $1,000 extra/month to put towards debt. But, with the tax bill looming, it looks like that extra $1K will be going to taxes for the next 14 months or so.

 

Oh, I'll also say that we would LOVE to sell our home and downsize, but our house would probably sell for about $100,000 less now than it did when we bought it 3 years ago ($300k then).

 

Are there any clear ideas of what we should do? Find a credit counseling company? File for bankruptcy? Live as frugally as possible and plug away at it for as long as it takes (I guess this is where we are leaning).

[byronm]

My 2 cents

 

1. Don't Panic

2. Hire a professional to do your taxes. There may be hardship reduction in 401k penalties and or discounts you can write off for losses on the sale of your second home, so on and so forth.

3. Don't go for bankruptcy, you would be forced into Chapter 13 which just appoints a court to pay down your debt in 5 years or less. I would save bankruptcy for a dire time. Bankruptcy won't easily absolve you of taxes nor student loan debts - i believe you have to be delinquent by 2-3 years and prove it wasn't a fraudulent delinquency (which is hard if you're still employed and making a decent salary) to get taxes discharged.

 

For me, the best thing i did was come up with a plan. We had to cut back our expenses. I've gotten rid of cable tv, canceled magazine subscriptions, cut back on family trips, sold my motorcycle, sold a car and learned to grocery shop and get enough bulk to support our family with a 2 times a month trip. (Cutting back on gas helped as well) All those little things that seemed like 15, 40, 25, 30 dollars you didn't think twice added up to thousands of dollars at the end of the year. Don't make life miserable for yourself, but look at options. Cancel the 120/month cable bill and get a 14.95/month netflix subscription. That kind of thing.

 

Beyond that, don't just reduce your debt, destroy it. Learn to live without credit cards and don't be afraid to close them. If you can commit to accepting to reduce your credit lines, then call up your credit card companies and ask for hardship programs. They will usually give you at least a 12 month reduced payment or low APR to help you get ahead. Chase reduce my payment by 100% and reduced my APR from their ratejacked 29.9 to 8%. Citi reduced my APR to 5%. Of course i had to close the cards, but it was a no brainer. I got a fixed monthly payment, schedule and one less worry to worry about.

 

Hope that helps. I guess my point is to not do anything drastic. Bankruptcy for an attorney would look a bit fishy but its up to you to decide how it would impact your life. Do the small things first. Get a grip on your true financial situation.

 

I'd recommend something like mint.com as well if you're not already using quicken or something similar. THe learning curve is a bit tricky at times for these programs but they really help you get ahead of your money.

 

Good luck!

[uniteddebtsettlement]

credit counseling, bankruptcy, and debt settlement are your 3 options. There are pro's and cons to every program, its just a matter of deciding whats best for you and your situation.

 

By reading your post, it sounds like something definately needs to be done because you can't keep doing what you are doing. As the poster above already stated, bankruptcy probably isn't the best option because your husband's earnings are too high. You most likely will only qualify for a chapter 13, in which case you have to pay back a portion of your debt anyways.

 

That leaves debt settlement or consumer credit counseling. Both programs affect your credit, but they both will get you out of debt. Debt settlement is a bit more aggressive and will get you out of debt quicker, while CCS will take a bit longer and your payments will be higher.

 

I wish you the best of luck!

Edited March 11, 2010 by uniteddebtsettlement

[byronm]

I'd avoid "Settlement" services. None of them offer any form of legal protection and i'm sure the last thing your husband would want would be defending himself in the court of law against lawsuits or judgments against him for collections. Not only that, but these companies will collect their fees before they do any settlements with any partners and if you're willing to take the risk to settle, do it yourself.

 

 

Absolutely nothing wrong with credit counseling. I would get a CPA to do your taxes and help you balance your books. I would advice against settlement services at all cost and I wouldn't look into a Debt Management Program right now since you can save those 6-700/year fees and do it yourself - credit card companies are being very helpful right now. They're in a tight spot as well

 

I was going to use DMP because the notion of having someone else help make sure i stay on top of my credit sounded good, but after realizing over 5 years it would cost over 3,000 bucks and the APR's they could negotiate were higher than the ones I could negotiation i just did it myself. Opened a new checking account, setup all the drafts to that checking account and setup an auto-deposit from my payroll to that checking to cover it and it will be on "auto-run" - thus freeing us from cat & mouse payment due dates and such and also working on getting us out of debt fast.

 

Debt settlement with your hubby as a lawyer and the amount of salary you have as well as property you own would be a lawsuit magnet.